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Summary: industry experts say when Congress limits the ability of credit card companies to make profits off late fees, rate increases, etc., the companies may be forced to bring back annual fees and reduce or eliminate interest-free grace periods.
Consumer advocates say they have little sympathy for credit card issuers, arguing that they have made billions in recent years with unfair and sometimes deceptive practices. “The business model will change because the business model doesn’t work for the public,” said Gail Hillebrand, a senior lawyer at Consumers Union. “In order to do business under the new rules, they’ll actually have to tell you how much it’s going to cost,” she said.
I say any credit card company that eliminates the grace period on purchases will basically eliminate my business because I don't pay interest on my non-mortgage debt.
It's very frustrating as a consumer, but if you're the CCCs, it makes sense. In the grand scheme of things, they really don't care about the actions of our carrying balances or PIF. What they care about (and what every for-profit organization should care about) is increasing profit and minimizing risk of losing profit.
Because they were able to (whether considered ethical or not), they have been rate jacking and hitting late payers with nasty penalty fees, and this has become part of their profit model. They have been counting on that revenue in order to hit their profit and growth numbers.
Now, the new legislation is threatening that revenue stream (in fact, introducing higher risk of losing profit). So, the banks and CCCs are trying to mitigate that risk by securing replacement revenue in other areas. Thus, they can go after people who charge large amounts on their cards each month but PIF on time and start charging them interest immediately after the purchase instead of giving the grace period. This eliminates the 'free rides' that many of us on these forums have been enjoying by getting the points and cash back for thousands of dollars of purchases each month that the CCCs don't get any interest on.
It bites, for sure, and I'm not saying it's right. I'm just saying I understand it.
Some predictions on where this might hurt those who pay on time:
1. Fewer points/rewards, as stated in the article.
2. More difficult to get approved for any cards that do still offer rewards.
3. More people will stop charging as much to their cards if there are no cash back or points rewards to incent them.
4. More CLDs resulting from #3 as we've already seen this year for people who the CCCs have decided aren't charging enough.
Hawkeye----your analysis is right on. Several strategies that I've employed will most likely come in handy now:
I am hopeful that the credit unions and small banks will remain as they have been, and in discussions recently (today) they have confirmed (off the record) that they will.
I don't want to sound like the town bully but if the banks won't give me the incentive to use the service, I'll just take my football and go home.
We; the minority, who charge large amounts monthly and PIF, do so for only two reasons that I can see and that is:
Maybe we should start a topic about which banks/CU's will continue to be PIF friendly.
@Itsmeagain wrote:I don't want to sound like the town bully but if the banks won't give me the incentive to use the service, I'll just take my football and go home.
We; the minority, who charge large amounts monthly and PIF, do so for only two reasons that I can see and that is:
Take away those incentives and I'll probably just dust off the ol' check card and forget about them.
- The rewards we get from allowing the banks to collect a fee from the vendors we use.
- The convenience of paying one bill monthly and having our expenses all in one place.
Maybe we should start a topic about which banks/CU's will continue to be PIF friendly.
3. Better protections against fraud than with debit cards.
3.1 stronger laws in favor of the consumer when a credit card is used
3.2 while a disputed charge is being resolved they are out the money, not me
(some years ago my wife's checking account was hit by fraud, so we were out a few hundred dollars while it was sorted out)
@hawkeye33 wrote:... Thus, they can go after people who charge large amounts on their cards each month but PIF on time and start charging them interest immediately after the purchase instead of giving the grace period. This eliminates the 'free rides' that many of us on these forums have been enjoying by getting the points and cash back for thousands of dollars of purchases each month that the CCCs don't get any interest on.
It is not exactly true that CCC's are giving those who PIF a free ride with grace periods. You are conveniently ignoring the fact that by simply swiping your card you are giving the CCC an approximately 3% commission which comes, one way or another, directly out of the cardholder's pocket.
So, even if you PIF, you are giving CCCs an approximately 18% APR on their investment.
@Underh20 wrote:
@hawkeye33 wrote:... Thus, they can go after people who charge large amounts on their cards each month but PIF on time and start charging them interest immediately after the purchase instead of giving the grace period. This eliminates the 'free rides' that many of us on these forums have been enjoying by getting the points and cash back for thousands of dollars of purchases each month that the CCCs don't get any interest on.
It is not exactly true that CCC's are giving those who PIF a free ride with grace periods. You are conveniently ignoring the fact that by simply swiping your card you are giving the CCC an approximately 3% commission which comes, one way or another, directly out of the cardholder's pocket.
So, even if you PIF, you are giving CCCs an approximately 18% APR on their investment.
Exactly so, and if some companies start ripping off PIFers they will soon learn the hard way that PIFers can take our business elsewhere. Companies who have become accustomed to fat profits from ripping people off will simply have to adjust to the new reality and get used to making a modest profit the old fashioned way.
@MattH wrote:
3. Better protections against fraud than with debit cards.3.1 stronger laws in favor of the consumer when a credit card is used
3.2 while a disputed charge is being resolved they are out the money, not me
(some years ago my wife's checking account was hit by fraud, so we were out a few hundred dollars while it was sorted out)
Good Point. I just succeeded in having a disputed charge with Amex removed and they did it without any bickering whatsoever. I hope all the banks/CU's don't do away with the PIF incentive.