So I get this letter in my mailbox yesterday from one of my credit card companies, Merrick Bank. It’s one of several similar letters I’ve received recently. The letter goes on to inform me that, “as a result of the current economic conditions and new federal laws and regulations that affect all credit card companies…these terms are being changed for reasons unrelated to your account status or credit history.”
The changes include an interest rate hike and an annual fee of $48 that is billed at $4 a month.
Once again, our government heroes have come to our rescue and screwed us in the process. It’s all they know how to do. Their efforts to curb abusive credit card penalties for the irresponsible among us have led to what so many predicted when discussions on these new rules first started…that the credit card companies would simply recoup their losses by creating new fees and raising interest rates on the responsible people.
So what do the irresponsible get out of this? The elimination of Over Limit Fees and providing a full 25 days from the date of the statement to make a payment.
Those of us who do not carry a balance never pay penalties, over limit fees, interest charges or annual fees. Suddenly, we are being forced to pay $48 a year in order to cover the irresponsible who can’t remember to pay on time or constantly max out their cards.
Also, everyone who does carry a balance, but diligently makes their monthly payments trying to rid themselves of debt is about to get a raft of annual fees slapped on them and higher interest rates while they are desperately trying to get out from under the debt rock.
And the irresponsible? They don’t care! Their FICO was all tore up already anyway so what difference does an annual fee make to them? None. In fact, the amount they save from the lack of Over Limit Fees and Late Payment Fees they are used to paying will more than cover the annual fee they pay.
Once again, a politically motivated regulation that lets politicians stand up at the podium on CNN and talk rhetorically about how wonderful they are for protecting the average hard-working American citizen from the evil villainous credit card companies without considering the collateral impact of the free market system to respond.
So again, one group of citizens is protected at the cost of another group.
Trouble is, the responsible group continues to lose from this. The banks will win no matter what. If they can’t nail you at the front door, they’ll get you at the back door. Let me explain…
There is no way I will pay a $48 annual fee for the privilege of having this credit card, so I will close the account. When I close the account my “total available credit” which is a variable used in determining my FICO score will drop. In addition, this is one of my older cards so my “average time of credit lines open” will also drop. Both of these variables will cause my FICO score to drop. Which means the next time I go for a car loan, or a home loan, I may have to pay a higher interest rate because of a lower FICO score. So either way, the bank gets their money.
Not only have the letters I received talked about annual fees, they have closed a few of my cards without warning due to “lack of activity” and some others have drastically reduced the credit limit, one went from $5,000 to $300. Now I have to close accounts that start annual fees.
In addition to government regulations, the banks are closing cards, lowering credit limits and charging annual fees in an effort to reduce their exposure to losses from the unfortunately unemployed and the foreclosure deadbeats. As unemployment rises, more and more people can’t make their credit card payments so they just default on them. Also, as many of the foreclosure deadbeats assume their FICO is going to take a serious beating from the foreclosure anyway, why not max out all the credit cards to buy everything they’ve ever wanted. Then they walk away from the house and default on the cards and go rent before either hits their FICO score. Think about how nice their apartments must be with all that new furniture and electronics they just bought.
And don’t forget all the cool cars and TV’s and vacations they bought when they took out home equity lines of credit against the house they couldn’t afford. All of the debt disappears with the foreclosure…but not the stuff they bought, or their vacation pictures, they still get to enjoy all of it.
So all of these actions by the credit card companies to protect themselves from defaulters and the government will lower my FICO score, one that I have worked hard for years to build up by using debt responsibly.
Responsible behavior is not encouraged or rewarded by our government.
Now imagine closing several cards, or God forbid, switching to cash completely. Imagine the damage only using cash would do to your FICO score. Horrendous. And why? Because the system has been designed to encourage, support and reward debt. This government and the banks that run it need every American citizen to remain in as much debt as possible. It’s a form of control.
This latest move is just one more win-win-win for them and lose-lose-lose for us.