Recent changes in credit card laws will likely affect everyone in ways both positive and negative.
Card issuers make money in two basic ways. First, they keep 1 to 5 percent of the payment they process for merchants. Second, they charge borrowers interest and fees for using the card. It's the second area that attracted the new legislation.
Many of us don't face the credit issues that prompted these changes. We make payments on time and probably have a lot of borrowing power. You'd think the industry would love folks like us, but they make the majority of their money from less-fortunate borrowers. In recent years, slow payers were the sweet spot for credit card profits. Lower credit risks paid higher interest rates and a whole bundle of other charges, for everything from ATM transactions to late fees.
First, here's the bad news:
Watch for higher fees, lower benefits, and shorter grace periods for your monthly payments. Annual fees are coming back in many cases, and services-everything from concierge to frequent flyer miles-will be reduced. Even the best customers will pay more. We love convenience, and they'll try to make us pay for it.
Be ready to co-sign for your kids. Cards will no longer be issued to most teens without a parent's involvement. This keeps a parent in the application, statement, and payment loop. We've all heard horror stories about college students who have incurred thousands of dollars in credit card debt. If your student becomes that story, you'll end up paying the bill.
Now, the better news:
The fine print should get much clearer. Say goodbye to those multi-page pamphlets of six-point type. No more retroactive changes in terms or interest rates, and everything should become easier to understand. Cards will probably cost us more, but we'll know how and why our fees are determined. Transparency was a major goal of reform, and that's good for all of us.
Since issuers must scramble to replace revenue, market share will become critical. That means that the market for cards could become extremely competitive. In past decades, there were lots of profits to go around. Now, big players face a world where their easiest profits may come from stealing their competitors' customers. My guess is that they'll try to entice us with glitzy-though inexpensive-new services. As the competition becomes more intense, you may see some attractive promotions.
My simple summary is this: In the future, credit cards will have more to do with convenience and less to do with credit. Choose carefully, and you just might see some genuine benefits from the new law.
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Understand the rules for using credit wisely at http://memag.com/creditcards
The author is principal/CEO of Family Investment Center, a commission-free investment firm in St. Joseph, Missouri. The ideas expressed in this column are his alone and do not represent the views of Medical Economics. If you have a comment or a topic you'd like to see covered here, please e-mail firstname.lastname@example.org