C.A.R.D Act: “Restrictions on how cards are priced will lead to less available credit and higher prices” — refuted.

A Bloomberg.com article by Jeff Plungis entitled, “Dodd Says Credit Card Companies Are Gouging Customers (Update 2),” discussed hearings regarding the C.A.R.D. Act.  The article attributed the following statement to Kenneth Clayton, senior vice president and general counsel of the American Bankers Association:  

“Restrictions on how cards are priced will lead to less available credit and higher prices.”

This purpose of this present post is to address Mr. Clayton’s admonishment.  Frankly, it’s the same warning that has been used for years to threaten Congressional representatives with dire consequences for consumers, should legislation be introduced that would (finally) regulate the credit card industry.

First of all, given that the credit card industry’s standard practice is to promote a given price in “bold” advertising claims, with the “bad faith” intention to change the terms (and raise prices through fees and interest) as soon as customers are lured in, I don’t think an argument such as this is compelling whatsoever.  Indeed, the harm, suffering, and consumer angst would be alleviated for most of us, if we just knew what the real price was going to be when we agreed to the “advertised price” in various offers.  But unfortunately, a customer does not ever really know the actual price that is associated with offers, except through the direct and indirect experiences (horror stories) that he or she may later encounter.

Years ago, I owned a marketing firm that handled design work and subsequently print production for clients.  After some time in the business, I had made the rounds with vendors and tried a number of printing companies.  I ultimately found a couple that were typically the higher bidders on proposed projects.  You know what?  Based on negative experiences with some other vendors, I learned to strongly encourage clients to go with either of the printing companies that had proved to be reliable, even with their higher bids.  I could count on them to deliver as agreed.  Further, those bids were rock-solid; the price that was quoted was the price, with no rate-jacking later on.

If you have ever purchased printing from a company that is less than scrupulous, then you have probably learned some (unethical) “tricks of the trade.”  For example, with a large printing job, one often requests that the finally delivered project should be bundled and shrink wrapped (a complex brochure, such as one for a new automobile might be worth several dollars each, so they are worth protecting), and then placed in shipping boxes.  It’s always a disappointment to find out later that the “spoils” were bundled, too, except one may not learn of this for months, as a supply of printed materials is utilized.  I never had problems like this with the aforementioned “highest bidders.”  I was never embarrassed, and more importantly, from a marketing point of view, my clients’ end customers were not subjected to a printed presentation that put my client in a less than flattering light. 

There were other “tricks,” such as late deliveries (e.g., client is heading to the trade show of the year, but the “ink isn’t dry due to the humidity”), overcharges, shortages, overages, and surprises over artwork, or paper stock.  The point is, trust is “priceless!” and we sure as heck have no reason to trust the credit card industry when it comes to any promotional claim or promises that card issuers might make.

I’m presently looking at a Disclosure Summary on my desk as I write this post.  Under a section entitled, “DETAILS OF RATE, FEE, AND OTHER COST INFORMATION,” it states:

Account and Agreement terms are not guaranteed for any period of time; all terms, including APRs and fees, may change in accordance with the Agreement and applicable law.  We may change them based on information in your credit report, market conditions, business strategies, or for any reason.

So much for the argument of stable pricing (i.e., threatening “higher pricing”); there is no stable pricing.  By virtue of “any reason” language in cardholder disclosure documents, all pricing is designed to get higher already — but one does not know by how much.  The “business strategy” mention also says a lot about the intentions of the authors (“our strategy is to advertise one price, and then use ‘any reason’ to hit you with a higher price, and that is the reason we don’t want to be regulated”). 

In my previous testimony before Congress, I called this “whimsical,” because when credit card companies use language such as “any reason,” or “no reason,” it’s a clear sign of handwriting on the wall that they intended all along, to change terms and impose higher fees and rates.  (I was discussing this in the context of small businesses and their use of credit cards, but it applies to any account type.)  Actually, the wording, “restrictions on how cards are priced,” says even more: the issue is not pricing, it’s repricing.

Now, as for the threat about “less available credit,” I thought that’s what the bail out money was for.  Banks taketh, but they aren’t lending.  It’s all over the Internet: small businesses and consumers are getting slammed with rate and fee increases, closed accounts, and radical credit line reductions, despite taxpayers’ contributions (which seem to go a long way toward partying and corporate jets).  As we know because of ongoing discussions and feedback on the ChangeInTerms.com site regarding issues with Chase, it is essentially calling in its loans, making them equivalent to “demand notes” (for those who do not want to accept the changes, since there is no opt out), relative to its recent change in terms notice. 

So, we’d have to ask Mr. Clayton: “Do you mean less than zero, zilch, nada — which is about what banks are lending now?”