Tuesday, May 19, 2009

Credit Card Industry Will Target Good Customers?

So they say, since if pending credit card reform legislation passes they'll no longer be making billions in interest and penalties on balance-carrying customers:

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.”

As they thin their ranks of risky cardholders to deal with an economic downturn, major banks including American Express, Citigroup, Bank of America and a long list of others have already begun to raise interest rates, and some have set their sights on consumers who pay their bills on time. The legislation scheduled for a Senate vote on Tuesday does not cap interest rates, so banks can continue to lift them, albeit at a slower pace and with greater disclosure.

“There will be one-size-fits-all pricing, and as a result, you’ll see the industry will be more egalitarian in terms of its revenue base,” said David Robertson, publisher of the Nilson Report, which tracks the credit card business.

I enjoy the clever use of the word "subsidize." What Yingling really means is that an old business model is likely to come to an end. For years now, while credit card companies have been busy soaking customers who carry balances with excessive fees, penalties and interest, they've been busy making one commercial after another touting the perks of a particular card in the form of frequent flyer miles, points for various purchases, discounts, etc., etc. In this manner, cardholders who pay fees and interests have "subsidized" an image for these companies that hardly matches the reality. That credit card companies may have to treat all of their cardholders in a less dissimilar manner does not especially trouble me.

Also, it amuses me that the credit card industry thinks that their non-balance carrying cardholders are simply going to accept these changes. The reason most of these customers use a card in the first place rather than paying cash outright is for the perks that a particular card provides. How many of these cardholders do they imagine will hang around once the perks become less perk-y, and they're being charged interest and fees? If the credit card industry believe their own hyperbolic claims, surely it is because they have become entirely too used to customers who simply can't take their business elsewhere.

UPDATE: I told you so.

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