President Obama has been going around assuring Americans that they are safe from unscrupulous credit card companies now that Congress has passed, and he has signed into law, both the Dodd-Frank financial "reform" law and the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.
Two recent pieces of mail from credit card companies are illuminating in that respect. The first comes from American Express, where that exemplar of Middle-American goodness Warren Buffett is a big shareholder. Huge type on the mailing envelope offers "a complimentary $10 credit to your American Express Card account" if the account holder activates a service that "monitors websites and chat rooms where identity thieves are known to buy and sell personal information." Fine print inside indicates that the service costs $9.99 a month. So the "complementary $10 credit" is really a complimentary 1 cent credit, or, to look at it long-term, a fee of $119.88 a year, offset by a $10 credit, for a net yearly cost to the cardholder of $109.88.
If American Express knows about "websites and chat rooms where identity thieves are known to buy and sell personal information," the company should call the law enforcement authorities and have them shut down, rather than trying to profit off them by charging cardholders $110 a year to "monitor" them. In most cases consumers aren't liable for fraudulent charges made on their credit cards by identity thieves, so this probably isn't a wise expenditure for most people.
The second piece of mail was from Scott Paul, senior director of customer marketing of Barclays Bank Delaware. It offered "choose the enclosed blue checks to receive a 0% promotional APR that is good until July 1, 2011." Free money for a year? Sounds great, until, way at the bottom of the page, comes the disclosure that there is a "fee" of "either $10 or 4% of the amount of each transaction." Only a lawyer or a credit card banker or maybe a politician can tout a "0%" APR when getting the money requires paying 4%. To a consumer, it's essentially the same effect whether it is an APR or a "fee" — you have to pay a percentage of the money for the use of the money. Now, it may make sense for some consumers to accept a loan at what amounts to a 4% rate. But the bank probably figures that it can get more people to accept the offer if instead of offering them a loan at 4% interest it offers them a loan at "0%" interest with a 4% "fee" that they may not even notice unless they are reading carefully.
I've been out there defending bankers against President Obama's suggestion that they are all a bunch of rapscallions out to rip off consumers. And look, I managed to protect myself from these guys without any help from Elizabeth Warren. I'm sure plenty of other customers are also able to resist these sorts of offers, or at least to analyze them with clear eyes.
To my mind, though, both episodes reflect badly on the president and the Democrats in Congress — they are going around saying the credit card industry has been cleaned up, when in fact it has not been. That may lull consumers into a false sense of security.
The episodes also reflect badly on the credit card companies. It would be nice to see these companies find ways to have win-win relationships with their customers, in which the customers are treated with respect and direct communication, rather than as targets to be tricked.
I don't think any law or any regulator charged with enforcing the law is going to be able totally to eliminate these sorts of shenanigans. But the more the companies try these sorts of things, the more the politicians will be tempted to pile on regulations to try to combat them. It's a vicious cycle.
I'm annoyed as a customer that a company I am doing business with is dealing with me in this manner, but I'm not so annoyed that I've canceled the credit cards from either company. They still are a net gain to me in terms of convenience, dispute resolution/fraud protection, the time value of money, and the reward points/frequent flier miles.