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Mixed blessing: credit card reform may shock some
Yahoo! Finance News / AP ^ | February 21, 2010 | Eileen Aj Connelly

Posted on 02/21/2010 2:42:59 PM PST by danielmryan

NEW YORK (AP) -- Your next credit card statement is going to contain an ugly truth: how much that card really costs to use.

Now, thanks to a long-awaited law that goes into effect Monday, you'll know that if you pay the minimum on a $3,000 balance with a 14 percent interest rate, it could take you 10 years to pay off.

"Jaws will drop," said David Robertson, publisher of The Nilson Report, a newsletter that tracks the industry. "I don't doubt for a nanosecond that it's going to give a lot of people a sinking feeling in their stomachs."

That's not all that will make them queasy.

During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.

It wasn't supposed to be this way....

(Excerpt) Read more at finance.yahoo.com ...


TOPICS: Business/Economy
KEYWORDS: consequences; creditcrunch; debt; economy; obamanonics
All I can say is, "what else could one expect?" I've never seen evidence that purportedly predatory lending agencies had a huge, or even large, rate of profit. In that absence, it's logical to conclude that the high-fees, high-interest credit card purveyors have had their huge gross margins whittled down by defaults.

In other words, they were extending credit to high-risk borrowers. It's only common sense to realize that, if they're clamped down upon, they won't extend credit as far as they had.

I should note that a blessing can be salvaged from the (possibly!) unintended consequences. As a result of that law, more high-risk borrowers will have to do without. Although they's basically being dragged into financial prudence, they may wind up more modest in their expectations.

(Or, they might wind up getting mad...)

1 posted on 02/21/2010 2:43:01 PM PST by danielmryan
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To: danielmryan

What will happen is the pinched poor and lower middle class will start demanding more “help” from the government to pay their bills, buy groceries, fix their mortgage, etc. So those of us with middle incomes and families are going to get squeezed even harder in the name of “compassion.” We have no advocates.


2 posted on 02/21/2010 2:52:59 PM PST by Kieri (The Conservatrarian)
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To: danielmryan
It doesn't.

Default rates on credit cards run 10% of the outstanding balances per year.

The high interest is required to cover credit losses and servicing costs. At present epidemic levels of deadbeat behavior, nearly all the major card issuers are losing money even at these rates charged.

When people pay them back, they are a profitable business - even if paid off immediately with minimal interest charges. Because they collect the merchant's servicing fee, and don't experience default losses.

As usual, the populist crapstorm directed at "usury" rises exactly when the masses are sticking their bankers and robbing them blind. Not the other way around.

3 posted on 02/21/2010 2:56:07 PM PST by JasonC
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To: danielmryan

Many people are morons.

If the CC companies could show them just how much a purchase is going to cost, based on the rate they anticipate paying off the card, maybe it would help more of them make better decisions.

But they shouldn’t really need to....


4 posted on 02/21/2010 3:00:29 PM PST by bigbob
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To: danielmryan

Subprime lending has always been a money losing proposition, numerous firms that specialized in that segment have crashed and burned.

Mercury Finance financed subprime auto loans, went belly up.

Same with the firm that Danny Marino shilled for 10 years ago.

There have been others, “predatory” lending is no sure deal unless you’re working with Tony Soprano’s crew to collect the loans. If the default rate goes up too high, there is no way to charge enough interest on the others to make up for it.


5 posted on 02/21/2010 3:00:42 PM PST by I_Like_Spam
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To: danielmryan
It has been 11 years since we got rid of our last credit card. We pay cash for everything, including our vehicle purchases. We save a little every month and keep/maintain our cars for years.

Our only bills are a mortgage (yes, we did borrow for that) and our utilities.

We try to live within our means and our lack of debt is a nice piece of sunshine in our lives.

6 posted on 02/21/2010 3:01:45 PM PST by OldMissileer (Atlas, Titan, Minuteman, PK. Winners of the Cold War)
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To: bigbob

I saw an adv a few years ago that somewhat did that same thing, they were pushing retirement savings and would show how much you could put into retirement rather than a purchase. For example, if you bought a watch for $1,000 in 30 years when you turn 65 that could have been $4,000. It made an excellent point.


7 posted on 02/21/2010 3:07:44 PM PST by Jolla
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To: danielmryan

I have a USAA Mastercard Rewards card with no Annual Fee which was just raised from a 4% interest rate to 6%. I pay off each month and at the end of the year they post my cash rewards as a payment towards future purchases. Great deal. Will be interesting to see what happens in the next few months.


8 posted on 02/21/2010 3:19:50 PM PST by acoulterfan
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To: danielmryan

CITI just sent me a notice that they’ll charge $60 a year to hold their card. So long CITI!


9 posted on 02/21/2010 3:24:17 PM PST by Revolting cat! (Let us prey!)
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To: acoulterfan

I didn’t realize USAA had rewards cards. I have a plain vanilla USAA MasterCard that I only use enough to keep active and use my Discover Card for rewards. I’m off to their website to check this out. Thanks for the head’s up.


10 posted on 02/21/2010 3:51:16 PM PST by McLynnan
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To: Kieri
What will happen is the pinched poor and lower middle class will start demanding more “help” from the government to pay their bills, buy groceries, fix their mortgage, etc.

Just looking for more money from Obama's stash!

11 posted on 02/21/2010 3:54:25 PM PST by Don Corleone ("Oil the gun..eat the cannolis. Take it to the Mattress.")
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To: bigbob

I agree that many people are morons.
Also, The fact that paying the minimum payment on credit card debt could take anywhere from 10 to 30 years to pay off is not news.


12 posted on 02/21/2010 4:22:25 PM PST by mrsloungitude (very proud mom of a United States Marine)
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To: Don Corleone

This is what I didn’t realize...:
http://www.ombwatch.org/node/9739
~snip~
“The Obama administration has announced that it will perform an environmental impact assessment of the rule, putting it on hold indefinitely. A credit card reform bill passed by Congress and signed into law May 22 (Pub. L. 111-24) includes a provision the prevents Interior from writing or enforcing any federal gun control regulation affecting national parks.”


13 posted on 02/21/2010 4:41:46 PM PST by BigIsleGal (Wake Me Up When the Stupid Wears Off)
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To: JasonC

Then there are those of us that pay it off in full every month...


14 posted on 02/22/2010 1:21:11 PM PST by RobRoy (The US today: Revelation 18:4)
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To: OldMissileer

We have two cards. The Costco american express - and we just got a three figure check last week for our percentage reward for last year - and our “airline” visa that rewards us with miles.

We hardly ever pay cash any more and pay both off every month. The only time I need cash is when I am buying something off Craigslist.


15 posted on 02/22/2010 1:32:36 PM PST by RobRoy (The US today: Revelation 18:4)
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To: Jolla

ever heard of the rule of 72? You divide the interest rate into the number 72 and it shows how long it takes to double your money. It shows the power of compound interestn.


16 posted on 02/22/2010 1:37:45 PM PST by RobRoy (The US today: Revelation 18:4)
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To: danielmryan
Back when dinosaurs roamed the earth (aka my youth), it was very difficult to get a credit card. You had to be pretty well off, which most people weren’t.

So, if we wanted something, we saved up for it. That’s how my parents bought their cars. They were used cars, too.

Or, if you just had to have it and could make payments, then you did a layaway. Lots of people did that.

I don't recall that any of us felt particularly impoverished.

17 posted on 02/22/2010 2:26:03 PM PST by Notary Sojac (Mi Tio es infermo, pero la carretera es verde!)
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To: OldMissileer

I wish I had your determination....CC are so easy to use....


18 posted on 02/22/2010 4:05:52 PM PST by cherry (i)
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To: cherry
I wish I had your determination....CC are so easy to use....

It was a bit tough at first. Not being able to whip out a card and buy a large purchase when we saw it but now we budget for the stuff we need or may want and then when we buy it we have the great satisfaction of knowing we will not have to worry about paying every month for it.

We may not get to buy some things we may have if we borrowed or used cards but we are pretty happy knowing we have no extra debt.

19 posted on 02/22/2010 4:38:28 PM PST by OldMissileer (Atlas, Titan, Minuteman, PK. Winners of the Cold War)
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To: RobRoy
Yes. I recently cut a card in half and mailed it back, that had no balance and a $17000 credit limit. After the new cockamamie rules, the issuer wanted to charge an annual fee - apparently because the transactions volume wasn't high enough for their liking. The reason for that is two other cards offer me better rewards programs, while the issuer is questions has a reward program way too sales-ee specialized and restrictive.

So the net result of the vaunted consumer protections in my house is a lower total of unused credit lines. Whoopie doo.

I despise how much deadbeats whine about all this stuff, and politicians meddle, and lawyers chase ambulances and stir up fights over twinkie BS. Just get out of the frickin way, all you control freaks out there. Free men can settle their credit relations among themselves without any of the lot of you.

20 posted on 02/22/2010 4:54:47 PM PST by JasonC
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To: RobRoy
I do recall that from around 2nd or 3rd grade. Unfortunately with the current interest rates, it is not too interesting.
21 posted on 02/22/2010 4:58:39 PM PST by Jolla
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To: Jolla
For example, if you bought a watch for $1,000 in 30 years when you turn 65 that could have been $4,000. It made an excellent point.

Or, if you had invested that money in the Bovespa, Shanghai or Sensex between 2004 to 2007, that $1,000 would have become $4,000 or more in 4 years....
22 posted on 02/22/2010 8:11:50 PM PST by Cronos (Philipp2:12, 2Cor5:10, Rom2:6, Matt7:21, Matt22:14, Lu12:42-46,John15:1-10,Rev2:4-5,Rev22:19)
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