As the Senate got down to work on the credit-card legislation, we got one of those “to
serve you better” letters. It was from a large issuer – okay, BofA – and it told us that,
since our card had been upgraded, various penalties would apply if we failed promptly to
change the card numbers provided to any of our regular vendors. This was an upgrade
we didn’t request for additional features we don’t want. To find, then, that an upgrade
we never requested could result in significant cost if we then failed to do as ordered was,
at best, irksome.
But, when we read the letter closely, we found it pointed to the reason credit-card
practices are under so big a gun on Capitol Hill and at the White House. According to
the bank, the reason we were now on the potential hook for lots of fines if we didn’t get
cracking was federal regulation. The letter said that “unfortunately” the issuer had no
choice but to force us to call all our various providers – gyms and the like – to ensure that
no additional charges go to an old card number that, since it’s no longer valid, would
force the bank apparently against its will to hit us with costly penalties. The letter
lumped our upgrade – again unasked – with the fact that these fines are charged on
delinquent or lost cards. For those, it might make some sense due to the borrower’s own
failings and the risk of loss. To us, though, the expressed statement of a right to whack
us seemed not only ill-advised, but likely also nowhere directed by the evil powers of the
hidden federal regulators.
And, now to the credit-card legislation. The industry is lucky it beat back the Sanders
amendment subjecting it to a flat fifteen-percent usury ceiling. Other than that, it’s been
lose, lose all the way. If the Senate had any thought of easing up, as the House initially
was inclined to do, President Obama gave the industry no quarter. In a series of
pronouncements over the last week or so, he and Secretary Geithner have been merciless.
This is, of course, due as much to political positioning as real ire. Stung by assertions
that the White House and Treasury are unduly chummy with Wall Street in the wake of
the AIG-bonus fiasco, senior policy-makers determined that quick attack on the side of
Main Street was required. Since what’s left of the mortgage industry has to help the
White House modify loans, credit cards came up for their comeuppance.
We very much doubt that the mood will improve when credit cards are savaged and the
pending bills are enacted into law. Other market segments – derivatives for a start – will
come through the wringer, but the real pressure will fall on consumer finance because,
quite simply, that’s where the voters are. If there are any more “to serve you better”
announcements for other products, then lenders better check the legislative hopper.
Political risk is probably the most defining one these days for strategic planning, although
all too much of this risk is sadly self-inflicted.
