NO SENSE GETTING CHARGED UP ABOUT THIS

5/20/09

Yesterday, the Senate passed much ballyhooed restrictions on credit card companies, restricting at least the timing of the rate increases they can impose on overdue balances, requiring greater disclosure of charges and policies, barring over-limit fees unless the holder consents to such fees, allocating payments to higher interest rate balances, and, generally, making it more difficult for extenders of these unsecured credit lines to price for the risk involved in the granting of such parlous credit. The House will soon go along with the plan, which was, as it turns out, largely unnecessary because essentially the same restrictions would have gone into effect under Fed rules by July, 2010. What this bill does is move up those rules by a whopping five months, to February, 2010, and give our public servants yet another opportunity to grandstand.

The obvious counter to the perceived need to punish the credit card industry for extending credit to people who otherwise would be left to the tender mercies of payday loan operations, pawn shops, or guys who take knee caps as collateral is to tell people that if they don’t like the terms demanded by their credit providers perhaps they ought to forego credit cards or at least pay their bills in full every month; i.e., live within their means and/or use their credit cards for convenience (i.e., as charge, rather than credit, cards) if they feel they cannot conduct their lives without a credit card. However, what would have seemed like the very essence of common sense to a prior generation now seems so crass and cruel that one who has the audacity to suggest living within one’s means risks castigation as being cold, uncaring, and completely unsympathetic to the plight of those who somehow feel compelled to borrow at rates that would make the late Sam “Moony” Giancana and his associates envious. You can just hear it now: “You mean you want me to live without a flat screen? And eat at places like Denny’s? And forego the mini-bar? You monster! Have you no sympathy? How much sacrifice can you demand from this generation?”

One of the predictable consequences of banks’ being unable to price their unsecured credit lines for risk will be, besides pulling back on credit and thus opening new avenues of opportunity for the aforementioned pay day loan usurers, pawn shops, and leg breakers, will be the reimposition of annual fees for credit cards and the desweetening, if you will, of rewards programs for all cardholders, even those who pay their bills in full each month and thus use their cards for convenience and to save a few bucks on a car, vacation, or gasoline. So, once again, the government is punishing the responsible in order to prevent the irresponsible from bearing the consequences of their actions. This, of course, is par for the course; modern government is seemingly set up to punish responsible behavior and reward irresponsible behavior. This, of course, leads to more irresponsibility which creates the need for more government, creating a self-perpetuating business model for blowhard politicians. Nice work if you can get it.

So, yes, people who pay their credit card balances in full each month will probably get hit with annual fees and watered down, or eliminated, rewards programs. But I say “So what?” I know at least one such defier of modern financial wisdom who will simply cancel all his cards that demand an annual fee and will similarly cancel, or not use, those cards with stingy, or newly non-existent, rewards programs. If all of his cards demand annual fees, he will simply use a debit card. If fees are demanded for debit cards, he will (Saints preserve us!) pay with cash. It’s no big deal. He can live without credit and will do just fine. If all consumers had the same attitude toward credit, we wouldn’t be having this national discussion regarding punishing those big, mean credit card companies.

Whether our modern economic system, which has at its very foundation profligate use of credit and living beyond one’s means, could survive an outbreak of financial rectitude is another matter. Perhaps we would have to modify the system, to adapt it to the frugal, responsible model that was in place when this nation was becoming the economic superpower it once was. But I am being uncharacteristically starry-eyed and optimistic to even admit the possibility that the typical third millennium American could bear the unbearable sacrifice that living within one’s means entails.