Prepare to Hate Your Credit Card Company Even More

Is this an industry scare tactic to prevent unwanted regulation, or a real threat?

Now Congress is moving to limit the penalties on riskier [credit card] 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.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

"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."

That's from the New York Times this week. My first reaction was horror. I am lucky enough and thrifty enough to be able to pay off my credit card bills each month, so the idea of subsidizing the more spendthrift within our society struck me as unjust. My second reaction was that this is a head-fake. Note that the first quote in the story, the one above, comes from the head of the ABA, an industry lobbyist. Perhaps this is just good lobbying, an attempt to frighten the nation's diligent bill-payers into calling their representatives and telling them to block credit-card reform.

I'm inclined to believe the latter. Anyone with decent (or even not-so decent) credit knows how competitive the credit-card industry is -- just count up the number of credit card offers in a week's worth of mail circa mid-2007. It'd be hard for the credit card companies to uniformly charge an annual fee. If one company strayed from the herd and offered a no-fee card to high-quality borrowers, customers would flock to it.

But even if the industry's threat is genuine, maybe it wouldn't be such a bad thing if prime borrowers pony up a bit more money. Further down in the article:

People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, said [industry analyst David Robertson], because many have not had to pay an annual fee even as they collect points for air travel and other perks.

"Despite all the terrible things that have been said, you're making out like a bandit," he said. "That's a third of credit card customers, 50 million people who have gotten a great deal."

He's not entirely right, of course -- credit card companies make money from stores and restaurants every time we swipe our cards, so even prime borrowers that pay bills on time contribute to the bottom line. But if forcing responsible borrowers to pay more seems unfair, asking less fiscally sound households to pay 25 percent interest rates and $40 late fees is equally unfair. The brave new credit card world laid out in the Times article is in some ways indicative of today's zeitgeist, with its focus on decreasing inequality and sharing societal burdens more broadly. Pay attention, Wall Street -- you'll be next.