Tuesday, August 11, 2009

Fewer Rights?

Over at the Atlantic, David Indiviglio is arguing that credit card companies are responding to a new law intended to increase debtors' rights by actually removing one of those rights:

The New York Times reports one of the early casualties of Congress' recent credit card "bill of rights" legislation. A few prominent credit card companies are actually taking a right away from many in response to the new regulation: the right to exceed your credit limit.


How did [Discover and American Express] do it? Easy. They eliminated their cardholders' ability to purchase anything that would put them over their credit limit, unless the companies allow them to do so for no additional fee. After all, those who cannot breach their limit will never need to pay the fee.
Basically, the law apparently says that credit card companies can't charge you a fee for going over your limit unless you specifically ask for permission to do so and agree to the fee. Discover and American Express have responded by changing their system so that if you try to go over your limit, the transaction is either declined, or accepted with no fee. (They didn't want to go through the hassle of implementing a system whereby one could request permission and agree to a fee.)

I completely fail to see how this is a diminishment of my rights (even taking "rights" in a pretty loose sense). I never actually thought I had the "right" to go over my limit; I thought it was basically a screw-up when it happened, and then I would be penalized. I mean, it's the same thing (in my mind) as overdrawing your bank account - it can happen, but it's not something you're really "allowed" to do, hence the penalty.

I certainly prefer that the transaction is either declined, or accepted with no additional fee.

Are there people who viewed the ability to go over their credit limit in return for paying a penalty as a good thing, a service they enjoyed using?


Sally said...

I agree that even using a very loose definition of "right" that this doesn't make sense.

rvman said...

I have no problem with this - it seems to me to be the appropriate policy implimentation of the new law. The new law is patronizing, but I guess some people's money management skills are so bad they need to be patronized. Were people just assuming that they would be refused if they went over their limit, and didn't read their Terms of Service to find out if this was the case?

I'm not sure what the alternative would be - establish an 'overdraft protection plan' which allows customers to overdraft some fixed amount for a fee? That seems to me a good way to identify the people willing to pay not to have to pay attention to their credit. Signing up for this would be a siren call of "kick me" to the marauding barbarians from the Capital One ads.

Tam said...

Sometimes I view this type of regulation as akin to a safety regulation. Perhaps in theory steps that are higher or narrower than normal are perfectly navigable by humans, but if they lead in practice to a lot of falls and injuries, we can make building codes that specify against them. And if we find that practices that seem relatively transparent and fair in lending also lead, in practice, to a lot of injuries and accidents, we can regulate against them as well.

It is not as though any appreciable number of people were, in practice, choosing amongst credit cards based on their over-limit policies (and the most financially vulnerable people tend to have the least choice in credit cards).