Friday, October 9, 2009

Credit Card Woes

Two news stories from the credit card industry caught my eye this week. First of all, the government came out with a report showing that consumer credit dropped in August, for the seventh straight month. Credit is important, as I've written before, because it expands the wealth we have and creates new wealth. All the consumer confidence in the world doesn't matter if people aren't out there spending money.

The other story reported that Wells Fargo was planning to increase its credit card rates, in anticipation of Congressional regulations that will limit their ability to do so. Someone at Wells Fargo seems to think this will boost its bottom line, and maybe it will. But think about it: Imagine your annual credit card rate is now 14.9 percent. If your bank raised that to 17.9 percent, are you going to use that card more than you do now, or less? If your bank cut the rate to 11.9 percent, do you think it would get more charges out of you?

It's certainly not my place to tell Wells Fargo how it should run its business, but it seems like it would be worth a try for one of the credit card issuers to drop its rates and see how much that improved its bottom line. But more importantly, at a time when we need to expand credit to help get this economy going, it's frustrating to see issuers of credit doing the exact opposite.

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