Maybe You SHOULD Leave Home Without It

amex Nothing in life is free. Remember that fact. As the government gets ready to apply CARD legislation to credit card issuers, there are some potentially unwelcomed side effects. The CARD Act passed by the federal government was supposed to level the playing field between credit issuers and users but like everything else in life, the target you hit isn’t always the target you were aiming for.

Many people (myself included) believe that, while this legislation was supposed to help debtors in trouble, the more likely result will be that issuers will treat all borrowers, the good ones and the not-so-good ones, exactly the same. What’s wrong with that? The bad borrowers won’t be elevated, but the good borrowers will probably see their perks and benefits downgraded, particularly for their business reward credit card.

Credit Card Downgrades

That new Visa card may not be all it’s cracked up to be. What could the potential downside of this legislation include?

  • Possible reduction in airline miles
  • Potential reduction of bonus programs
  • New annual fees where there were none before
  • Annual fees raised
  • Reduced rebates

Remember – nothing is free. Programs like these were paid for by “risky borrowers,” who were zinged by late fees, dinged by over limit fees, surprised by double cycle billing, overpaying and not using card credit, and confused when a late payment on one card automatically caused a rate increase on another.

Today everyone is a credit risk

In the heady days before the CARD Act was passed, credit card issuers penalized those whose bad habits or circumstances indicated they were a risk. They used the fees and increased rates collected from those people to pay for the perks and benefits they gave away for free to people deemed NOT to be a risk. Today, everyone could be lumped into the “risky” category.

Card issuers may also increase the transaction fees they charge retailers. Right now, those fees range from 0.5% to 4% of the total sale – many people don’t realize it costs a retailer to accept a credit card! It’s a BIG cost for retailers, especially those with low gross margins, but it provides a convenience to customers and it insures a quicker payment for the goods.

Down the road, expect some retailers – especially smaller, local retailers, and restaurants – to either refuse to accept cards, put in a higher minimum-purchase requirement, or raise prices. I’m betting on the last one but over time everything could be on the table.

Ultimately, the CARD Act is a good thing for the public on the whole and while I’m glad it passed, certain aspects of it might not be good for you, personally. That’s why anyone with credit – even good credit – needs to understand the terms and conditions that apply to them. Don’t assume everything is fine because your credit score is high … your lender isn’t assuming your credit record will be so great tomorrow … and they’re already making plans just in case.

Using a credit card has become a necessity (apologies to Dave Ramsey), so make sure you know your rights and obligations as well as the credit issuer’s rights and obligations before you get surprised.

Photo by stellefilanti