In Defense of Credit Card Fees
I came across an interesting article in the Christian Science Monitor where attorney and law professor, J.H. Huebert talked about how the new laws by the Fed would seriously hinder his ability to rip off the credit card industry. He didn’t put it quite like that, but that was the gist of it. To his way of thinking, the Fed should look into their own policies and leave the credit card industry alone.
Mr. Huebert is one that takes full advantage of his rewards programs. He pays his balance in full every month and he gets free stuff out of the deal. He’s also aware that the changes in the industry mean that free ride of his could come to end; naturally he’s not really fond of that idea. I don’t begrudge him that, but I do think certain points are solely self-centered and not motivated by the greater good of the economy as a whole.
His argument is this – those who handle their cards responsibly should be rewarded and those who don’t should not. However, he never fully defines what he considers responsible. It’s important to establish that because, in my opinion, someone who is working to increase their credit score may keep a balance on their card, usually no more than 30-40% capacity in relation to their limit, yet make their payments on time every month. That’s not being irresponsible. Under the current laws, credit card companies can use the double-billing practice (remember, a consumer is billed twice for the same balance) or they can raise the rate just because the credit card company feels like it.
How is that rewarding the responsible consumer?
Does he then define a “responsible consumer” as someone who pays their balance in full every month? Well, I think that’s a little narrow. Sure, ultimately, we’d like to see people paying their bills off every month. I’d personally like to see the credit card debt of $900 billion decrease. However, let’s be honest and stop kidding ourselves. Some of these lender’s have “unfair and deceptive” practices and the new legislature will help with that.
I’ve written before that I think the Fed has gone a little too far with some of their proposals, and in general, I don’t disagree with a lot of what Mr. Huebert is saying. But, there are some things I do disagree with.
For example, Mr. Huebert says,
“Under the proposed rules, where a consumer takes advantage of a temporary promotional rate, card issuers would have to apply the cardholder’s payments to any preexisting higher-rate balance before applying it to the lower-rate balance. (They do the reverse now.)”
How does that apply to him and his definition of responsible cardholders? According to the vaguely defined definition of “responsible” in his article, they pay their balances in full every month.
Let’s look at the other side of this issue, though. Folks who carry balances with multiple interest rates are being killed in interest because of the way it’s applied. Many are trying to pay that card down, but with your payments being applied to the lowest interest first, that higher interest is accruing a balance that typically keeps the borrower from making any progress. The bottom line here is that changing the way payments are applied will benefit all cardholders that carry a balance.
I understand his point, though. He’s saying that the decrease in profit the industry makes from the interest by applying the payments to the lower interest first will cut into the rewards and promotional interest rates they offer. Well, I’m sorry, but right now I think it’s more important to put consumers in a position to make progress on their debt. It goes beyond just whether or not individuals get rewards, and into the fact that consumers have slowed their spending. Our economy needs people to spend money. And that’s what the Fed is concerned with.
So I’m curious to see what the community here thinks. Do you agree with Mr. Huebert, or do you think the Fed is right to step in and regulate?
