Wednesday, May 20, 2009

Credit card 'protections' versus bank bailouts

Maybe it's just me, but the federal government has done 'stress tests' of banks to see what kind of assets they need to have to remain viable. They've also bailed out many banks who were deemed 'too big to fail.'

Almost all banks offer credit cards on which they make a profit (if they didn't make a profit, they wouldn't be offering them). That profit comes from interest and fees that they impose, charging higher fees/interest to those with riskier credit - a common practice everywhere.

The federal government (because it's such an expert at living within its budget and ensuring enough income to cover its debt) tells banks they need to have more resources, assets and income.

But they also tell the banks that they're charging too much in fees and interests on their credit cards and that they need to change/reduce those charges. This will reduce and, in some cases, eliminate certain profits that the banks rely upon for profitability.

These two actions are in direct contradiction.

How does this make any sense?


Hooda Thunkit said...


It's the Government..., why would anyone expect anything that the Government does to make sense?

Mad Jack said...

Here's how. Financial institutions that issue credit cards make a profit by charging fees to the cardholder, by charging interest to the cardholder and by charging the vendor a processing fee. Profit from the cardholder is incidental. The real profit comes from the vendor at the point of sale. For instance, I pay off my credit card balance immediately so as not to accrue interest. I refuse to pay membership fees or handling charges. It would then seem that the credit union would be losing money on my card, because after all they still have to service the account each month, yet they haven't canceled my card. Any financial institution worth its balance sheet would cancel me and people like me in a New York minute if the only profit they made was off the cardholder.

As far as regulating bank rates, such as overdraft charges, handling fees and the like I would say that depends on how we define the purpose of the federal government. If the purpose includes protecting the citizens against financial companies, then I would argue that the protection offered thus far by federal government is right in line with the way the government has protected our borders from illegal immigrants; if not, then either the purpose has quietly been changed (imagine that!) or the government is once again disposing of the rules because they do not conform to the desires of The Anointed One.

See? Here's how!

Maggie Thurber said...

Mad Jack - I don't know what's scarier: this tortured logic or the fact that you understand it...


Tim Higgins said...


Kudos to Mad Jack for understanding the underlining principles involved with credit cards, but I will thank the government when they hold the IRS to the same standard.

Too much fine print, indecipherable language, interest rates that border on usery, penalties for late payment that are out of sight, and aggressive pursuit of balances using tactics that loan sharks shudder over. Yes ma'am, that's our government in action.

The A-Hole Lawyer said...

For months one of the rationales put forth to justify TARP and the bailouts was the "frozen credit market." The floated goal of many of these programs was to get credit available to citizens and small businesses.

Well what will new regulations which allow the administration to dictate terms of consumer credit do to the availability of that credit? Dry it up of course.

Thanks President Obama, after years of not carrying a credit card, Ms. AHL and I decided to apply for a card this month, after all we can't use payday lending for unanticipated expenses. I have a feeling our rate and amount of available credit just went down drastically.


Frank said...

In the logic free zone of Washington DC it makes perfect sense! Who else in their right mind would challenge the "wisdom" of the government. *sarcasism"
Now in the real world of you & I it is totally insane and takes another step towards socialism. At the rate we are going, we might be there by the end of the year!

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