Credit, But Not Where Credit is Due

Most of the stuff in the credit card bill that passed the Senate yesterday and the House just moments ago seems like common sense reforms—don't raise rates after the debt has already been incurred, don't offer introductory rates that vanish instantly, give users more information about the size and structure of their debt, and make the fine print slightly less fine. It all sounds reasonable enough to the layman, which is probably why the vote went 90-5 in the Senate.  

But of course, the reforms are not without cost. And the bulk of those hidden costs all be incurred by the people who played by the rules, didn't get into debt, and used their credit cards responsibly—and people who have yet to apply for a credit card. We laughed when our dogs received a pre-approved AmEx in the mail, but those days are going to look pretty rosy compared with the more restricted credit market that's kicking in now.

One soon-to-be victim of the reforms, Randall W. Forsyth, writes in Barron's today about how the slashing of perks and loss of flexibility that's about to take place:

I don't view the rebates I receive to be a windfall. I see this dough as a recoupment of the credit-card merchant fees built into the prices by retailers. That 1%-2% in fees is borne by consumers, whether they opt for plastic or paper….

Given the pervasiveness of the use of plastic, I can't see it being eliminated, even for low-margin merchants such as supermarkets. And for transactions such as airline tickets, car rentals, hotel bills, paying with cash will probably trigger a call to the FBI….

So, given all that, it seems likely I'm going to be paying the price of credit-card reform….

Meanwhile, as a saver, my interest income has been decimated by the Federal Reserve's slashing of interest rates to zero. As a taxpayer, I have borne the risk of the capital injections into banks through the Troubled Asset Relief Fund….I don't know why I'm getting the short end of the stick for having been prudent.

Plus, people under 21 will need parental consent to get a card, joining having a beer on the list of rites of adult life denied to 18-year-olds by the U.S. Congress.

UPDATE: The House voted at the same time to allow people to carry guns in national parks. You just won't be getting cash back on that family wolf-hunting vacation to Yellowstone from your credit card company anymore.