So according to a Kevin Drum piece, credit card companies are actually the most hated industry in America and for good reason. It appears reform might actually pass this year and there’s an interesting New York Times article by Andrew Martin up on what credit cards might look afterwards:
Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.
Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.
“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems…”
For more information check out a 2005 GAO report that found that about 70% of Credit Card revenue came from interest charges with a growing 30% from fees to costumers and merchants. Another aspect of the bill is that merchants would be allowed to pass those fees on to credit card users rather than splitting them among all customers.
I’ve enjoyed and exploited the long credit card free ride. However, it was quite inegalitarian. Those with less revenue are most likely to get stuck in debt spirals and hit by fees. It’s particularly ridiculous that cash customers have to pay extra to subsidize those with credit. This gets to a point discussed in a recent post by new graduate Jamelle and a terrific Washington Post article by DeNeen L. Brown: being poor is expensive. Access to credit is an important tool to escape poverty, but as presently configured the lower classes subsidize the well-to-do.
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