Thursday, July 09, 2009

Credit Card Changes Appearing

As I mentioned in my "Credit Card Predators Unite" post, there are changes coming to the credit-card industry. Since most of these changes focus on consumer protection, we can be fairly certain that the suits at Citibank, Bank of America, Chase, and all the rest have been putting in late nights, trying to decide how they're going to circumvent the upcoming rules ... or at least try to make up for lost revenues. (Overdraft charges will only take you so far these days.)

In late June, we saw an opening salvo from Chase:

LA Times: Chase Increases Minimum Payments

And now JP Morgan and Bank of America are switching their fixed-rate card offerings to the variable-rate variety:

Bloomberg: JP Morgan, BOA Adopt Variable Rates

Same basic story in this one, again from the LA Times:

LA Times: Credit Card Firms Try End Run Around New Fed Rules

My first thought? Mostly, it's that if you didn't see this sort of bank tomfoolery coming, then you haven't been paying attention.

According to the second LA Times article above, Chase is doing the variable-rate thing as well. (What self-respecting Banking Mega-Conglomerate would allow its Bailout Buckz brethren to outdo it in the credit-card reform realm? None, is what I'm thinking.)

So here we go, kids. The credit-card rules revamp — sure to be a fun time all around — starts now!

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— Posted by Michael @ 9:22 AM


1. Get a no fee credit card.
2. Spend below your means.
3. Pay your credit card in full each month.
4. Pay your bill on time.

Anonymous Anonymous
, at 11:11 AM, July 09, 2009  

That's a good plan ... until item #1 goes away.

Which I suspect is going to happen at some point in the next 12 months.


So you think that Credit Card companies will do away with no-fee cards, and give up all the money they make in transaction charges from businesses when all their former users go to debit cards?

Not a chance.

Anonymous Anonymous
, at 4:59 PM, July 10, 2009  

Oh, they'll do with no-annual-fee cards, all right.

And the revenue they lose from merchant processing they'll "create" somewhere else. Or at least, they'll try to do so.

I hope I'm wrong, but my gut tells me it's coming. Credit will become more and more expensive over time. Part of that process will involve the gradual disappearance of "free" 30-day loans (which is what non-revolvers get with their no-fee cards, essentially).


Alternately, I could see a bank keeping its "no annual fee" cards ... but slapping a $5 or $8 monthly fee on the cards for some users. For instance, these unfortunate souls could get dinged a $5 or $8 fee in any month where there are less than, say, 20 transactions on the card.

Given what I've seen from banks so far, I don't think this premise is all that unlikely.


Since I pay off in full when (or before) credit card bills are due, any changes in the law don't matter much to me. I'm really posting here to tell you that I am very impressed with your website. You obviously put a lot of work into collecting the variety of information on books, authors, and different approaches to eliminating debt/building wealth, etc. that you included. Your summaries are excellent, and I loved your quotes by the late Joe Dominguez. Reading "Your Money or Your Life" in my twenties really changed my outlook on money. If I had used Dave Ramsey's approach, I would now be on "baby step 7" and I don't feel comfortable saving less than 35% of my income. Am I the "millionaire next door?" Not quite, but I am content and enjoy peace of mind.



Thanks for the kind words! YMOYL was a life-changing read for me, too! (More so than anything Dave Ramsey has written or said, by the way.)


You're welcome.:-) Yes, I think everyone has to follow the financial strategy that works for him/her. My strategy was very similar to what Dave Ramsey advocates - but then he has himself said that his "baby steps" are not original. I do like that he gets people so fired up about getting out of debt - even though I often wonder why so many people need help understanding the need for a budget, which is really just common sense. I do use credit cards, though, and do not see a need for a cash only system. I have never paid a cent in interest to any of them yet received plenty of free miles and points. Using credit cards to one's own advantage is really also just common sense. Well, thanks again for this great blog. I will visit from time to time.


Re: No fee credit cards

You're just not thinking without bias, Michael.

Some banks will always offer no-fee credit cards because the market, and rewards in merchant fees are just too lucrative, and the more banks that drop no-fee cards, the more lucrative it becomes for those that continue (or newly start) to offer them.

The chances of the no-fee credit card market disappearing completely are ZERO .. and that's only because the chances can't be lower than zero.

If you'd take a moment to think about market forces, and put aside your personal disdain for the credit card industry, I think you'll see this fact clearly.

You've got an interesting site, but you've got to guard against emotion clouding your views.

Anonymous Anonymous
, at 2:36 AM, July 12, 2009  


So when rates for high-risk users are capped via legislation, and default rates across the card spectrum hit 10 percent (already there) and remain at that level indefinitely, what will card companies do to the price of all this "lucrative" no-annual-fee credit they issue?


Why don't you ask the question the other way, Michael?

How are the card companies going to replace all the of the ultra-low-risk income they receive via merchant fees from "full-balance payers" when they all flock to debit cards after the end of no-fee cards that you so confidently forecast?

And won't their portfolios look terrific when they drive all those low risk accounts from their customer base as well? Especially during this time when they are so desperate to reduce the credit risk of their accounts overall.

Anonymous Anonymous
, at 3:08 AM, July 13, 2009  

How are the card companies going to replace all the of the ultra-low-risk income they receive via merchant fees...

With rising default rates on the consumer side, and crunched balance sheets on the bank side, where is this "ultra-low-risk income" you speak of?

Look: You could be right. Going forward, no-fee cards may be bulletproof for high-FICO users.

I just think that your definition of "low risk" and the banks' definition may be divergent (assuming further degradation in the economy).


I just told you where it's coming from, Michael: people who use their card and pay off their balance every month. These are the lowest risk customers the credit card companies have.

If you want to argue that this segment of their customer base is shrinking because of the economy, go for it... but that is not the topic I am addressing.

I am addressing your remark that no fee cards will go away.

You keep arguing that the economy is going to hell in a handbasket, thus increasing the overall risk of card companies loan portfolios ... and then you jump to the completely illogical opinion that this means the credit card companies will take up policies that will drive away their lowest risk customers.

Can you see how this argument makes no sense?

Will card companies demand better credit history for those applying for no-fee cards? Certainly. Will they charge fees for inactive no fee cards ... they certainly should, it makes good business sense.

But will no fee cards disappear completely for those with good credit history? Of course not.

And frankly, that's all I care about because those that follow the 4 steps I outlined in my original comment will always qualify ... and always have no fee cards available.

Anonymous Anonymous
, at 11:15 AM, July 13, 2009  
** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

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— Dave Ramsey


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