Charge!

Are you one of those customers who pays your credit card bill on time, doesn’t roll with a minimum balance for years and is not flashing imminent economic problems with changes in your buying patterns? Great, because you are about to be punished! With new legislation pending to eliminate abusive practices among many credit card companies – from retroactive changes, big rate hikes for relatively short delinquency periods, hidden fees, instant demands for immediate repayment, dropped account maximums without notice, hair-trigger-sensitive late charges, cancellations for what seem to be unexplained reasons, and recent Federal Reserve rule-making to stop the practice of unexpected and unannounced rate increases – even the good credit card customers will find it more expensive to charge their purchases. As more and more credit card customers are being dropped in a sea of rising defaults, and as Congress presses for a more uniform and regulated approach to how consumers are treated by the lenders, banks are looking for ways to “make up the difference.”

Oh yeah, consumers should shudder at a fairly well-developed “impaired credit world” profiling criteria that most credit card companies use to determine who is most likely to become a default statistic. They look at the kind of purchases you make (low grade motor oil versus quality brands), where you spend your money (low-end discounters versus mainstream retailers) or signs of a change in your social status (baby registries show responsibility; paying a marriage counselors suggest a catastrophe). And that information is handed over to collection agents to deal very specifically with individual consumers. Even consumers who are not in default are contacted to accelerate payment if sufficient delinquency indicators are present. But the world is about to change for even the best customers.

Those lower rates, frequent flier programs, added insurance benefits, cash-back programs, bonus points and annual fees you see being handed out to attract the better credit risks… well, if you believe the credit card companies facing new stiffer regulation, the companies are focusing on what they still can do after the new law passes – a virtual certainty; the House passed the bill already, and Senate voted for the bill, 90-5 on May 19^th, and the House followed the next day, 361-64. After a short trip through the Congressional reconciliation process, it is expected that President Obama will sign the bill by Memorial Day. OK, a little amendment allowing visitors to national parks to carry guns attached as an amendment to the legislation may have carried the support to such exceptionally high levels.

Even with the new law, credit card companies can, with advance notice, still raise rates (albeit at a slower pace under the new law), charge interest from the instant you buy, eliminate grace periods, reduce the number of customers they will keep, charge annual fees and eliminate one or more of the goodies described above. And trust me, this process of change is already being implemented. Credit cards will be fewer in number, have new limited thresholds and cost more. Pricing will be much more uniform across the range of consumers.

The May 19^th New York Times: “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… ‘It will be a different business,’ said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. ‘Those that manage their credit well will in some degree subsidize those that have credit problems.’” It’s the American story in this managed depression: when the big guys screw up, one way or another, the little guys pay up.

Of course, the simple reality is that Americans should be borrowing a whole lot less – it’s what got us into the mess in the first place – but for many “safer” credit card customers, their use of a credit card was just cash flow management. Debit cards are always riskier, have fewer defenses if a seller engages in unsavory practices, and pose a huge risk in theft in general and identity theft in particular. And who carries a check book around anymore? Try and make an online purchase with a check and see how that works.

The plain fact is that the world around us is in the process of being reset; whatever happens and wherever we go from here will start from a new platform of lower expectations, downsizing and, for most, a permanent reset in lifestyle. We will retire later, live at a reduced level and be able to afford less. In this period of change, we may rediscover who we really are, stabilize, and maybe we can prove to the world that their predictions of the demise of America are misplaced. These forces can combine to create a lean, mean, competitive American machine, environmentally responsible with our perpetual ability to reinvent ourselves and our place in the world.

I’m Peter Dekom, and I approve this message.