Gap in Cost of Credit for Haves and Have-nots Broadens Further

I can remember when the Card Act first came out. Many professionals, including some of my colleagues, bemoaned the loss of perks for the well-heeled. They were all sure that from now on, since the card companies could no longer boost rates on existing balances or in the first year of a card relationship, or charge more than $25 in late fees, annual fees for all were going up and points and other perks were going down. Did it happen? Nope. At least not for the good credit risks. Quite the contrary.

An AP story  that ran in many papers across the country today confirms a trend toward very beneficial credit deals for the rich. The story reports that while people with excellent credit used to get 44% of all offers mailed, they now get 64% of those offers. The offers are also better than ever for this demographic. One premium card offers five times the typical rewards and waives the annual fee for people with $50,0000 in the bank. Some of the balance transfer cards offer 18 months without interest! Some cards even eliminate those irritating foreign transaction fees. No doubt, the lenders plan to make their money on merchant fees on these cards, since many in this demographics don’t pay late and don’t carry balances. 

Offers to the well-off but less fastidious in credit cleanliness are worse than before. These B-listers are getting card offers at higher interest rates and higher annual fees than before. This is the demographic from which card compares will make up for lost fees resulting from the Card Act. As for the ones with poor credit habits and little funds? They are getting fewer offers, period.

Comments

[mt]

"As for the ones with poor credit habits and little funds? They are getting fewer offers, period."

I would have thought this was a good thing and having visited this site for several years would have thought that its bloggers would also think that was a good thing too. I've read many posts to the effect that banks wrongfully put people in more debt than they could handle. It seems self-evident that people with "poor credit habits" are not well served by being offered more credit cards, any more than people who have poor alcohol habits are well served by having someone give them coupons for happy hour. To say nothing of a bank's depositors or the government that insures those.

I hear the sense of annoyance in your post but I can't figure out what you think should be happening. From the headline I infer it might be that banks should offer all consumers credit on the same terms regardless of the credit score or other indicia of ability to repay. But that makes so little sense I can't believe I'm reading you right.

[Nathalie Maritn]

mt, sorry about the tone of annoyance. I agree with you. In almost every case, when it comes to credit in general, less is more. It's resignation you are sensing in my tone, and it deals with the increased costs to the middle class or middle group. A long time ago I posted that out of principle, I would not pay an annual fee or interest on a credit card. Someone wrote in and said, "the others are carrying you, you know." My point in the post is that the rich pay less for everything, and that, I do find annoying. Thanks for writing!!

[mt]

Thanks for clarifying.

Actually there is a lot of literature that says the rich pay more for everything, to advertise their status, going back to Veblen. I suspect there are a few stores in Beverly Hills where one might confirm that empirically.

Anyway, the Fed just reported credit card debt is now at its lowest since 2004 so things seem to be moving in the right direction. The Card Act was, I think, the best legislation to come out of the last Congress.

[Flextronics Placement Papers]

Great post, thankz and keep the good work of providing such valuable information.

[buckets]

This is outrageous - we desperately need some federal legislation to correct these ills. I nominate Professor Warren to tackle this problem and reform the system.

[Sue]

" The Card Act was, I think, the best legislation to come out of the last Congress."

It funny, I see this as the worst act. The act did not include recourse for the folks who most deserved a "bailout". It did not include a way for these folks who have paid the principle as well as a healthy return to the banks already to recapture and get a refund on the usurious rates paid already.