Wednesday, May 20, 2009

"Good" Credit Card Holders – They’re Headed for You Next…

First, they came for the late-payers, but you always paid on time and had nothing to worry about. Well, time to start worrying:



Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.

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.


Emphasis mine. If companies are moving to implement the above as policy, then you’d best be careful if you own a credit card and call yourself a “responsible user,” because soon it won’t matter. Can you imagine being charged 9-15% interest on a credit card even if you immediately go home and pay off your balance? Once these regulations are signed into law, that may become a reality. At the least, an annual fee will probably be levied if you don't pay one already.

You can find a more extensive list of the coming changes to the credit card companies here. Don't get me wrong, some of the changes I think are very good, like banning credit cards for those under 18 (unless parents supplement their income) and limiting credit cards to 1 per college student (more allowed if credit amount doesn't exceed 30% of college income). These are common-sense measures. Just be aware that the Credit Card Mafia Industry will still work to retain profits, even if it means going after the balance-paid-off-every-month crowd.

People tell me all the time that the reason they own a credit card is so that they can take advantage of the frequent flyer miles and rewards programs. With things like instant interest, those days may soon be coming to an end.

Sunday, May 03, 2009

Experts Lament Over 'Paradox of Thrift,' ; "Yeah, And?" Says Americans..

Welcome back readers. I've been seeing a lot of talk lately on the paradox of thrift, which states that when a group of people save their money instead of spending it (to stimulate the economy), it's a bad thing because that's money NOT going into the economy. Not too long ago, the savings rate in America was near zero, and for a brief while--negative. In other words, Americans were spending every dollar when it came in, and then when there was no money left, started living of of loans and debt. Now, since the economy has tanked, Americans have started saving their money and paying off debt--which is what we do when our futures are uncertain. The experts tell us this is a bad thing when the economy is in a downturn. From the AJC:

If U.S. households are saving more, they are spending less and this change in behavior is hurting small businesses, the major source of job creation in the American economy.

A dollar saved is not a dollar spent. Given that consumer spending accounts for more than 70 percent of our gross domestic product, today’s new-found thrift fueled to a large extent by fear, seriously impairs the odds of a prompt economic recovery. If consumer spending does not pick up, the economy will continue to suffer.

Facing decreased demand for their products and services, the more than 27.2 million small businesses that account for more than 50 percent of U.S. workers on payroll, continue to lay off workers, put on hold expansion plans and reduce capital expenditures —- a confluence of decisions that in the aggregate make things worse for the economy.

This sequence of events contributes to a vicious circle where economic uncertainty creates fear and reinforces the need for increased savings, which leads to reductions in spending and so goes the cycle.



Dah well. We'll get over it.

Honestly, if I were asked, I don't see much wrong with a little savings to shore up your savings. Perhaps bubble-based economics aren't what we need.When housing prices fell in the 1980s, stocks and bonds were up (and so was consumer savings) . When the dot-com bubble burst 9 years ago, housing was stable. Today, both housing and the stock market are way off their previous highs, and I think we need to move away from a culture of debt for everything because it puts us at the mercy of the Credit Card mafiaand loan companies, who, if you've been following the news can turn off the lending spigots even while receiving bailout money or raise their rates to exorbitant highs even if you've been a prompt payer. So when I see the lamenting of expertsabout Americans gaining a bit more control of their spending habits, I urge them patience.