Regulation

Congress Forces Millions to Cut Up Their Credit Cards

The changing shape of plastic in America

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Eight million Americans cut up their credit cards this year, according to new data out from credit bureau TransUnion. Some of those plastic deserters were folks who faced scary economic conditions and decided to voluntarily cut back on debt spending. But for others, it wasn't a matter of choice.

Millions of customers found themselves unceremoniously ejected from the ranks of the card-worthy thanks to last year's Credit Card Accountability, Responsibility, and Disclosure Act, or Credit CARD Act. The new rules were supposed to "protect American credit card holders" by stopping "unfair rate increases." Instead, credit card companies prepared for their new straitened circumstances by booting customers who would no longer be profitable (read: poor people and other risky borrowers), and hiking interest rates for others. American Express even offered $300 bonuses to customers willing to pay off their cards and close their accounts—a deal designed to entice the kind of cash-strapped customers AmEx was soon to find less lucrative.

But as the new rules make it less appealing for credit card companies to offer their services to certain segments of the population, most of those people don't revert to a cash-only state of nature. The appetite for credit doesn't vanish when credit cards are harder to get. Instead, customers turn to options like installment plans, layaway, and payday lending for quick credit—and the fees they pay for those options are as high or higher than the credit card costs Congress and the White House found so objectionable. And in an economy that runs on plastic, debit cards replace credit cards for everyday purchases.

Prepaid debit cards have been around for a long time, and they were gaining steam long before Congress decided to protect Americans from predatory credit card companies. For lots of customers, prepaid debit cards are a great way to enjoy the benefits of the plastic-based economy without the temptation of going into debt, even with the fees that most cards charge.

But not all prepaid plastic is created equal. Consider (konsider?) the Kardashian Kard, a prepaid debit card graced with the smiling faces—and overflowing bodices—of useless celebrity sisters Kim, Kourtney, and Khloe. In a world of reduced choices, the Kardashians and their ilk are more than happy to scoop up the creditless suckers. This new wallet accessory boasts fees so spectacularly high that Connecticut Attorney General Richard Blumenthal felt compelled to comment that "among the prepaid debit cards now on the market, the Kardashian Kard is particularly troubling because of its high fees combined with its appeal to financially unsophisticated young adult Kardashian fans." The card—sorry, the kard—which costs a minimum of $99.95 a year to own, was taken off the market on Monday. Only 250 customers signed up, so the decision to kill the card likely reflected limited customer enthusiasm, not just fear of government action.

When the Credit CARD Act was signed, the White House reported that "nearly 80 percent of American families have a credit card, and 44 percent of families carry a balance on their credit cards." People who still have cards are carrying a little less debt than they were a year ago: $4,964 on average, down from $5,612 at this time last year, but this quarter saw the first (slight) increase in carried balance in some time. Today, 78 million American customers don't have credit cards, but most of those people are still paying for various kinds for credit-card like convenience.

Of course, the same folks who brought us the Credit CARD Act are always happy to regulate the alternatives to credit cards out of existence as well, brandishing the same rhetoric about predatory fees and rates and the same kinds of rules. But while government officials—including the new Consumer Financial Protection Bureau, headed by Elizabeth Warren—get set for another round of consumer credit whack-a-mole, consumer finance companies are already at work figuring out how to work around the new rules and give people the credit and convenience they want. And in the same breath, New Jersey Sen. Robert Menendez praised the Kardashians for voluntarily killing their card and announced plans to regulate prepaid debit cards with some brand new legislation.

Katherine Mangu-Ward is a senior editor at Reason magazine.

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54 responses to “Congress Forces Millions to Cut Up Their Credit Cards

  1. This new format makes the H&R main page take forever to download. It really, really sucks.

    1. I’m not having any speed problems with it.

      I did have to purge the CSS files from my squid cache in order to use the site, though.

    2. Also, it looks fucked up in chrome.

      1. There’s a line right down the middle of the text in FireFox.

        1. My Firefox line leaves the Reason text about 15% on the left of the line, 85% on the right. (Which sounds about right given the current stances of the major parties).

    3. The WidgetBlock extension for Chrome (and I assume other browsers) eliminates that problem.

  2. This is today’s “dog bites man” article, right?

    Also, what Skid said about the downloading….sheeeeeesh!

    1. No kidding. It’s as if every story and every picture have to download one at a time. I might just have to go back to reading the WSJ on line.

    2. Hmmm. I actually find it much faster. Less waiting for facebook and twitter and the like. Even with NoScript, those were always noticeably hanging up Hit and Run. Seems smoother now, but maybe an unrelated change.
      -K

  3. You don’t need to buy a prepaid debit card to get a debit card. All it takes is opening up a bank account.

    1. And you don’t even need a bank account to get a gift card (which may be different from a “secured credit card”) that works like a credit card; you just need cash.

    2. Maybe you missed the Reason bit where they addressed the fed’s new regulation of checking accounts.

  4. Road to hell. Good intentions. Pavement. All that stuff.

    1. See free checking for another example.

      1. That one was a bit less convincing. ING has one of the best checking accounts around and it isn’t going anywhere or becoming less free. It complied with the new law before there ever was a new law. Whereas with credit cards it is incredibly obvious that people who need to be charged 30% interest due to their risk aren’t going to get cards under the new rules.

  5. isn’t it axiomatic that the more clever the name of the bill (making the acronym spell the thing you are fucking over), the more of a dogfucker the bill is going to be?

    1. Hey, we spend a lot of time — and money — coming up with those names! That’s why we can’t read the bills.

      1. Convicts
        Oglers
        Ne’r Do Wells
        Gold Diggers
        Rhinos
        Enviro-wackos
        Slime Buckets
        Slick Willies

    2. Do you mean this?
      http://www.smh.com.au/opinion/…..17r2z.html

  6. The Kardashians. Like fucking an open sewer.

    1. They’re fat.

      Too.

  7. Sorry, but I do not understand how anyone finds these Kardashian hags attractive. YUCK!

    1. Racist!

    2. Kim is a total babe. Have you ever seen a picture of her sans makeup?

      Her sisters are less than hot, to put it politely

      1. Have you ever seen her orifices sans the rap artist?

  8. “Congress Forces Millions to Cut Up Their Credit Cards”

    I’d say Congress did millions a favor.

    1. Supply was artificially cut, demand is about the same. We’re all paying more to borrow now at a time when a lot of people need liquidity more than ever. A favor was done, but not to the consumer and not to the people who were supposedly going to be helped by the bill.

      1. “We’re all paying more to borrow now at a time when a lot of people need liquidity more than ever.” Liguidity…you mean living on borrowed time! Don’t borrow.

    2. I agree.

      1. I love you long time. (Though I don’t tithe)

      2. The real Dave Ramsey would would never agree to that!

  9. Another example of unintended consequences leading to more regulation leading to more consequences.

  10. Didn’t Reason recently run an article on what they called the “Debtor Society,” which lamented the fact that everyone in America is wallowing in huge amounts of debt? Maybe it’s better that millions of Americans are cutting up their credit cards.

    Although it would be even better if the government kept their noses out of it and let people realize that credit cards and mountains of debt is the devil on their own.

    1. Holy shit you weren’t expecting reason from REASON???

    2. Turn over that decoder ring! People shouldn’t be in debt but they should be able to choose to go into debt voluntarily (as long as someone is willing to loan). Those grammar school kids shouldn’t be buying heroin either but they still get the vending machine.

  11. let me be clear, you will still be able to keep your credit card.

  12. Here I thought it was Credit, Credibility, Accountability Reduction by Despotic Act

  13. Congress Forces Millions to Cut Up Their Credit Cards. That’s a good thing.

    1. But I am against the government in barrowing regulations.

      1. …and in regulations on barrowing.

  14. I have never had more than two active credit cards in my entire life. Those companies are worse than the Mafia.

  15. i find this thread uncompelling…almost as if somebody to bank-generated spin as gospel. Were banks really letting the rich subsidize the poor before? Were there not ridiculously overpriced cards before? Are bank profits fixed, such that if banks can’t make money off of credit card users they have a god-given right to make similar amounts off of checking account users. It’s possible that all this is true, but it is somehow inconsistent with my experience as… a banker

  16. Uh, Sorry to shatter everyone’s preconcieved notions, But the only card I have with a balance has an interest rate of .99% But I supposed that has someting to do with the fact my credit score is between 750 and 800. If you don’t like the price, don’t buy it. Or look for a better rate.

    1. Well, the problem is now that credit companies have been forced (sorta) to eliminate a huge chunk of their consumer base, they’ll likely compensate by raising interest rates on the more well-qualified and creditworthy customers such as yourself. I wouldn’t count this as a win for you, yet.

      Also, I can’t wait for the black market loans to ramp up. It’s been a long time since I saw Vinnie the Shark break some kneecaps.

  17. “Neither a borrower nor a lender be,
    For loan oft loses both itself and friend,
    And borrowing dulls the edge of husbandry.”

    But it’s still none of the government’s fucking business.

    See you behind the arras. Love,

    Polonius.

    1. We’re wishing we hadn’t lent that 800 billion bucks to our good friends in the USA. They’re getting all snotty about it.

  18. There’s no actual evidence presented in this article that anyone cut up their cards because of this bill. It’s just stated as fact, which is one of the laziest and most irritating facets of opinion journalism.

    When you’re trying to make an argument, having some sort of actual, empirical evidence would be quite useful. Especially when the state of the economy is already causing the same behavior you’re trying to attribute elsewhere.

    1. I cut up my card there at least one for you.

    2. Read it again: Eight million Americans cut up their credit cards this year, according to new data out from credit bureau TransUnion.

  19. It doesn’t make sense to compare credit card fees to payday loan fees. Credit cards are annual credit products, which can be offered a lower rates than payday loans, which are two-week loans.

    To put them in the same terms, a $100 payday loan would have an annualized fee of 391% ($15 over two weeks). A $100 credit card balance with a $37 late fee is 965% APR.

  20. Good that I don’t have even one.

  21. I was one of those people that got either my rates ridiculously jacked up or canceled, even though I have pretty good credit. This does not take away the need for these for emergencies and anything else that might come up. I work for a payday lender and see people come through my door everyday that have had this happen to them. Personally, I try to save and be responsible but I can’t say that if I had an emergency tomorrow, I would have enough to cover it. I would go to a payday lender to get what I needed. I think it’s so silly that EVERYTHING has to be regulated by the govt. Let people make their own choices in life!

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