'Fraid so. One of the likely implications of the new credit card law is freeloaders like me are coming to the end of a wonderful joyride.
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. [More] [My emphasis]
This is harshing my buzz, dudes. I looked up the new rules, and no mention is made of a mandatory grace period.
Like other irresponsible citizens, the only time I ever paid any interest was when I was a day late paying the statement. Since I signed up for inter venous withdrawal from my checking account, even that meager of source of income from me eluded those poor schmucks at Citicorp.
Meanwhile, they were handing me free frequent flier miles. In fairness, I do pay $75 per year for this card, but it's still a big bargain in my book.
I'm a deadweight bad person.
But here's the deal. I've gotten hooked on using credit cards instead of checks/cash. Plus it helps me keep track of exactly how I squandered my dough. It always reminds of the sci-fi future when nobody uses money, only "creds" or something.
But if every swipe starts the interest counter going, how will our economy survive? We can't go back to cash - all the bills are in Russia and Mexico. And nobody can make change anymore.
I'm not the only one calling their bluff.
They say limits on fees and interest charges will mean the end of bonus rewards programs and low interest rates, as well as the return of annual fees for customers in good standing.Besides, I've almost got enough miles to get to Australia.
Scherer said he fears card companies could start charging interest from the day of a purchase, rather than after the traditional 30-day grace period.
“If they start charging interest from the day of purchase, I’ll just pay cash for everything,” he said. “It’s no big deal to me at all.”
In fact, experts said, that would be the response from many consumers, making the elimination of all incentives and the grace period doubtful.
“Companies would lose a lot of business,” said Scott Laughlin, client service manager at Consumer Credit Counseling of Buffalo. “These good customers are the ones with the bargaining power. Nothing is keeping them with a credit card company that has nothing to offer them.”
Cristian Tiu, assistant professor of finance and managerial economics at the University at Buffalo School of Management, agreed that clamping down completely would be difficult. While interest rates might increase at first and bonuses such as frequent flier miles could disappear, they probably would kick back in eventually, he said.
“Somebody has to drop first because of competition. Somebody will want to snatch that customer and will offer incentives to do it,” Tiu said. “I wouldn’t be too worried that those benefits would go away forever.”
In addition, credit card companies collect merchant fees on each purchase. That revenue would disappear if consumers switch back to cash, giving credit companies another reason not to penalize good customers. [More]