Pity the poor credit card companies; they’re in a tough business. They only stand to make an estimated US$20 billion this year on late fees, over-limit fees, and other penalty fees. Andrew Martin, writing for the New York Times, says the “good deal” for people who pay their credit cards off each month is just about over.
With Congress having just passed legislation that would limit penalties on risky credit card holders, the credit card companies have to make up that revenue somewhere. According to Martin, they’re “going after those people with sterling credit.”
Expect the return of annual fees and the elimination of loyalty reward programs for starters. Next, the card companies will likely eliminate grace periods, charging interest at the point of purchase.
David Robertson who publishes a newsletter on the credit card business told Martin that people who pay their credit cards in full each month “have been enjoying the equivalent of a free ride.” Never mind the fact that credit card companies collect an average of 2-3% on each and every credit card transaction. Free ride indeed. Martin reports that the credit card industry refers to those who pay their credit cards in full each month as “deadbeats.” Nice, very nice, coming from the recipients of the public bailout of the US banking industry.
For one solid week, we “deadbeats” should simply refuse to use our credit cards. Use cash or heaven forbid, a check, for a change. I suspect that would send an audible signal—30 percent worth. According to a 2005 Government Accountability Office report, 70 percent and growing of credit card companies’ revenue comes from interest charges; the rest comes from annual fees and merchant processing fees.
An especially disturbing point of Martin’s report is the finding that Bank of America and JPMorgan Chase “account for 80 percent of the credit card industry.” Too big to fail = too big to exist.
Update: Wednesday, 20 May 2009 12:31PM CDT: I meant to get this in last night but it slipped through the cracks. If the US Congress would grow a set there would be interest rate limits set on the credit card companies. Four percent more than they’re willing to pay for deposits sounds about right.
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