No consumers need worry about the credit card rules

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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