22 Aug 2005
Wow! Part Two

I called my credit card issuers today and confirmed the information in yesterdays post. It's true - minimum payments are going to rise substantially, but not all will double. The formula is pretty complicated, and the exact implementation is left to the individual companies. Some (Chase) are apparently going to a 4% solution: the minimum will rise from 2% of the outstanding balance to 4%. Others (MBNA) are going to a "interest and fees plus 1 percent of the outstanding balance". Depending on the interest rate, this could be about equal to the current 2% of balance, or a whole lot higher. The key is that interest rates are now uncapped, and one late payment to any of these bozos will see your rates on all of the cards (as they swap info via the credit bureaus) rise. Sometimes to 30%...

And the banks are not happy about this: they can see the writing on the wall, and more or less admitted as much to me today. The new bankruptcy law will shield them to some extent, but the fact remains that they stand to lose their butts if this goes on. Their best customers, the ones that account for most of their profits, are the folks like me who carry large balances and pay them off over time at relatively high (18%) interest rates. They're gonna lose alot of folks like me over this - we simply can't afford it. Their profit margins will shrink, and we all know what that does to the stock price.

So, what I can't figure out is this: who profits from this, and why was it pushed through so quietly. I can't see how the government would benefit, and while you could argue that consumers will benefit by paying off their credit card debt quicker, that depends on them having cash on hand to make the increased payments. Which will stress the economy as gas heads towards $3 per gallon and the holiday shopping season, even if no one defaults on their debts because of this. Discretionary cash is going to be in short supply come the New Year.

So, who's the winner? And why? Comments, please!

00:00 /Politics | 1 comment | permanent link