Smack down one fee or money-making scheme and others are sure to pop up. And even if you’re really good at the game, there are always more moles than you can possibly whack.
Efforts to protect consumers and reform the credit card and banking industries are good. But they have their limits. In several ways, the monumental credit card legislation passed last summer and put into full effect next month has already backfired. Yes, thanks to the new rules, we all get better notification about bills, fees, and rate changes—but for many consumers, the fees and jacked-up rates are much worse than the terms they had pre-reform.
The government whacks one means for the credit card issuers to make money, and the plastic execs pop up out of several other holes with new money-making strategies—before the “reform” is even officially in place. In the meantime, there’s upheaval in the credit card world from the consumer perspective, with rate increases and fixed rates switched to variable ones. Due to the new rules, millions of people have been deemed unworthy, and they’ve had their accounts summarily closed without warning.
As a WalletPop post recently described, the CARD act (as the ongoing reforms are called) has some loopholes that allow consumers to be taken advantage of. Namely:
There is no cap on the interest rate card companies are allowed to charge.
And:
While the CARD act has limits on the severity of penalty fees you can be charged, there’s no rule against card companies making up as many new fees as they can conjure and charging whatever they like for them.
Example: You’d think that simply not using your credit card—or using it in extremely rare circumstances only—would be a means to avoid getting hit with fees. Most of the time, that would work. But some credit cards have added an “inactivity” fee. In other words: a fee for not buying stuff.
There’s been discussion about the government stepping in to reform interchange fees—the fees paid by merchants to the credit card issuers each time a customer uses plastic—but those efforts would likely to be countered by some other tactic that would land in the consumer’s lap (or rather, wallet). Similar reforms in effect in Australia are blamed for the rise in cards with annual fees, along with a sharp decline in the value of credit card reward programs.
On the debit card side of reform, overdraft protection has gotten a lot of attention. New rules say that as of July 1, banks must ask customers first before automatically signing them up for “protection,” which allows you to use your debit card even if you don’t have enough money in your account. That is, you can use your debit card and then get hit with a fee of $35 or so each time you don’t have enough money in your account.
As the Times’ Bucks’ blog reported, any minute now we should all be inundated with bank pitches trying to sell us on the wonders of overdraft protection:
You can expect to hear from your bank by e-mail, phone and even text message. It may even force you to read an opt-in solicitation before you can see your account information when you log into online banking.
No matter how good the pitch, many customers are going to opt out, and the banks won’t reap anywhere near the $38 billion or whatever obscene figure they made in overdraft-related fees in 2009 (up from $24 billion the year before).
So, where will the banks try to make up their losses from disappearing overdraft fees? They can’t really lower the interest rates on savings accounts, which are already next to nothing. Most likely, the banks will try to make money with new fees—or rather, perhaps with old fees. The days of free checking accounts may be goners, according to the NY Times, or the minimum balance requirements for fee-free savings and checking accounts may soar.
Don’t you worry about the banks. They’ll figure out something.
The moles—banks and credit card companies—are much better at this game than consumers and out slow-moving government protectors. Even our leaders with good intentions seem as effective at taking on the moles as Carl from Caddyshack.
Ultimately, the government can’t protect you. It’s up to you, the individual, to monitor your accounts and avoid spending money you don’t have, and it’s up to you to figure out what companies you want to get into bed with. I hope that enough consumers will soon tire of dealing with sneaky underhanded rodents. Their strategies and counterstrategies will surely work for them in the short run, but eventually, what they’ll lead to is widespread mistrust. A customer who has been burned simply won’t want to do business with the bank that burned him—or with any of its big bank brethren.
If you haven’t already checked it out, take a look at Move Your Money movement. The mission is simple: Get people to take their money out of gargantuan, always-scheming banks and put it into a community bank or credit union. There’s a search engine at the site that can lay out some of the options near your home. The local banking option will probably earn you more interest, and it’ll certainly be a more reasonable business partner.
