Cut up the plastic


Read another inaccurate article yesterday on Yahoo Finance about credit cards, entitled "5 Evil Things Credit Card Companies Can (Still) Do."  Yes, I know, it's a long title.  But the goofy title alone told me this would be an eye-roller, and it didn't disappoint.

The title by itself is the first thing that got me going.  There are no such things as credit card companies.  What does that mean anyway?  Credit cards can only be issues by banks and credit unions.  So for example, Visa does not issue a credit card.  Nor does MasterCard.  An organization must be a financial institution in order to issue a credit card, Visa and MasterCard are companies that 'co-brand' credit cards along with banks and credit unions.  Get it?  (If you don't get it, then just stop reading here and go back to bed.)

We allowed the government to get involved in legislating what card issuers (banks and credit unions, remember?) can and cannot do in terms of collecting certain revenues.  So let's make sure we keep this straight — the body of government that took their eye of the banking ball for the past 20 years, which culminated in the greatest financial industry melt down in our history — and we've given them the mandate to dictate what banks and credit unions will do as it relates to about 5% of their overall loan programs.  (Yes, a credit card is a loan to you, and therefore part of a financial institutions loan portfolio just like auto loans and home mortgages.  Of course but credit card is 'unsecured' lending as there is nothing to repossess.  Still with me?).  Allowing the federal government to rush these consumer protection laws into practice was a big mistake.  So they make the laws then they try to build an agency to oversee the right of the consumer.  Does anyone else see this as being backward?

Here's another learning opportunity.  Although credit card outstanding represents about 5% to 10% of a financial institutions loan portfolio, the revenues generated represent from 25% to 40% overall.  That's what we call SWEET.

Now back to the bankers.  The assholes that are in charge of these programs sense their revenue stream shrinking, they kick into another gear. The new laws take away their ability to collect over limit fees or to rape consumers with penalty fees that are often double or more than the original APR — many as high at 35%.  Even being late and collect that fee will be impacted as issuers will have to wait two cycles and then notify the consumer before attempting to collect a late fee.  It's a big mess.  And yes, many are ruthless assholes.

The way banks screwed consumers has been a problem and needed to be addressed, but the government chose to paint all financial institutions with a broad brush as though all were guilty of mismanagement.  Truth is, it was the large bank issuers that caused the problem, and it certainly wasn't all of them.  So my issue is that our brilliant congressmen and senators stumble all over themselves to get these regulations changed and end up punishing the entire credit card industry rather than addressing the few bankers guilty of consumer abuse.

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