The Times Gives Card Companies Too Much Credit

The Times’s front page story on the coming credit-card crackdown doesn’t really do it for me.

The consumer-advocate response is buried at the bottom of the story and even then it doesn’t have much to do with the spinning the paper allows the banks to do.

The premise of the story is that the new legislation will result in higher costs for people who pay their credit cards off in full every month—some one-third of all users—because they’re going to be able to squeeze less out of the two-thirds who don’t.

The head bank lobbyist gets the first quote and it’s just bogus:

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”

But wait a second. “Those that have credit problems” have been subsidizing “those that manage their credit well.” People who pay off their cards every month pay no interest and no fees, but it costs the banks money to lend them that money even if it’s only for thirty days. You think bank shareholders are eating that?

The Times lets a credit-card analyst say some of this, but it’s three paragraphs later. A spin like that from the ABA needs to be countered immediately in a story.

People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee even as they collect points for air travel and other perks.

Even then the story doesn’t point out that poorer folks are the ones subsidizing that free ride.

And the NYT doesn’t mention that the banks also get 2.5 percent of each transaction’s total from the retailer. So, retailers and people who use cash have been subsidizing the credit-card users. I’m guessing people who pay with cash are less well off than people who pay with plastic.

The new legislation will allow retailers to charge cash buyers less than credit-card or debit-card buyers—ending a practice of the credit-card companies that’s always seemed like a violation of antitrust.

Break out your tiny violin:

The industry says that the proposals will force banks to issue fewer credit cards at greater cost to the current cardholders.

Seems like a reasonable goal, especially in the aftermath of this debt bomb, to try to push people away from using debt to finance consumption, no?

Here’s all the consumer side gets by way of a response:

Consumer advocates say they have little sympathy for credit card issuers, arguing that they have made billions in recent years with unfair and sometimes deceptive practices.

“The business model will change because the business model doesn’t work for the public,” said Gail Hillebrand, a senior lawyer at Consumers Union.

“In order to do business under the new rules, they’ll actually have to tell you how much it’s going to cost,” she said.

And the Times immediately follows that quote with the dismissive “populist” adjective, which we’ve written before is a tiresome tic of the business press.

With many consumers mired in debt and angry at what they consider gouging by credit card companies, the issue of credit card reform has broad populist appeal.

If you can say credit-card reform is “populist” why can’t you say current practices are “usurious”? You can bet the Times would never say that. It doesn’t even bother to get into the whole issue of 36 percent interest rates. It’s okay to say the “U” word. When you borrow money at 3 percent and lend it at 36 percent, that’s usury.

And opposing abusive credit-card practices like changing your interest rates on a whim isn’t “populism,” it’s more like pragmatism. Which brings me to one thing I can praise about this story: the kicker.

Austan Goolsbee, an economic adviser to President Obama, said that while the credit card industry had the right to make a reasonable profit as long as its contracts were in plain language and rule-breakers were held accountable, its current practices were akin to “a series of carjackings.”

“The card industry is giving the argument that if you didn’t want to be carjacked, why weren’t you locking your doors or taking a different road?” Mr. Goolsbee said.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.