Louis the XIV’s finance minister, Jean-Baptiste Colbert once described the art of taxation as plucking the maximum amount of feathers from the goose with the least amount of hissing. Credit card companies have managed to do the tax man one better. They don’t care what the goose does, as long as they get their feathers. At least until now.
As we have noted before, credit card companies have gotten so good at profiting at the expense of their customers that regulators are considering reining them in. Fundamentally, the problem is that the credit card revenues come largely from customers who are seriously in debt. In the old days, when issuers charged annual fees, customers would have a small number of cards and any card they had they would use to at least some degree (otherwise, you would cancel the card rather than pay the annual fee). Thus, the credit card issuer was assured a reasonable amount of income from each customer due to the annual fee plus transaction charges. But as card companies first cut, then eliminated annual fees, customers began signing up for more cards (why not?) and issuers came to depend almost entirely on interest charges and various forms of late fees for their income. So, to them, “deadbeats” are customers who pay their bills in full every month, and the most attractive customers are the ones chronically in arrears.
So far, the Senate Banking Committee has merely seemed to be politely interested in the question of credit card price gouging. For some reason, the powers that be are leery of using the term “predatory pricing” as far as interest rates of over 22% are concerned (and that’s before giving effect to late fees and other charges).
Nevertheless, some banks are making cosmetic changes to look more consumer friendly. This is Colbert’s hissing goose in reverse. The banks are cutting the charges that are highly offensive to customers but don’t garner them all that much income. From MarketWatch, “Some credit cards get a little less onerous:”
It’s not often that consumers welcome the news they get from credit card companies, but Citi, the financial services company, said Thursday it is easing some rules on its consumer credit-card accounts.
Citi is ending “universal default” on all Citi-branded consumer credit cards, effective immediately, the company said. Universal default, a common practice among credit-card issuers, is when the company increases a consumers’ interest rate when that consumer is late paying other creditors’ bills.
Also, Citi said it would eliminate its “any time for any reason” rate increases, which allow the company to raise interest rates and change terms at any time and for any reason another common practice among card issuers. Citi said the policy is effective immediately for new customers and will go into effect for current customers by April.
Thanks to the changes, interest rates and fees will increase only if the customer pays Citi late, exceeds the credit limit or pays with a check that bounces; and, if the card’s interest rate is tied to the prime rate, the rate will change to parallel changes in the prime rate, said Samuel Wang, a spokesman with Citigroup. Also, under the new policy, the card’s terms may change when the card expires, generally after two years, he said.
Citi said the changes were part of its ongoing efforts to “put our customers first.”
“We’re committed to building better relationships with our customers, and at the end of the day that’s mutually beneficial,” Wang said.
Consumer advocates said the changes were good news, but were prompted by Congress’ attention on credit-card company practices.
“We applaud Citi. We think it’s a positive move,” said Travis Plunkett, legislative director with the Consumer Federation of America.
Citi is not alone in making consumer-friendly changes, Plunkett said. “About three weeks ago, Chase announced they would no longer (engage in) the often-criticized practice known as double-cycle billing,” he said, where a company applies interest charges on a two-month period, rather than a one-month period. Under that practice, “people receive interest charges on the balances they’ve already paid off,” Plunkett said.
Citi’s and Chase’s announced changes “are not occurring in a vacuum,” Plunkett said. Congressional hearings addressing credit-card industry practices “signal that Congress is getting serious about abuses in the credit card industry,” he said.
“Credit-card issuers are announcing unilateral changes in their practices that have been criticized because they are now fearful that Congress will legislate in this area and they don’t want that to happen,” Plunkett said….If other companies don’t follow Citi’s lead and Congress doesn’t act, Plunkett noted, consumers will still face universal default and other onerous policies in the marketplace.