Credit Where Credit is Due

My Keloland Colleagues and cherished friends, Todd Epp and Cory Heidelberger are very disappointed that our South Dakota Congressional delegation (all three of them) has voted against the credit card bill. Apparently, Stephanie Herseth-Sandlin and Tim Johnson were the only Democrats to oppose it. The reason for the opposition of our Senior Senator and Congressperson at large is pretty obvious: we've a lot of credit card business located in our state, and those businesses have been very generous when it comes to political contributions.

Unlike my colleagues, I am not the least bit offended by this. It's how the political system is designed. Also unlike my colleagues, I am a little interested in what the actual effects of the legislation will be, apart from the emotional satisfactions of sticking it to predatory lenders.

Lenders charge interest on the money they lend. I know that is shocking to Cory's Christian sensibilities (does anyone remember Shylock?), but it is makes the system work. Under current laws, credit card lenders make most of their money off people who don't manage credit very well, in the form of fees, penalties, and higher interest rates charged on balances after a failure to pay on time. That generates enough profit that lenders can afford to keep interest rates very low for people who bother to count. It means that imprudent borrowers are subsidizing prudent ones. Indeed, subsides thus produced are great enough that lenders actually end up paying some borrowers to use credit cards.

Does this amount to predatory lending? Maybe. It is surely burdensome to a lot of people. The legislation about to be passed will seriously reduce the burden on irresponsible users of plastic. It places stricter limits on the charges that can be levied on credit card users who don't pay off on time.

But the inescapable math dictates that profits lost on this portion of borrowers will have to be spread more generally across the population. Prudent borrowers will now have to subsidize the defaulters, as well as provide the profits that make the industry work. That means that interest rates on cards will rise, and rebates will be reduced.

It means something else. With occasional defaulters no longer being cash cows, the industry will have much more incentive to weed them out. The greater the protection that this legislation provides for borrowers, the harder it will be for people to get and keep credit cards. The proportion, I think, will be precise.

I am not sure that this legislation is a bad idea. Making credit too easy to get is one of the things that got us into the present economic situation. Making it harder to get might do a lot of good to a lot of people. But it will make this kind of credit harder to get, and more expensive. Credit cards are very convenient. Under the current system, even relatively irresponsible borrowers could get them, they just had to pay a lot more. Under this legislation, many such borrowers will be denied. Maybe that's a good thing.

Of course, we will soon hear sorrowful tales of people who can't get credit cards. And we will learn that certain well-defined subpopulations have a harder time getting them than others. Congress will want to right that wrong as well, and that will push the system toward one in which prudent borrows must heavily subsidize imprudent ones. Or it will push it to collapse.

Comments

[caheidelberger]

I will feel no sorrow over those tales of people who can't get credit cards under the new rules. And if my rebates disappear and rates go up, so be it: if the only way Citibank can afford to give me rebates is by taking advantage of other lenders, then I'm complicit in the bad behavior I've been decrying. Maybe I'll just have to cut up my credit cards and stick with my bank debit card... which is a more honest way of managing my money.

[Todd Epp]

Ken:

Could I interest you in a bowl of pudding?

Todd

[KB]

Cory: you seem very certain that you know what is best for everyone. Why is it bad behavior to penalize less responsible people and reward more responsible people? Of course I know that Democrats are inclined to do the opposite, and they also frequently confuse taxing others with self-sacrifice. You may be willing to pay more for credit without the stigma of high rates, but it won't be just you who is paying will it? Why not just start your own credit company, and offer cards without any of the penalties, fees, etc. that you think are unjust. Surely all the good lefties will line up to get your cards, and cut their own to ribbons.

You may feel no sorrow if a lot of people can't get credit cards, and I applaud your position of moral superiority. But the New York Times (if it still exists) will feel sorrow, especially when the burden of the law falls unequally on Black and Hispanic borrowers as compared to Middle Class Whites. And then something will have to be done about it. We know where this kind of thing went when it happened to houses.

Todd:

What is the sound of one hand blogging?

[Matias]

If your credit is that bad, the first thing you slohud do is get a copy of your credit report. You are authorized to get a free credit report each year.On this free credit report you will not get your credit scores and you have to request this report from each of the major credit bureaus. It normally take about 30-45 minutes to get one and print them so you can go over it.Look and see if there are any negative items on your credit report from each of the credit reporting agencies. If there are negatives you might challenge each negative item on your report.There are several agencies that claim they can assist you in raising your credit score. You would have to check these agencies out on a case by case basis. There might be some that would be able to help you and some that might not be able to help you at all. Make certain this type agency is legal and can do as they say they can.There are many things you slohud do, but the first thing you slohud do is contact a mortgage broker that does FHA mortgage loans and get pre-approved. This is the first step. Once you have your pre-approval then contact a real estate agent to look at house based on what you are qualified to buy.You will need proof of income so have available pay stubs, w-2, bank statements and other items your mortgage broker will require.He will inform you of what is necessary once you contact him.This pre-approval will tell you the amount of house you are qualified to purchase as well as the interest rate, monthly mortgage payments and other necessary things you need to know about your mortgage.I hope this has been of some benefit to you, good luck."FIGHT ON"