The new credit card legislation?

[K Frame]

"they are "punishing" people that don't make them money."

Not really true.

Every purchase on a credit card, even if there is no balance on which interest is earned, nets the card company a percentage right off the top of the sales price of the item.

On Visa and Master Card IIRC it's about 2%, Amex is far higher, which is why a lot of merchants have told Amex to go stuff themselves.

What the card companies are doing is looking to their SAFE customers to bail them out for the failures of the unsafe customers, who were only customers because of horrid lending models and a Satan may care attitude towards accumulated risk by the card companies themselves.

What they're really saying is... Well, we screwed up by trusting those deadbeat people, but it's not our fault. It's really the fault of these other dead beat people, the ones who haven't cost us anything, but they sure haven't lined our pockets for us!"



Oh, and this MIGHT be a way around getting nailed by a drop in credit score from a card company closing your card unilaterally, or you closing it, which drops your total available credit and raises your debt to available credit ratio...

I have credit cards with two credit unions.

One has a fairly decent credit limit, the other one, however, still has the original $2K limit that it had in 1988 when I first got it.

Say I decide to tell chase to go stuff themselves. My Chase card has a $10K limit.

I call my credit union and tell them "I'm going to be canceling my Chase card after I get off the phone with you, but I don't want to destroy my credit score. I want to raise my credit limit on my credit union card to $12k."

I'm thinking that if you are in good with your credit union, have a good track record with them, that should be a pretty decent way of covering your bases.

[slingshot]

I find Chase to be a real pain in the butt as some have mentioned above.  I am self employed and I suspect they run a credit check on me and see no income or they can not verify it (unless they call me :) ).  So what happens is they keep lowering your credit limit to just above what you might own them.  This results in lower credit scores and then other creditors do the same thing.  It really sucks if you want to know the truth.

[slingshot]

I found the vote on the gun portion of the bill quite interesting.  Obama is supposed to sign the legislation this friday.  Hiking I will carry in NP's, but in TN I suspect it still will not be legal, but I could be wrong.  So I go with the out of sight out of mind approach.

As a rule, I am totally for no government intervention.  But the banks that issue many credit cards are simply out to screw you.  Have one card with a balance.  I pay ontime usually.  Was late about 6 months ago one month and they booted the rate up to 29%.  Finally have the interest rate lowered and they now adjust the due date to trick you.  You see, I often just remember that card X is due around the 5th and pay it just before online.  Last bill I saw them move it back to the 1st.  So if I had not looked and I often don't, I would have been 4 or 5 days late and welcomed back to the high interest rate.  This is why I feel the legislation is probably a good thing. There is talk that the banks will have to increase fees or initiate annual fees.  That is the way some cards were in the past, but is not common now.  Again, they are simply out to screw you.  You see an annual fee set hypothetically and you call and cancel the card... you just took a bit hit on your credit score.

The best approach is to always pay you balance off monthly.  Not possible for me when you have a wife who surprises you at times with $500 or more charges in one month.

[crt360]

At the end of this month, I'll have paid off the roughly $35K credit card debt I had a few years ago when they all went crazy with the interest rates.  I closed one account and still have plenty of credit available on the others, but I learned my lesson.  Even if you carefully budget to manage and pay down accounts with 5%-10% rates, it gets really tough when they start tag-teaming your ass to 14.9%, then 18.9%, then 23.9%, right on up to 30% or more.  I have 0% concern for the relentless aholes that run the credit card companies - who, despite all their whining about the new legislation, still have their hand in the front pocket of enough legislators to avoid interest caps and keep the usury laws, which severely limit how much interest your company and mine can charge, from applying to them.

[Ben]

"If you cancel it, it's a bad mark on your credit."

That is a very temporary thing. If you have solid credit already, with a high score, the dip is not going to be that much and it very likely would not affect your ability to get financing at very attractive terms.

Does anyone know the rationale for the credit hit for closing a credit card account? That's never made sense to me since controlling your debt by only carrying cards you need is to me, fiscally responsible. The score should go up, not down.

[slingshot]

The rationale is that by closing an account, you decrease the total amount of credit available to you; hence your credit score goes down.  They say it is better to leave the account open and not use the card.  If you pay off your balance due every month, it is probably not an issue as you have most likely not used a lot of your available credit line.

[slingshot]

The system is set up for people to use their credit.  If are a millionaire and don't work and don't use a credit card and buy cars for cash, you're credit score is probably lower than someone much less able to pay their bills and uses their credit.

[Regolith]

It all makes more sense if you realize that your score isn't about how likely you are to pay them back, but rather how likely it is that they are going to make money off of you.

[K Frame]

Does anyone know the rationale for the credit hit for closing a credit card account? That's never made sense to me since controlling your debt by only carrying cards you need is to me, fiscally responsible. The score should go up, not down.

It's multifaceted, actually.

1. Closing a card can affect the average age of your accounts. This is a far greater concern the older the card is. The rating criteria add a lot of weight to an account that's been in use and in good standing continuously for 20 years. I wish I had known that before I closed my Sears account about 8 years ago. I'd had it since 1986 and it was, even through my divorce, perfect. By closing a very old card, and leaving open several opened in the last year, the average age of your accounts can skyrocket.

2. Closing an account, unless you have a total zero balance due, will increase your debt to available credit ratio. Depending on the circumstances, it's possible that a card closure could double or triple (or more) your debt to credit ratio.

3. It reduces the overall amount of debt you can use. This is a two-edged sword, really. Too much, and you're penalized. Too little, and you're penalized. It's tough to know what the happy medium is.

Those are, as far as I know, the three biggies.

[slingshot]

I have read that the rule of thumb is you should try not to use any more than 30% of your available credit; any more than 50% and you will probably experience a ding on your credit rating even if you pay your bills on time.

Mike explained it a little better than me; debt to credit ratio can increase when you terminate a card making the ration higher.  A person's credit rating is important in today's world as it allows you potentially easy qualification for additiona credit.

[CNYCacher]

Do not have a CC, will not get a CC.

[Teknoid]

The rationale is that by closing an account, you decrease the total amount of credit available to you; hence your credit score goes down.  They say it is better to leave the account open and not use the card.  If you pay off your balance due every month, it is probably not an issue as you have most likely not used a lot of your available credit line.

I've had two CC outfits cancel cards I had with them this year. The reason they gave was that there had been no activity on them for quite a while. I only kept the things for emergency use anyway, so I didn't give a rat's behind. One of them was Chase. Oddly enough, I got a letter this week stating that they were raising the interest rate on the card they had already canceled to 22%

Obviously, the rate wasn't increased due to any action of mine (late payment, etc.), since I didn't even have a card with them anymore. I'd imagine this is the route most of the leeches will take. Increase interest rates for all customers, in order to cover for the higher  risk individuals they can no longer ream.  I'm glad I went on the "pay as you go plan" a few years ago.

[slingshot]

Some have said that the federal government has no business becoming involved in private industry regarding credit cards.  They say, let the states regulate it.  The states do and they often will have a maximum rate that is allowable by state law.  So the credit card companies start issuing the cards out of South Dakota or another state that has no pre-set maximum.  I could be wrong on SD, I was just using it as an example.  But it is a fact.

Credit cards are really a handy convenience.  Before I was married, I paid off all cards usually when the bill was due.  With marriage, I find that it is simply not possible to pay off the debt in one month and spread it out a bit. It is tough when you think you have a handle on things and up pops $1,000 in charges in one month....  yep, the wife started using that card.... I do it too at times, but it is with my eyes open and I know pretty much what I owe.  She does it and has no money to pay it even in 6-months.  My wife thinks it is perfectly normal to carry a substantial balance on a credit card.  It is a road to financial ruin and I do the best I can.

Being self employed, I periodically need fairly large chunks of credit for motels and other business expenses.  I often don't get paid for 6-months.  I pay off my subcontractors (some immediately, and some within a month) and I'm left holding the bag.  If the credit is not there, I have a hard time doing the job in the first place if I have to layout 10K and wait 6-months to get paid.  Believe me, banks are some of the worst at paying their bills and yet they hammer you if you are late on your own bills.  What am I to do?  Take Citibank to court over $5K??

I thought I had things under control.  Suggested to my wife that she have her own credit card in addition to the bank cards that we jointly have.  (I voluntarily added her to a number of accounts I had.  She was to use her card exclusively and none of mine.)  My thought was to have all of her stuff consolidated on one bill so she can see what she does.... worked for one month.  Three months after the card was issued, the card is max'd and I have to start nibbling away at it so she at least can put gas in her car.  So much for plans....  (Excuse my rant.)

I think a federal level law is needed that evens out the playing field and lessens the tricks that CC companies can play on you when you aren't expecting it. I pay my bills.  But sometimes it's hard. 

If you pay off your charges when the bill is due, the monthly interest rate is of no concern.  When I was younger, I couldn't care less if the CC interest rate was 29% or 21% because I seldom ever paid any interest charges.  At worst I carried things for 3-months and the charges were manageable.  The fact is I could always pay off the bill in it's entirety then if I chose to, I just used credit to what I thought was my advantage.

[Racehorse]

What am I to do?  Take Citibank to court over $5K??

Actually, I would say yes. Take them to small claims court. Odds are they won't even bother to show up. And if they do, it will be some low-level accounts payable guy, not an actual attorney. I don't know what the limits for small claims are in your area, but around here the limit is $10,000. If you actually have documentation to show that they owe you the money, which I'm guessing you do, you should have no problem winning.

[coppertales]

I had a go around with two credit card companies a few years ago.  I don't recall who though.  I sent in a check for the CC balance about 10 days before the due date.  I started getting hit with late payment charges and could not figure out why.  I started sending the payments in with a signed return receipt.  I still got hit with late charges.  When I approached the company with my receipts, they refunded all the late charges.  Appearantly, they were sitting on the mail and did not process the payments until after the due date, thus were able to give me a late charge.  I also filed a complaint with the state and the better business bureau.  No problems since.  I pay by on line now.  I applied for a credit card with the CU we use, since the card we have is in my wife's name and I wanted one for myself.  I was refused because they said I had too much available credit.  Go figure....chris3

[slingshot]

You can win in small claims court but still not get paid.  It is often an effort in frustration.  Been there.  The Citibank mention was just an example.  There are real situations, just not with Citibank.

When you do business with a bank, the feeling is ...hey, it's a bank, they have lots of money, good cash flow, and so forth....  I often did work without a signed contract.  There was a contract, but it was just not signed.  My backup to work authorizations are sometimes via emails and correspondence rather than a signature.

The credit card industry needs a big house cleaning.  They have developed ways to always win.  With unsecured debt, the private individual can just tell them to go jump.  But you suffer the consequences.  They are in power.  They know when you need them and take advantage.  When you don't need them, they can be pretty accomadating.  That has always been the case with banking institutions however.

[FTA84]

You can win in small claims court but still not get paid.  It is often an effort in frustration.  Been there.  The Citibank mention was just an example.  There are real situations, just not with Citibank.

I will back you up on this point also.  $5k is just such a small amount for the hassle of going to small claims courts.  I know to many people here, it is about the principle.  As a business owner, by the time you deal with all the BS, you've already lost a significant percentage of that money because you have been lawyering and not operating your small business.  On top of it all, even if you win, you may or may not get that money anyhow.  Do you gamble 50 cents for a 50% chance of winning a dollar?

It is a lose-lose situation.

[Werewolf]

Can ANYONE say UNINTENDED CONSEQUENCES!

Congress is about to get a very real and very nasty lesson in economics and UC's if some of the predicted consequences of this CC reform act are realized.

Why?

The foundation upon which the US economy is built is consumer spending, a rather large proportion of which is financed by credit cards.

There will very likely be fewer cards issued which will decrease consumer spending (see below re: saving to buy).

In addition, if a great many people act on the threats they are making to cancel their credit cards they'll start having to use cash (econ neutral) for things like gas, clothing, housewares, movies, and other small purchases.

But high dollar purchases that would have been made on a CC will now have to be made out of pocket or out of savings. Either the buyer will save (a good thing) and just delay the purchase (by how long it takes to save the cash) or - and this is the unintended consequence - they won't purchase the item at all. Hell - Some, may not even have the cash for things like going out to eat which could easily result in a negative hit to low cost service businesses as well. (even macdonalds takes credit cards these days).

A lack of credit impacts people psychologically also. They perceive the cost of things to be higher. One might not think twice about laying down 3 or 4 grand to take that vacation to the bahamas if one can just swipe his card to pay for it. Gotta lay that same dough out in cash and your willingness/desire to go to the bahamas is assuaged a bit. That perception that prices have increased even when they have not will further reduce consumer spending.

The won't purchase the item at all is the consequence which is, IMO, the unintended consequence. How much spending will just go away because people don't have the will power and self discipline to save? How much demand for goods and services will just evaporate into oblivion? IMO the amount will not be economicly trivial considering the abominably low rate of savings extant in the US today.

Yes indeedy - no/reduced credit buying equals a big ole hit to the economy. A hit that will feed on itself as producers sell less, layoff employees (who are consumers) rinse and repeat as necessary.

In the long run those unintended consequences may turn out to be a good thing but in the short run (5, 10, 15 years) it's gonna hurt and hurt bad until our culture makes the switch from short term thinking/instant gratification to one of planning ahead and taking a long view of things.

[MillCreek]

I have three credit cards: a Costco Amex that I use for business, a REI Visa that I use for personal, and a BofA Visa that they sent me and I have never activated.  Last time I checked, my credit score was 776.  None of these cards have annual fees, two out of the three offer rewards and I pay off the balance in full every month.  I used to have more cards, but cancelled them due to divorce or not using them. I have had these three for many years.

I am thinking that if any of them start charging an annual fee, I will likely cancel that card.  Would that really have much an effect on my credit score?  As I see it, the only long-term debt I have any more is my mortgage.  The cars are paid off.  I don't intend to buy a new house or car for quite some time.  If the interest rate on my remaining cards is increased, that doesn't matter since I pay them off in full each month.  Does the credit score really matter if you don't intent to have any new debt?

[Ryan in Maine]

What are the reasons credit scores are so important? I've never owned a credit card, and if I go out to make a serious purchase, will I honestly be looked at as a credit score rather than an interested consumer?

[FTA84]

What are the reasons credit scores are so important? I've never owned a credit card, and if I go out to make a serious purchase, will I honestly be looked at as a credit score rather than an interested consumer?

If you have the cash for a serious purchase, no.  However, if you want the best interest rate on a car loan, or even a home owner's insurance policy, yes they will grade you on your credit report more so than your good looks.

[slingshot]

Credit card companies ( ie banks) have a great deal of self interest when it comes to credit card issuance.  I honestly doubt that annual fees will be encacted as a result of this legislation.  Many people will simply dump the cards and they will tend to be the better risks.  They will use debit cards if they don't want to carry cash.  The credit card companies are left with those who have no choice (for the time being) and that will end also.

I don't expect higher interest rates (or having no grace period on purchases) for good risk credit card customers either.  Same reason....  if it is enacted, people will stop using the cards.  There may be a reduction in consumer spending, but there has already been a reduction especially in the last 6-months.  The spending will simply be different.

It will take some changes in the way many people do things.  Years ago I wouldn't consider using a credit card to purchase groceries.  It was either cash or check.  With superstores (ie Walmart and others), using credit cards for all the purchase seemed only natural.  I have become accustomed to using a credit card for purchases now.  But, honestly speaking, I have been weaning myself off credit cards for routine purhases entirely in the last 6-months.  It is just something I want to do and I see no gain in using a credit card if you carry a balance for necessities (like food) unless you simply don't have the money.

I think having the US consumer move toward savings and using money they already have will be better in the long run.  There are a lot of consumers that will not.  Change is a slow thing.  The Big O is all about "change".  He just may not get the change he is expecting with his legislative pursuits.

[280plus]

I will simply pay attention to which companies hose me and which don't. I will pay off the hosers and direct my business to the cards that have treated me more fairly. I'll let the hosers cancel the card for inactivity.

[Lee]

Anyone know who the 5 Senators who voted against it are?

[CNYCacher]

How much spending will just go away because people don't have the will power and self discipline to save?

Brain asplode!