Today the Credit CARD Act goes into effect, and as this CNN story says, credit standards have already tightened. People with "even a mediocre credit history" are having a tougher time getting credit. The story suggests, probably accurately, that it will get even tougher, with creditors demanding more proof of income and savings from applicants. Anyone who ever applied for a typical credit card before now knows they used to just ask you what you earned in a year and took your word for it.
That's one part of the story. The other is, credit just got more expensive. Creditors have raised rates across the board, including on long-time customers with good payment histories, and they're adding fees and charges while slashing rewards. They do this in response to the Credit CARD Act, to "make up for any potential revenue lost as a result of the CARD Act."
But these two things don't go together. If credit is harder to get, that is, only those with stellar credit histories and verifiable incomes can get it, then it should be cheaper. The main reason credit is expensive is that it's risky. All the people with marginal credit histories and sketchy incomes raise the risk profile of a credit card lender's portfolio, and therefore make credit more expensive. Tighten lending standards to exclude the riskiest borrowers, and you shouldn't have to charge so much of the borrowers who are left, because they present a smaller risk to the lender.
What's happening is the creditors got used to a trough of a certain size. No matter what law passes, it can't shrink the size of the creditors' snouts. They simply can't fit into a smaller trough.
So even though the new law makes it almost impossible to lend to anyone under 21, and has led to tougher lending standards that exclude the riskiest borrowers, the creditors have done the math and are working on new fees to keep the same amount of money coming in. So those borrowers who are left, the ones who have good credit, are still paying more to subsidize the cost of the riskier borrowers, even though there are fewer of them than before.
This is like bankruptcy reform in that way. Reform steered a small number of bankruptcy filers away from Chapter 7 with means testing, which was supposed to lighten the burden on the rest of us who don't file bankruptcy but still pay more to make up for what the creditors lose in bankruptcy filings. Except nobody lowered our fees or rates or gave us a rebate when bankruptcy reform passed. (Make no mistake about it: bankruptcy is better now than it was before BAPCPA, but it didn't lead to better terms for the typical borrower.)
So is it the credit card companies or the politicians who are to blame for the current mess? There's blame enough to go around. Politicians are stupid and short-sighted, and creditors are smarter than them. They've turned the Credit CARD Act into a bonus; they get to shed the riskiest parts of their portfolio and raise their fees at the same time. No matter how senseless or unfair their rate increases have been over the last 6 months, they can just point to the new law as the reason they had to raise rates.
The recommendations I made in my last post stand. Stop doing business with credit card lenders, and stop voting for useless idiots (stop voting at all, for that matter).