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

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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