Fri, 26 Aug 2005

Not Quite Totally Wow

I've been blogging a lot lately on the subject of the upcoming rise in minimum payments on Americans credit card debt. I was initially more concerned over my personal situation vis-a-vis this issue than I was with the overall effect - now that concern has been reversed.

I finally managed to get a hold of some upper level people at the card companies with which I have business dealings, and have discovered that they're all planning to implement these regulations in a rather creative way. Rather than going to the exact limit - from 2% of the outstanding balance to 4% - they're going to "interest and fees plus 1% of the outstanding balance, or 2% of the outstanding balance, whichever is greater."

This is good for me, personally, as it means my minimums will not be rising by much, if at all, due to my excellent credit rating and history, and hence my relatively low interest rates on these loans. But ...

This formula is utterly dependent on interest rates: get a higher rate on a given card and you're screwed. And getting higher rates on your existing loans isn't tough: just be a day late on a single payment!

Given that many credit card companies have recently raised fees and rates, and that the Fed shows no interest (pun intended) in lowering rates out of a (misguided, I believe) fear of inflation, the impact on the economy still promises to be something rather severe. Probably not a repeat of the Great Depression (which it could've been if the companies had stuck exactly to the intended meaning of the regulation, rather than to the letter) but certainly a recession, and possibly a rather deep one.

/Politics | 0 writebacks | permanent link

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