Notes From Babel

Credit Card Regs’ Cause and Effect

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Hans Bader reports on some of the provisions recently made effective by the new Credit Card Accountability Responsibility and Disclosure Act of 2009.

In response to the new law, some credit card companies are starting to charge annual fees on their credit cards to protect themselves against potential losses. Others will likely drop their rewards programs, or stop giving customers’ percentage rebates on credit card purchases. For example, I and my wife get 3% to 5% back on most of our credit card purchases.

One of my co-workers just emailed me that since the new law, he will now be charged an annual fee on what he calls “the best reward card I ever found.” It’s the same card I use for many of my purchases.

The new law is supposed to “protect” cardholders. But what it really does is transfer wealth from people who pay off their credit card bills at the end of every month, (or have good enough credit that the credit card company would not likely have increased their interest rate anyway) to people with bad credit who have run up big balances.

Let me say something very un-conservative and un-free-market about this: maybe it’s not such a bad thing that there’s less money to be made in credit cards.  It’s strikes me a rather unsavory business.  Credit cards are wonderfully convenient, but I can see no great fall-out if consumers are no longer able to get “rewards” from using the cards, or have to contend with a lower credit limit and have to pay (gasp!) cash for some things or get a loan for larger purchases, or if it is no longer free or easy to hold three, four, …, a dozen cards.  The proper understanding and use of credit is such a tricky yet vital thing in modern life that it seemed inevitable that either mandatory education, or regulation, on the business would be necessary.

H/T Volokh


Written by Tim Kowal

August 21, 2009 at 11:15 pm

Posted in Credit Cards

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