Credit Cards

Wells Fargo is hardly alone in treating credit card customers badly. Whenever I run a post on credit cards, I get a raft of comments and e-mails about various bank misdeeds, which generally involve rate increases when the borrower is current and has not suffered a fall in his credit score. The other common complaint is a cut in credit lines for no apparent reason (well, save that the banks are trying to please Wall Street).

But consumers are nevertheless, correctly, galled. Banks are getting massive subsidies via the TARP, super-low interest rates, and a host of rescue facilities. And what do they turn around and do? Gouge customers, typically the ones who already have balances and thus are least able to pay higher charges.

Wells is either clumsy or brazen enough to implement its rate changes so as to merit coverage in Bloomberg. Although I have received similar complaints about Chase, Bank of America, and Citigroup, they apparently put their increases through surgically enough so as to keep them largely out of the media.

via Wells To Increase Credit Card Interest Rates To Beat Change in Law « naked capitalism.

There’s a lot of this kind of sentiment floating around the Internet. It’s a fact that credit is being restricted and credit card users are feeling the impact. Is this a sudden attack of greed on the part of the banks? Consider this:

As analyst Meredith Whitney recently wrote in these pages, credit card lines have dropped 25% since last year. Credit lines available via credit cards are a critical source of financing for small businesses.

Is this decline entirely the result of the financial crisis, or are card issuers responding to new Federal Reserve regulations finalized in December? The Fed rules make it harder to change credit terms on existing customers. Congress and the President went further this past spring, enacting new restrictions on the ability of card issuers to raise rates, including on customers who don’t pay on time.

This means that many former customers are simply no longer going to be profitable for banks. Expect more reductions in credit lines as the issuers try to adapt.

via Obama Proposes a Consumer Financial Protection Agency – WSJ.com.

It seems simple to me. If banks can’t make money in a line of business, in this case credit cards, they must pare back the business until they can – or exit the business altogether. That’s nothing unique to banks – every business has to make a profit or else disappear.

If people don’t like the changing approach to credit cards, they should complain to the champions of “consumer protection”.

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