Remember that law that President Obama signed last May to shields credit card “users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits“? Guess what? It’s not working out as planned.
During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.
You see, credit “companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped.” Kind of what always happens when private companies prepare to shield themselves from federal laws designed to “protect” consumers from market forces.
No, the world wouldn’t be perfect if the government got out of the way, but, well, when it does try to help, it only ends up making things worse, much worse.
much much worse? how exactly? because credit will be more costly for subprime borrowers, forcing them to live more within their means and less likely to default? you assume that this isn’t an efficient outcome, which i don’t think is clear from the article.
Yup.. and people like my partner and I will pay more. We use our credit card for all household purchases and pay it off monthly. We collect the travel points. Now, most likely we will have an annual and the rewards program will be limited. Also, there is nothing to stop the companies from increasing the transaction fees to merchants (passed onto me as a consumer).
This administration is the administration of Unintended Consequences. Their lack of knowledge of how our economic systems are linked is astounding.
Tnns,
I understand, paying off two cards now, but I normally do the same as you. With the roommate off work, looks like I’ll have to cancel cards to avoid fees.
Saying “unintended consequences” is like saying, “stupid consequences”. Because the consequences, while unintended, were foreseeable.
As I said in the other thread yesterday, government is force. All it can really do in these situations is threaten people/companies with seizure of their life, liberty and property. It picks a set of companies or people to threaten, and tells them when the threat begins. That’s what the laws are. The people or companies respond accordingly.
In a free market, transactions are supposed to be voluntary for both parties. Credit card companies know what they must charge, to survive. If the credit card company can’t or won’t operate under lower fees, it charges higher fees. If consumers don’t like it, they take their balances to another company, invoke a payment plan or bankruptcy, avoid buying on credit to begin with, etc. The supplier (of credit in this case) and consumer both deal with each other by voluntary consent. Neither is the other’s slave.
Then government came along and said “We know best. You suppliers have to do it this other way from now on.” Suppliers quite naturally said “OK, the only way we can stay in business under such conditions is if we…”
My prediction: Next we’ll see Democrats proposing to freeze the fees and rates that companies can charge. Resulting in some of companies giving up, and the rest becoming that much more expensive and difficult to work with. Unintended? Maybe. But foreseeable.
I’m not surprised that the sleazeballs that run the banks have taken advantage of this situation. And I might add that they were dong these things before this law was passed.
They take our bailout dollars and pay themselves bonuses amounting to more than most people will make in a lifetime. They charge exorbitant fees and never miss a chance to screw the customer. And for savers, you’re lucky to see interest above one percent. Why should the bank pay savings interest when they can borrow from the Fed (us) at zero percent (to lend out at 30 percent).
I’ve received several collection calls (not for me – for someone who must’ve had my cell phone number a couple of years ago). It was a recording that told me to hang up if I was not so-and-so. I finally got tired of the calls and stayed on the line until I finally got a person on the other end.
The person on the other end was in Mumbai or Bangalore (accent and time-delay told me they weren’t here). I couldn’t help but wonder if the person with the bad debt was behind after being laid off from a bank or one of their victims.
The banks fueled the credit bubble that drove the consumption bubble. The best ‘n’ brightest failed to see what anyone with a modicum of common sense could see: you can’t keep saying “charge it” forever. (Actually, they did see it coming but as long as their fees and commissions kept rolling in…)
Actually, SCR, a lot of banks did not want bailout dollars – either refusing them, or paying them back as quickly as possible.
It was wrong that the bailout dollars were ever pushed/offered to anyone in the first place. Your ire should be directed at the people, institutions and ideas which led to the bailouts – starting with Bush, Obama, Paulson, Bernanke.
If that were true, they couldn’t exist. See my comment #4. Of course, to the extent that the government continues/increases its interference in the market, it will become somewhat more true: that is, a foreseeable consequence of government interference is that market participants become more dysfunctional.
Again: Blame the Fed.
Actually, it was just one very very important bank that did that, by offering money at 1% rates to the other banks. That very important bank being the Federal Reserve.
(I mean, just think about it. The real estate and consumption bubbles could not possibly have happened under a regime of low M2 growth and 5-7% federal interest rates.)
ILC – I am actually a capitalist… it’s crony capitalism that lights my fire.
The illusion of prosperity was created in large part by the Fed’s easy money policy.
My ire at the banks (and a fair amount of the “private” sector) is the increasing socialization of risk while the profits remain privatized.
As far as #4, it seems that there is less and less true competition in banking as smaller banks are swallowed up by the majors.
And trying to shop for better interest rates can wind up costing you as inquiries will affect your FICO which can trigger rate increases even if you don’t accept any new credit.
Same here. I call it “corporate socialism”. (“Fascism” will also do.)
But government, and the “progressives” who believe in its growth, are at the root of the problem. A lot of what business people do (in terms of crony capitalism) is self-defense. In the case of the bailouts, the government twisted certain banks’ arms to force them to take the money. (While certain other banks took it gladly.) We need separation of economics and State, or of business and State, for the same reasons we separate Church and State.
How do we get the Manchild Candidate and the congressional liberals to do the same?
Glad I went broke several years ago, and canceled all my cards. If i was still trying to pay those off, the new fees, and what would be rough. I finally got everything paid off (the cards before the stupid “bailout” the others were one personal loan, and several medical bills) and am finally looking to buy a house. But even with the situation “fixed” I refuse to get any cards. I use my debit as a “credit” instead, and, if I don’t have the money, I don’t buy things (what a concept!). The planned house is the only thing I will finance. I’ll pay for everything else. And I’m looking for as large a down payment as possible.
But 0bama and his meddling makes me a bit impatient to get it done before rates jump to late 70’s levels, and inflation makes my money worth less (or worse. . . . .worthless).
None of this bothers me. I learned my lesson about credit cards years ago and now just use my debit card or the $300 MC I have which I always pay off at the end of each month. I don’t need anything else and refuse to get a card with a higher limit.
“The banks fueled the credit bubble that drove the consumption bubble.”
I know I had several banks force me to buy the big screen TV and take the more expensive vacation. Heck, I even had one mortgage broker show up at my house with a gun telling me to sign on the dotted line for an unconventional mortgage of my a$$ was grass.
Just how did the banks force/fuel anything?
How many ADULTS actually read the credit card disclosure statements?
Why does an ADULT need to be told that paying $35 a month on a $4,000 credit card bill is going to take years and years to pay off? If you are that ignorant, you deserve to be ripped off.
“I use my debit as a “credit” instead, ”
By cycling all as much of our household/business expenses through credit cards, my partner and I take a trip to somewhere warm on the bank’s dollar. A very nice way to vacation.
#13: I think you missed my point.
Too many people do NOT read and *understand* the disclosure statements and suffer from gummint-school math instruction. The banks know that and rely on it.
Banks made imprudent loans to people they know will have trouble paying. When a debtor gets in trouble, they hand them a boat anchor from rate increases and fees – ensuring they the poor schmuck will never recover. Not to mention the fraud that is “universal default”.
SoCalRobert,
That’s their own damn fault. I did my research when I got my mortgage. That’s why I’m able to pay extra on it every month. Paying off my credit cards takes longer because of emergencies, but I know full well what I’m getting into when I charge something on them.
Livewire – I am not saying that people who get in trouble with credit cards or what-not are without blame… that they’re victims in all this.
What I am trying to say is that banks created this environment and benefit from consumer ignorance and the gummint backstop.
If you or I were lending our own money directly, with no third-party guarantee, we’d be a lot more careful than, say, BofA and we’d want to do everything in our power to make sure we are repaid.
If, like banks, we are lending someone else’s money while pocketing lavish fees, we might take a more casual attitude towards the borrowers ability to ultimately pay the debt.
Ah, I misunderstood…
And I am enlightened 🙂