Tuesday, May 19, 2009

No Free Lunch

The Credit Card bill has passed the Senate and now will be reconciled with the House bill and sent to the President. The NYTimes had an article earlier today about who this hurts...and it's not the credit card companies. It will hurt YOU. A staple of any personal finance book is to use credit cards for the free benefits that can result if you pay your bill on time every month. Now credit companies will be looking to make consumers pay for the privilege of using their card, which will subsidize those who abuse their credit card, but yet cannot be charged for such abuses.

Why is this world being made easier for the irresponsible? Does paternalism have no limits in the face of market forces?

The most practical pain in the ass of this whole mess is that those who have high benefit, no/low fee cards will now have to decided whether it is worth closing their accounts and taking a hit on their credit score or simply paying the new fee.


  1. You have to be kidding me. I use my card to pay everything else except the mortgage, then I pay it off each month. It is (was?) a great bookkeeping tool.

    Yes, I want $10 gasoline. Actually, after hearing this I want $20/gallon gas. I want the bottom to fall out quickly so that we can rebuild because each time we reward irresponsible decisions by company leaders and individual borrowers it just adds mass to the ball hurling toward a wall. I want accelerate the speed before anyone has more time to think up this garbage. I want control over my finances and these uncertainties we keep employing to bail people out are killing me.

    Huge gas price hikes drive out the bad loans rather than stringing out the process and this is a bandaid that is best removed quickly. I've been waiting years for what happened in '08, and now we're artificially propping up dead bodies.

    I read something recently; instead of continually fishing bodies out of the river, let's get the heck upstream to find out where they're coming from.

  2. I actually believe that when you use your credit card interest should be charged on every transaction, even if you pay it off on time at the end of the month. When you use your CC like that, you are essentially getting a short-term loan and as we all know, loans = interest. Even the short-term ones. Other things the CC companies do are bad, but in my opinion this is something they should do.

  3. I must assume the second Anonymous is different than the first. Yes, a credit card operates as a rotating short term loan, but credit card companies have not charged interest on purchase because such a policy would most probably cut their market in half. People such as myself and Anonymous One up there would almost certainly cancel our cards and all that would be left are those who most probably cannot pay for whatever they are buying. More stores would feel comfortable in not accepting credit cards as less people had them, and the entire industry would take a huge hit.

    I'm curious why you think this is something credit companies should do? Is it business advice, or is there some policy perspective behind it?