This bill will make is harder for credit card companies to raise interest rates on poor borrowers or charge them fees. As usual, the idea was sold as a way to protect people from becoming ‘victims’ of credit card companies. (I’m still waiting for a bill to be passed to protect people from becoming ‘victims’ of the overburdening government.)
The result of this bill will lead to a drastic change is who is qualified to have a credit card. Basically, this bill forces credit card companies to forgo charging there most delinquent customers for not paying their bills.
Instead, credit card companies are supposed to ‘socialize’ their losses among all their customers, whether they are paying their bills or not. The problem is that this is going to force credit card companies to get rid of their delinquent customers all together or they will be risking their paying customers to cancel their credit cards and refuse to pay higher rates and more fees.
This is going to be a disaster for consumers as credit card companies will shift from competing for the worse financially responsible customers (like college kids) to the most responsible customers (business owners). Credit cards will become harder and harder to get and maybe no longer available for anyone with a low credit score.
This is the part I like, because it will force the public to live without consumer credit – and as you know if you have been following my blog, the expansion of consumer credit coupled with unreasonably low interest rates are the foundation of the boom-bust cycle we are facing.
But, I don’t agree with this bill because it is again more government central planning of the economy, which has never worked before and certainly isn’t going to help the banking sector by attacking one of the only profitable sources of revenue. (sell banking stocks)
Savings To Increase
This is definitely going to impact the economy is a positive way, as many people will lose the ability to use credit cards to purchase things that they cannot afford. Many will increase their savings account before purchasing items and this shift will slow down consumer spending to a normal and sustainable level, which will give businesses a normal level of growth to build their business upon.
The increase in savings will also provide the deposits that banks need to recapitalize their balance sheets. An increase in savings also helps support the dollar, which is badly needed as the dollar index is falling fast.
This is perhaps the most possitive sign that the government is beginning to give up on trying to re-inflate the bubble economy. They are beginning to understand that the best thing to do is turn into the recession rather then continuing to try and push it further into the future.