Lo some nine months ago, Congress took a politically courageous stand against mom, apple pie, and credit card issuers by supposedly reining in the excesses of the latter (excesses which largely consisted of giving lots of people the ability to purchase goods and services on the automated installment plans otherwise known as credit cards). The goal of the new legislation was to clear the books, start anew, blah blah blah, and hem in the contagion known as excessive credit, which was widely believed to be behind the financial crisis that may or may not be over. And, at the same time, of course, Congress was going to make sure that all Americans had access to the credit that is our god-given birthright. The streets of America are paved with gold MasterCards and all that.
So now the new rules are in effect. And credit card issuers (banks, mostly) are now coming up with new ways to squeeze money out of customers, just like restauarants doubling up on corkage fees, extra charges for more butter, you name it. From a Cincinnati Enquirer account:
One of the latest is an "inactivity fee"….[a charge] if you don't use your bank credit card within 12 months….
Beginning April 1, Citigroup will assess cardholders a $60 annual fee if they charge less than $2,400 a year. "This action is necessary given the increasing costs of doing business," Citi spokesman Robert Julavits said.
The nation's second-largest card issuer, Bank of America, just began testing an annual fee for some of its credit card accounts.
The fees are part of a menu of little-known charges that card issuers use. In recent months, some have upped the fees for transferring balances. Some have added a minimum charge for cash advances, meaning a $50 advance on the credit card could cost the unwitting consumer $10 or more in fees.
Some are charging a dollar a month to customers who still want to get an account statement in the mail.
Consumer advocates, including politicians who have helped to created mega-gigundo deficits at the local, state, and national levels, have already started calling for the next round of regulations, in which villainous bankers, finally get their comeuppance. But sadly, just like Mr. Potter in It's a Wonderful Life, the people giving credit will always find a way to prosper.
"The credit card issuers can adjust their tactics faster than Congress can pass laws," said Joshua Frank, author of [a] report [for the Center for Responsible Lending].
Which is to say, the best way to ensure access to credit and decent treatment is by market competition, not by top-down regulation that stymies the development of many different types of credit instruments. No financial crisis is created by access to credit per se; it's created by real and presumed government bailouts of bad decisions made by folks with access to credit. I floated a decade of my life as a grad student and an underearning worker on easy credit. Without access to a ridiculous amount of revolving credit (thank you, interest-free balance transfers!), I would have not been able to take advantage of any number of educational and work-related opportunities (including covering moving expenses from Buffalo to Los Angeles to start working at Reason back in 1993).
Access to credit doesn't stem from card issuers beneficence but from their self-interest, which coincides pretty well with borrowers. Sure, lots of people get into credit-card and other forms of debt that cause problems. But it doesn't help the far-larger majority of people to limit what can be offered. And, as the quote above suggests, Mr. Potter always gets his fees one way or another. Hell, even George Bailey ended up squeezing his customers for what appears to be an interest-free loan.
But that won't stop regulators for pushing for the next level of regulations which, if they do their job properly, will limit competition and increase costs to all borrowers. Thanks, fellas!
The Center for Responsible Lending and others are pushing to enact a proposed Consumer Financial Protection Agency as the best way to stop credit card companies from inventing new ways to charge their customers.
Want to know why a Consumer Financial Protection Agency is a bad idea? Take 10 minutes to get the full pitch: