Retailers are hoping today will be a black Friday sequel. Meanwhile, while personal bankruptcy is at a record high it’s the credit card companies getting the bailout: American Express announced Tuesday it’s getting a $3.39 billion “capital injection” from the US Treasury.
For you and me new credit card rules are set to stop card companies from applying higher interest rates on existing balances and require giving customers at least 21 days to make a payment before charging late fees. Unfortunately, they don’t go into effect in July 2010. Kevin Drum:
You know, some regulatory changes need a substantial amount of lead time because they’re fairly complex to implement. These aren’t those kind. They don’t require 18 months of preparation. They barely require one month of preparation. They could have taken effect January 1st if regulators had been inclined to make a statement. Another opportunity missed.
Among my favorite books of 2008 is Dan Ariely’s Predictably Irrational. Dan’s in the news a lot lately, as well he should be. The book is a pleasure to read and reduces very complicated concepts to easily understood highly readable chapters. But the brilliant joy of his book is the way he hypothesizes applications for his research.
Here, for example, on page 123 he proposes a “self-control” credit card which would allow individuals to regulate their own spending behavior. Consumers could set in advance how much they want to spend in each store, each category, and in any time frame to set a self-imposed limit on impulse purchases. It would even allow us to set our own penalties.
For example, we could set the card to reject purchases over a specified amount or impose a personal penalty — in order to permit the over-limit purchase “x” amount of dollars goes into a long-term savings account:
A FEW YEARS ago I was so convinced that a “self-control” credit card was a good idea that I asked for a meeting with one of the major banks. To my delight, this venerable bank responded, and suggested that I come to its corporate headquarters in New York.
I arrived in New York a few weeks later, and after a brief delay at the reception desk, was led into a modern conference room….I started describing the self-control credit card idea as a way to help consumers spend less and save more. At first I think the bankers were a bit stunned. I was suggesting that they help consumers take control of their spending. Did I realize that the bankers and credit card companies made $17 billion a year in interest from these cards? Hello? They should give that up?
Well, I wasn’t that naive. I explained to the bankers that there was a great business proposition behind the idea of a self-control card. “Look,” I said, “the credit card business is cutthroat. You send out six billion direct-mail pieces a year, and all the card offers are about the same.” Reluctantly, they agreed. “But suppose one credit card company stepped out of the pack,” I continued, “and identified itself as a good guy–as an advocate for the credit-crunched consumer? Suppose one company had the guts to offer a card that would actually help consumers control their credit, and better still, divert some of their money into long-term savings?” I glanced around the room. “My bet is that thousands of consumers would cut up their other credit cards-and sign up with you!”
A wave of excitement crossed the room. The bankers nodded their heads and chatted to one another. It was revolutionary! Soon thereafter we all departed. They shook my hand warmly and assured me that we would be talking again, soon.
Well, they never called me back. (It might have been that they were worried about losing the $17 billion in interest charges, or maybe it was just good old procrastination.) But the idea is still there-a self-control credit card-and maybe one day someone will take the next step.
We have groups like Working Assets setting up credit cards for social ends. I’d like to see a consumer advocacy organization set up the self-control credit card on its own.