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.
Similarly, if card issuers can't recoup the cost of promotional interest rates, they're less likely to offer them in the first place. Those low rates often help people who are struggling to get out from under their credit-card debt by transferring balances from higher-rate cards, saving them hundreds or thousands of dollars in finance charges.
It's true that those people and some people, like me, who deliberately "game the system" benefit from the financial irresponsibility of others. But so what? Careful, responsible actions should be rewarded, and careless, irresponsible actions shouldn't be. If you don't want to fund the next flight I fly free of charge with bonus points, stop incurring late fees.
Besides, it's really not that hard to stay out of credit-card trouble. No one's forced to get a credit card at all, and many people manage to use cards without ever paying a late fee. It's just a matter of minding the rules and not biting off more than you can chew. And if you have a good track record, a phone call is often all it takes to have late fees removed or lower interest rates restored.
Self-education helps and so does common sense. If someone appears to be offering you something for nothing, is it really too much to ask that you read the fine print and then carefully comply with the terms of the deal?In any event, some consumers' poor decisionmaking is no reason to take away choices from the rest of us. In trying to address the country's economic woes, the Fed would do better to look inward to its own loose money policies than to make scapegoats of credit-card issuers and to punish responsible credit-card users.
J.H. Huebert, an award-winning attorney and a law professor, has written extensively on credit-card matters.