We love them.
We hate them.
We can’t live without them.
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I am not talking about your wife or your husband. This isn’t a column for the lovelorn.
I’m talking something closer to you every day than a loved one, your credit cards.
When it comes to credit cards, Americans have spent like drunken sailors on leave.
Don’t get me wrong. Our addiction to plastic money has led to an overall increase in the standard of living enjoyed by nearly every American with access to credit. The relative ease with which consumers previously were able to obtain credit not only increased the buying power of Americans, but also resulted in unprecedented economic growth.
When everything was going great and credit was flowing like champagne at a wedding, none of us was deterred in our spending habits by the near usurious fees and rates charged by credit card companies. Now that the music has stopped, credit card companies have become national pariahs.
In the President’s Opinion
At a recent town hall-style meeting in New Mexico, the President listened to a parade of personal horror stories about credit cards.
There was the woman whose credit company tripled her interest rates to 30 percent after it mistakenly authorized a tuition charge from her daughter’s college that put her over the limit.
Then there was the tale of the small business owner who had had the same credit card for nearly 20 years. Like most small business owners, he used it to get by when cash was tight or to expand his business.
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He always paid on time, but usually at or near the payment deadline so that he could hold onto his cash as long as possible. Because the credit card company charged for payments made by phone, he was compelled to make his payments online.
During the course of a routine online transaction, the bank, by its own admission, bolloxed his transfer, causing him to miss the payment deadline by a matter of minutes. Even though it was not his fault, his rates were instantly doubled — and he was assessed a late charge penalty.
To the delight of the crowd, the President told of his efforts to wrench reform out the credit card companies. He promised that “the days of any-time, any-increase, anything-goes rate hikes, late fees” must end.
In reference to measures pending before the House and Senate, Mr. Obama went on to say that “you should not have to worry when you sign up for a credit card that you're signing away all your rights.”
How Credit Card Life May Change
After passage of a similar bill by the House, the U.S. Senate is working to complete legislation to curb credit card fees and to limit contract changes.
The Senate credit card legislation would require lenders to apply payments to balances with the highest interest rates first. It would prohibit increasing a consumer’s rate on existing balances based on late payments to another lender, a practice known as “universal default.”
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The bill would require credit card companies to give 45 days’ notice before increasing an interest rate. It would prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment. Companies would have to restore the original lower rate if a cardholder stayed current six months after a late payment.
Another aspect of credit card industry practice under fire is the interchange fee, what companies charge retailers for the privilege of accepting their cards from customers. Usually, it amounts to about 2 percent of the total purchase.
This charge adds up to big profits for the credit card companies. Last year alone, they racked up $48 billion in fees from this seemingly minor charge.
Although these fees are factored into every retail purchase and passed on to the consumer, retailers want to give a discount to their customers that pay with cash rather than plastic. Unfortunately, Visa and MasterCard rules make it virtually impossible to do that. An amendment to the proposed bill would lift this prohibition on retailers.
As the consumer side of the recession deepens, so will the animus toward the folks who brought us to our greatest historical zenith of prosperity.
Since nothing lasts forever, five years from now, after this crisis is long forgotten, the pendulum will swing the other way. Credit card companies will be back in the driver’s seat again.
For now, they’re going to lie low because, unlike you and me, they’ve got plenty to get them through the tough times without the need to max their limit.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
