Tag Archives: Democrat

Some time ago I wrote about the impact of the new consumer protection measures.  In fact, I was keyed onto this by a post from Dave Ribar on the subject.

Dave’s main point was that credit card companies won’t raise the annual fees they are charging their best companies; so far he is right.   But those credit card companies ARE doing other things.  According to an article in the Wall Street Journal, we are seeing:

Credit-card issuers increasingly are moving consumers into variable-rate cards rather than fixed-rate ones, due in part to the new credit-card law slated to go into effect in phases starting in August.

What this means is that credit card companies are simply determining that government regulation is correctly seen as “damage” and they are routing around it.  See, by definition, the variable rate cards are not subject to the new law passed by Congress.

The new law limits creditors’ ability to raise interest rates, but it can’t control changes in the prime rate – the index that’s the basis for most variable-rate cards. So even after the new law starts to limit rate increases, variable-rate cards will still change if and when the index they’re based on changes.

Again, this law is another example of the government stepping in to rescue people who are simply demonstrating irresponsible behavior.  If I have money to borrow, and I determine that Pete is less trust worthy than Sally, there is only on way in which I borrow to Pete; charge him more.  If Pete would like to enjoy better terms, he could accomplish that by proving that he is more trustworthy.

Again, if a certain group of people feel tha high risk borrowers should be afforded credit, they are free to do this with their own money.  Forcing others to do it by rule of law is ignoring basic laws of economics as well as going against human decency.

Six weeks ago Dave Ribar wrote about the affects of the new consumer protection measures.  Congress pass and Obama signed a new law that would restrict banks ability to raise rates and fees.  It seems that certain elected officials are shocked, just SHOCKED at the news that banks are responding by raising rates now:

Yesterday, Sen. Charles E. Schumer (D-N.Y.) once again requested that the Federal Reserve invoke its emergency powers to place a limit on interest rate hikes.

“This is what many of us feared about a law that didn’t take effect right away,” Schumer said. “It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law, and it is just plain wrong.”

And:

Rep. Carolyn B. Maloney (D-N.Y.) said the recent rate and fee hikes were “unfair and deceptive and must be stopped.”

“Capricious actions like these are why Congress overwhelmingly passed, and President Obama signed, my credit card reform bill: to level the playing field on behalf of consumers,” she said.

However, I am not so sure why this should catch these folks, or any of us paying attention, flat footed.  It’s not as if the companies didn’t warn us:

Bank executives had warned that the new law would force them to increase rates and fees because it would keep them from properly managing borrowers’ risk.

The reason for this?

The argument is that if banks can’t raise rates on riskier customers, they will have to raise rates on all.

Silly I know.  When banks lend money they wanna be able to asses risk and base rates accordingly.  When this ability is taken away from them, how would you expect them to react?

Look, it seems reasonable that different portfolios of risk would return different rates of profitability.  Sure, there IS profit for the banks by extending credit to borrowers who payoff their balance every month.  Equally likely is the fact that these borrowers will likely never default and declare bankruptcy; low risk, low gain.  On the other hand, by extending credit to high risk borrowers increases the chance that the banks simply lose their money.  In fact, we have been seeing this:

Banks have been hit with a record number of charge-offs, or debts they give up on because the borrowers have no way of paying them back. In June, credit card losses hit a record 10.44 percent, according to Fitch Ratings.

Once again, it seems that Liberal policies meant to protect the people have only hurt the people.  But this isn’t new.  An interesting fact is that it’s currently possible for individual Liberals to lend THEIR OWN MONEY to risky borrowers.  I wonder how many do?  And if they do, would they still scream for regulations on rate and limits and such.

Finally, I love the personal story that ends the Washington Post article.  You know, the token story of one single person getting taken advantage of by these evil evil companies.

Charles Chichester Jr., a 65-year-old retired U.S. Postal Service employee who lives in Fairfax County, was trying to pay off his credit card soon but now fears he will be unable to do so at all. He received a letter from Chase, he said, notifying him that his $373 minimum monthly payment would increase to more than $900. When he called to say he could not afford that, a Chase representative told him to consult with a credit counselor, he said. That’s exactly what he plans to do.

“The 900-something-dollar minimum monthly payment is just something I cannot do,” he said.

Of course, NOT on the list of things that Charles cannot do?

1. Rack up more than $18,000 worth of debt on a single credit card while pulling a retired U.S. Postal Service employee’s income.