Credit Card Bill and Bank Debt

So here it comes....

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.

These bankers haven't figured it out yet, have they?

First, "grace periods" only apply to people who pay in full every month.  If you carry a balance through, you don't get one - you're charged from the date of the purchase.

Second, the issuers along with the processors get a piece of the "discount rate" applied to merchants.  Most consumers don't know this, but every time you use plastic at a store the merchant processing networks (Visa, MC, etc) and the banks split a roughly 2% (higher for Amex) "discount" that is applied to the money.

That is, if I go into a store and buy something for $100, my card is charged $100.  The merchant gets $98.  The other $2 is split between the banks and computer networks that process the transaction.  That is, they are making money off me, and to claim otherwise is just one big fat lie.

Now this sounds like nickels in front of a steamroller, and it is.  Except in this case many people, like myself, use plastic to pay for quite literally everything and then pay it off at the end of the month.

That's a lot of nickels, but we're not forced to do this - we do it because we get to shave that nickel too, in many cases with things like cashback (which ends up giving us about half the nickel.)

If the banks think people like me will continue to use plastic in this fashion if they stop making it worth our while, such as by imposing annual fees or eliminating those reward programs, they're very wrong.

I both can and will instead reward the merchants by removing the discount from their consideration, and pay with either cash or check.  The card companies, should they try this garbage, are very likely to be told "Bite Me!" by people just like me - about half of the card-using population, and in fact their lowest risk customers.

The intent-to-screw is stated right here:

“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.”

These mouth-breathers have been trying this scam for over two years.  See, the game with the 29% interest rates is that if they bang you but you can pay then you do, but the other guy they bang goes under and they get nothing.

That is, those who are able to pay subsidize those who can't, instead of the banks cutting off those who can't pay.

How badly are they gouging those who can pay now?  Here 'ya go:

For instance, Mr. Hammer said the amount of money generated by penalty fees like late charges and exceeding credit limits had increased by about $1 billion annually in recent years, and should top $20 billion this year.

Nice eh?  Thought you'd like that.

Oh, it gets better:

“In order to do business under the new rules, they’ll actually have to tell you how much it’s going to cost,” she said.

My gosh, now the government is going to require that you actually tell people before you screw them, so they can choose whether or not to do things that could (or will) lead them to being screwed? 

This, by the way, is "objectionable" to the Bankers. 

I guess the bribes, er, "campaign contributions" ran out.

As far as banks abusing (what else is new) their "too big to fail" status, here's what Kash-and-Kari had to say about it, now that he's no longer under the government obligation to lie:

May 19 (Bloomberg) -- Neel Kashkari, former administrator of the $700 billion U.S. bank-rescue program, said firms deemed too big to fail have an unfair advantage over smaller rivals because they can more cheaply raise money in the debt markets.

Maybe Congress ought to call Kash-And-Karri back to ask why he didn't bother disclosing and discussing that when he was under oath in Congressional hearings?

I'm going to have to get some tomatoes and start "over-ripening" them for the coming time when we'll be able to use them on the stocks.

Disclosure: No position in banks and credit card issuers at present.