Heroic Corruption

HEROIC CORRUPTION….One of the things that’s made the Rod Blagojevich scandal so amusing is that Blagojevich wasn’t just corrupt, he was comically, heroically, epically corrupt. It was the kind of over-the-top corruption you don’t really expect to see outside an episode of The Sopranos or a Gilbert & Sullivan operetta.

But you know who else is like that? The credit card industry:

The Federal Reserve on Thursday will vote on sweeping reform of the credit card industry that would ban practices such as retroactively increasing interest rates at will and charging late fees when consumers are not given a reasonable amount of time to make payments.

….Among the many provisions is a ban on raising interest rates on existing balances unless the customer was 30 days or more late in paying the minimum….Banks would also not be able to treat a payment as late if the customer had not been given a fair amount of time to make that payment.

The proposal would also dictate how credit card companies should apply customers’ payments that exceed the minimum required each month. When different annual percentage rates apply to different balances on the same card, banks would be prohibited from applying the entire amount to the balance with the lowest rate. Many card issuers do that so that debts with the highest interest rates linger the longest, thereby costing the consumer more.

Credit card issuers, of course, are swearing on their mothers’ graves that these changes will doom the entire industry. They have to have the ability to retroactively change your interest rate just because they feel like it. They have to have the ability to treat payments as late even if customers haven’t been given a fair amount of time to make the payment. They have to have the ability to apply payments to whichever balance is worst for the consumer and best for them.

Of course they do! Never mind the fact that these rules are so comically, so heroically, so Simon Legree-ishly unfair that most people think you’re making things up when you tell them that not only are they legal, they’re standard practice. And despite the protestations of doom, it’s worth noting just how mild these proposed changes are. Card issuers can still retroactively change your interest rate merely for being late on a single payment, after all, which for some people amounts to a late fee of several thousand dollars. Ka-ching!

And while we’re at it, note also that all the wailing and moaning over these new rules comes despite the fact that card issuers succeeded a few years ago in rewriting the bankruptcy laws to give them almost total protection from having to practice actual risk management. They prefer the version where they can give credit to anyone, raise rates whenever they want, and never lose a dime because even if you declare bankruptcy you still have to pay them off.

Universal default should be flatly banned. The 2005 bankruptcy law should be repealed. Credit card fees and interest rates should be brutally capped. Here’s a decent start. Put that in your populist pipe and smoke it.