No consumers need worry about the credit card rules

By Felix Salmon
May 19, 2009

Francis Cianfrocca is scaremongering: the new credit card regulations, he says, will end up hurting people who pay off their balance in full every month.

The credit card industry will have no choice but to start raising fees on the people who do what your mother always told you to do: pay off your debts on time and avoid high-rate balances. Stories are circulating that typical credit cards will start carrying mandatory fees, higher interest rates, and reduced or eliminated grace periods. As long as you’re going to spend money with plastic, your bank is going to insist on taking a cut, and they’ll find a way to do so.

What’s scary about this, is that this will be officially government-sanctioned behavior…

I hate being in debt so much that I don’t even have a mortgage. I’ll definitely be carrying less plastic from now on.

A few points are worth making here.

First, the cost to society of having millions of individuals carrying large credit-card balances with very high interest rates is vastly greater than the benefit to people like Cianfrocca of having a reasonably convenient way of paying for goods in shops.

Second, people like Cianfrocca are profitable for the card companies, thanks to those ever-rising interchange fees, not to mention the foreign-transaction fees etc etc. They might not be as profitable as the people who run balances, but banks are not going to be in any hurry to drive them away.

Third, if people like Cianfrocca start “carrying less plastic”, the harm to them (and us) is basically zero, until they get down to just one card. There’s no real need to have more than one credit card, especially if you’re paying off your balance every month.

Having a wallet full of credit cards, all of which you have to remember to pay off in full every month, and most of which won’t let you do so automatically, is actually not a particularly easy or efficient way of organizing your spending. If the new credit card rules move people away from that base case, and encourage them to simply spend money instead (using a debit card, or cash), then so much the better.


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It seems to me that the articles in CNBC and NY Times are just a result of a PR campaign by the credit card companies. It is pretty good example of journalists turning into mouthpieces for the industry.

Posted by dbar | Report as abusive

One of the websites on which I frequently spend money doesn’t accept debit cards, and doesn’t accept my preferred credit card, either. I have to use my backup.

This, though, is a partial equilibrium problem; if credit card companies find their interchange fees under attack and respond in such a way that large swaths of the public wishes to reduce the number of credit cards they have, the websites will be under more pressure to accept debit cards, etc. It might take a little while to happen, though; transitions are often a bit bumpy in the modern economy.

“First, the cost to society of having millions of individuals carrying large credit-card balances with very high interest rates is vastly greater than the benefit to people like Cianfrocca of having a reasonably convenient way of paying for goods in shops.”

What costs? It isn’t as though we have debtors prisons, so what exactly do you mean?

dWj, don’t tell me, your “preferred credit card” is Amex, right?

Posted by Felix Salmon | Report as abusive

I agree with dbar. I was pretty disappointed with the NY Times when I read that article today. It seems like they are naively swallowing the credit card industry line, ie., “if you try to make us be nice to those with bad credit, we’ll just have to come after the people with good credit”. This is patently a load of hogwash. People with good credit are the people who don’t really need to use credit cards – at least not much. I think the marginal return to credit card companies for raising fees on those people is going to be negative.

Posted by Nate | Report as abusive

I also agree with dbar. Threatening us ‘deadbeats’ with fees and interest is patently stupid. Have these banks ever heard of the word ‘competition’?

Posted by MattF | Report as abusive

Other methods are being used as well. For example, Discover Card used to let you credit your account in $20 increments of Caschback Bonus but now it has risen to $50 (I think, maybe it’s $60).

Posted by Argel | Report as abusive

It’s only natural that the credit card bill gets passed (obviously, it’s not quite done yet). After all, which representative is going to say no? His/her opponent will have a field day in the next election when the time comes.

Now, it’s only natural that banks are taking issues with this. There is no reason for them to go quietly. People use their credit cards and it will be difficult for anyone to abandon their cards just because they take a different stance.

I actually love using credit cards to accrue cash back and it’s easier to track expenses. Something that cannot be easily done or as well done with a debit card or cash. I simply pay it off every month.

I also pay off the entire balance every month to avoid any fees whatsoever and absolutely refuse to carry any balance. There is just no point in doing so. If I cannot pay it off in full, then I wouldn’t spend the money at first place.

Online websites for research and finding good deals is another way I stretch my dollars farther. For example, I recently came across an interesting table that details the discounts on Amazon at:

I imagine other people will find it useful too.

Posted by John | Report as abusive


I came to your blog a few weeks ago based on the recommendation of several financial web sites I read. For the most part I’ve been happy with what you do, but this post is one of the most ridiculous things I’ve ever read, anywhere, at any time.

Felix, there was a time not too long ago when you actually had to prove you could pay off your bills to qualify for a credit card. This is not a “convenience”, it’s financial responsibility, and we should not be penalized for it.

Would you recommend that we raise mortgage rates on homeowners who pay off their mortgages on schedule? After all, they’re just deadbeats who aren’t making any extra money for the mortgage companies, right? I can’t wait for the time when the only people using credit cards are the ones that can’t afford to pay and then the rest of us “deadbeats” have to bail them out.

I have three credit cards, one of which is only open because it has miles on it I haven’t used yet. Not a big problem to cancel it. I do see a reason for two though. You often need a backup if for no other reason than you get one canceled and reissued due to the card company database getting hacked – something I’ve experienced twice in the last three months.

Also, I find your first argument laughable. Since when is it up to you – or the credit card companies – to decide what is better for the common good, let alone decide the proper response to it? And when has any credit card company acted for any good other than its own?

Finally, stop calling us consumers; we’re citizens and would like to be treated as such. Maybe getting in the habit of thinking of us in this way instead of pigs at the trough will help in the future.

Posted by paul in kirkland | Report as abusive

All this talk about what is going to happen to “good” users of credit misses the point of the legislation entirely. It is an effort to protect consumers – all consumers – from the predatory and unfair practices currently being employed by most issuers of consumer credit.
One thing I have not been able to find out is what effect the legislation will have on those millions of consumers who are currently suffering as the victims of unfair practices by the credit card companies. Does anyone know if the legislation will apply to current accounts, or just new accounts/charges that are made after the bill is signed into law?

Posted by Mike | Report as abusive

Except that if those of us who are actually responsible cut down on the cards we use and carry or have to pay hefty fees just to have but not use them, our FICO score goes down – impacting our ability to get a mortgage, job, even our insurance rates.

I got through college without debt or credit cards. As a reward for my financial responsibility, after graduating, six months into a steady job paying $65k/year, getting a car loan for $6k required a co-signer and a 21% interest rate. (in 1999)

I’m kind of enraged at the idea of soon having to pay yearly fees to the credit card companies just so I’ll be able to get a good mortgage rate eventually.

Posted by Brad | Report as abusive