Proposed credit-card rules hurt responsible consumers

The beautiful thing about credit cards is how easy they make it for responsible consumers to take unfair advantage of banks and businesses.

Some cards offer low "teaser" interest rates — as low as 0 percent — for balance transfers, purchases or even cash advances. We take that cheap money, and when we pay off the balance before the promotion period ends, the card companies actually lose money.

We also use credit cards to make shopping more convenient. Just swipe, sign and go. By paying our bill in full each month, we earn frequent-flier miles or even cash back without paying the company a cent in interest or fees. There are still more free benefits. If a seller rips us off, the credit-card company will often go to bat for us and get our money back.

Now the Federal Reserve wants to mess all of that up. New regulations the Fed has proposed would reduce or destroy many consumers' ability to take advantage of credit cards and their benefits.

Under the proposed rules, where a consumer takes advantage of a temporary promotional rate, card issuers would have to apply the cardholder's payments to any pre-existing higher-rate balance before applying it to the lower-rate balance. (They do the reverse now.) The rules would also prevent banks from increasing the interest rate on an existing balance unless the cardholder makes a payment more than 30 days late (with other limited exceptions).

Those rules may sound beneficial to consumers. During the 90-day public-comment period, which ended last week, the Fed received thousands of letters full of credit-card horror stories, urging them to adopt the changes.

But when well-meaning citizens seek "consumer protection" in this area, they're really asking to shield consumers who don't pay attention to, or follow, the rules. And if they get what they want, that will punish those of us who've handled our cards responsibly or who want to get a card for the first time.

It's easy to say that banks should shrug off missed or late payments. But those payments add up — and the card issuers lose out not only on the amounts of those payments for the time that it's past due but also on the additional money they could have earned by investing it.

If card issuers can't recoup the cost of late payments through fees and increasing interest rates, they're going to be less able to give cards to people on the lower end of the economic spectrum, depriving those people of the ability to build credit.