Credit Card Reform Stinks for Responsible Consumers (aka "Deadbeats")

Last Updated May 21, 2009 1:24 PM EDT

When the Senate passed the "Credit Card Accountability Responsibility and Disclosure Act" by a 90-5 margin yesterday, I thought "Guess who's going to get screwed again? Responsible people who pay their bills on time!"

Don't get me wrong -- I think it's a great idea to make the credit card companies accountable for their sneaky ways, but this legislation is likely to cost card issuers $12 billion a year in lost fees and income. To replace that revenue, don't be surprised if firms find other ways to recoup that money.

On The CBS Early Show this morning, I outlined the ways that consumers who routinely pay off credit card balances -- also called "deadbeats" by the card companies, because they can't make money on us -- might end up paying more for the privilege of credit. It's estimated that "deadbeats" represent approximately one-third of credit card users, or 50 million people.

To generate new revenue, card companies will consider:

  1. Reviving annual fees for all credit card holders, including those who pay on time;
  2. Curtailing rewards programs;
  3. Charging interest immediately on purchase, instead of allowing a grace period of a few weeks.
In the end, this legislation is long overdue, but the unintended consequence may be that the industry will issue fewer cards at a greater cost to current cardholders.
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    Jill Schlesinger, CFP®, is the Emmy-nominated, Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.