Got good credit? You might be dinged
Congress has passed a measure requiring credit card companies to go easy on struggling borrowers. But that could be bad news for people with sterling credit. Jeremy Hobson reports.
Credit cards (Peter Macdiarmid/Getty Images)
More on Spending, America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: The legislation that will almost certainly impact your relationship with your credit card company passed the Senate today. It's already cleared the House, so the president could sign it by the end of the week. It would force credit card companies to go easy on borrowers who have trouble paying their bills. But those protections for troubled borrowers could mean bad news for people who pay their bills on time. Marketplace's Jeremy Hobson reports now from New York.
JEREMY HOBSON: The American Bankers Association says the legislation could send the credit-card industry back 20 years, when everyone paid an annual fee and even those with good credit paid a high interest rate on their debt. David Robertson publishes the credit-card trade journal the Nilson Report. He says it's probably more like 30 years.
DAVID ROBERTSON: We're going to start seeing a drop in the number of credit cards in the United States, and we'll start seeing some different kinds of loyalties firm up.
Robertson says new fees of about $30 a year will push many consumers to regional financial institutions for credit cards, places that have many relationships with their customers -- from mortgages to checking accounts.
ROBERTSON: They're making money from you in a variety of different ways, and therefore they don't have to get as fat, if you will, from you as a bank that's issuing a credit card to you and that's the only relationship that they have with you.
Not everyone thinks today's Senate action will lead to fewer credit cards. Chris Ambruster is a research analyst at Al Frank, a fund that invests in credit-card companies.
CHRIS AMBRUSTER: As consumers feel more comfortable using these credit cards, more comfortable with the fee structures, as they become more transparent, I think generally there will be a larger amount of money that is flowing through these credit cards.
Right now, most annual fee payers are at the high end and are rewarded with perks like airline miles. Ambruster says companies will likely offer those kinds of enticements as they fight for consumers.
In New York, I'm Jeremy Hobson for Marketplace.
Comments
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From Salt Lake City, UT, 05/28/2009
Marketplace (like most public radio reporting) went to the horses mouth/spokesman to get their viewpoint. Of course the legacy big banks will spin their fee increases as a result of government interference. They don't want to admit that they're insolvent because of risky practices and that they'll abuse their national footprint to squeeze as many fees as they can from the market. They'll scapegoat this bill and rewrite their fee and rate structures to overcompensate for losing their unreasonable retroactive charging.
The beauty of capitalism is that smaller, careful and more efficient banks will compete for the business of consumers who were burned, and the public will be better off. Or at least that would happen if the government would let the megabanks fail before they crush the competition with their rotten, bloated oligopolies.
From Ridgecrest, CA, 05/25/2009
I second Cindi Burkey. Marketplace seems to be just reporting what the "powers that be" want.
05/22/2009
Most people with "sterling credit" got that way because they don't rely on credit very much.
People with good credit have a lot more options these days too, like the ability to to have investors bid for their business at online P2P credit sites like Prosper.com, or to get primre-rate credit lines at their banks.
So, most of them will just leave the big credit card companies and I think they won't get "dinged" all that bad.
05/22/2009
The only good thing about easily availible credit, is that it hides the fact the average worker is making less money to keep up with inflation etc.
In the past, people relied less on credit. Need a new car in a few years? Then start saving up right now, was the answer. But, we spend spend spend, instead of saving. Which is why availible credit seems to be like free money, to all those who didn't pay attention in Econ101.
From los angeles, CA, 05/21/2009
The banks do not want you to remember that they were able to raise their fees to rates of 18-20% in the early '80's because the cost of money went through the roof. The prime topped 20%.
If we went back to the formulae they used back then, tying their rates to the prime, the interest on cards could be quite reasonable and they could still make out like bandits. Banks use to borrow money at 3%, loan it at 6%, and everybody was happy. Now they want to borrow at 3% and loan at 31%.
MARKETPLACE SHOULD NOT SHILL FOR THESE CRIMINALS.
From Los Angeles, CA, 05/21/2009
Here's the text of an email I got from Moveon.org today, in the wake of the Credit Card Bill's signing:
"Dear MoveOn member,
You spoke out for credit card reform, and we won a major victory! President Obama is signing the Credit Cardholders' Bill of Rights.
Retroactively raising interest rates for no reason? Not anymore. Charging you late fees when they're late in processing your payment? Illegal. Giving cards to college students who have no ability to pay for them? Not without a parent's approval.
Congress passed the bill overwhelmingly, despite opposition from Wall Street. Now, it's critical that we thank our representatives in Washington for standing strong—it shows them that voters will support them if they keep taking on the big banks."
I'm sorry, but I listened to this story, and I missed the part where the bill mandates annual fees. Is that actually part of the bill, or are there people who are saying that's what will happen, and if so, why don't we have a direct quote explaining that? All I heard here was speculation and fumphering around by some people presented as experts, about whom I personally know nothing (they might very well be excellent thinkers, but how am I supposed to know that from this piece?). Besides that, why does this story not mention thing one about the very triumphs listed above?
What exactly is this story, if it doesn't explain what the bill does? I kept waiting for that information, as I listened to this, and it never came. So basically a really important piece of legislation that concerns average Americans, is enacted; it speaks volumes about a more responsible direction for this country on a legislative level, with repercussions for individual credit card use----it is a frickin' huge story, and Marketplace would be the perfect show (you'd think) to get an idea of what exactly has gone down here. So what, exactly, is up with this story? Is this a story just vague enough to please some bankers who don't want real coverage on this?
I can't help but think of the "His Master's Voice" victrola design with the dog cocking an ear. Who exactly is speaking through this story? Or is it just crappy journalism?
From Framingham, MA, 05/20/2009
If the big banks try to continue to make outsize profits on their credit cards on the backs of those who pay off their balance at the end of the month by getting creative with new fees after this legislation is signed, I for one will be moving to a smaller bank where credit cards are just part of their offerings. And I'm also getting tired of the media trying to find some sort of "unintended consequences" angle on the passage of laws making the credit card companies get reasonable with their agreements and fees.
From Prescott, AZ, 05/19/2009
I strongly second Jeffrey Stinson's comment. Listening to the rather pernicious negativism concerning Americans getting a grip on their use of credit cards is getting very, very old.
From Wilmington, NC, 05/19/2009
This report insinuates that a drop in the use of credit cards would be a bad thing. I would like to here a perspective arguing the merits of less credit card use by Americans.
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