Monday, October 26, 2009

Frozen Rates or Frozen Credit?

Credit card rates “would be immediately frozen under new legislation introduced Monday by Senate Banking Committee Chairman Chris Dodd (D-Conn.),” The Hill reports.

“We worked long and hard to enact the safeguards included in the Credit CARD Act,” Dodd said in a statement. “And no sooner had it been signed into law, but credit card companies were looking for ways to get around the protections this Congress and the American people demanded. This bill would end those abuses and further protect customers today.”

But is the behavior of card issuers an attempt to "get around" Congressionally imposed rules? The Market Ticker (H/T Dad29) has a different take (his emphasis):
  • Citibank's credit-card terms change implies a willingness to accept and even provoke a complete and intentional destruction of their credit card business as a very high probability outcome, given that nobody in their right mind will accept a 30% interest rate who has an alternative. The obvious implication is that only those who can't transfer balances out will remain and if your credit is that impaired there's a good chance you will default - either intentionally or otherwise. This too implies foreknowledge of a near-complete impending freeze in the credit markets.

  • The change in terms on credit accounts is NOT confined to Citibank. I have received a fax from a customer of Infibank with substantially identical terms, in which both the standard and penalty rate was adjusted to 29.99%. This strongly implies that whatever Citibank smells the problem is not confined to them.
Two very different views on what the change in credit card rates indicates. This will be one to watch.

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