Could the age of 'instant credit' be over?
Filed under: Credit, Credit Cards
New credit card regulations being considered by the Federal Reserve could put an end to that all-too-common pitch customers hear when they check out: "Would you like to open a Such-and-Such Store Name credit card today?"What the Fed has in mind is to require credit card issuers to get information about your income before they determine whether you're credit-worthy. It's a reasonable thought in light of the fact that we wouldn't be in our current financial predicament if we'd kept closer tabs on how much people could afford to pay back.
Right now, retailers can pull your credit score from a nationally accessible database and use that to determine whether to issue you a store credit card and what your rate will be.
But with the change that's being considered to the Credit Card Accountability, Responsibility and Disclosure Act, the issuer would be responsible for "consider[ing] the ability of the customer" to pay, a much vaguer directive. This has been interpreted to mean that a store would need to access the type of information you'd need to provide if you wanted to take on more substantial kinds of debt like a mortgage or car loan. The store would need to be able to see how much you made as well as any other obligations like child support.
Since there's no nationally available database of this sort -- a good thing, considering the privacy questions that prospect raises -- the retail industry has painted a scary, possibly humiliating experience of consumers having to hand over pay stubs or even tax returns to some indifferent cash-register jockey.
In reality, this probably wouldn't happen. (Stores barely trust their front-end staff to dress themselves; it's hard to imagine they'd entrust them with hard copies of customers' tax returns.) What's more likely is that instant credit would simply be eliminated.
Big retailers and groups that represent them like the National Retail Federation have made it clear they consider this prospect no less than a tragedy. In this article from the Wall Street Journal, a spokesperson for Macy's calls instant credit "important" and "valuable."
Important and valuable for the company, maybe, but what about for the consumer? As the article also points out, people are more likely to default on a store card, which puts a ding on your credit history. Store cards also tend to have lower credit limits, which, again, isn't so great for the health of your credit score. (Fast lesson: While a store card is better than NO card for establishing credit, a regular, general-use credit card is better than a store card.)
Store cards, like most kinds of revolving credit out there, have a place in our financial system. Instant credit, however, isn't a must-have by any means.
Imagine a world where you could get a credit card from a major retailer, but a week or so in advance of a planned purchase. By planning ahead, you might be less likely to drop a bundle of money you don't have on a spontaneous, big-ticket purchase if you suddenly have access to hundreds or even thousands of dollars in credit you didn't have when you set foot in the store. That's why retailers fear the Fed's new proposal, and why you as consumers should cheer it.
Money Clips
- HILARIOUS: Warren Buffet Plays Axl Rose in New Commercial - Huffington Post
- ON THE PLUS SIDE: Where Home Prices Are Rising - CNNMoney
- FRICTION: Could China Trade War Put Walmart Out of Business? - 24/7 Wall St.
- PROFILE: Opinionated Auto Industry Insider Dies - FORTUNE
- DON'T LAUGH: More Homeowners Turning to Fake Grass - SmartMoney
- HIT HARDEST: States Hurt Most From Rising Gas Prices - CNBC
- GET YOUR MONEY'S WORTH: Best Cars to Buy Used - CBS MoneyWatch
Reader Comments (Page 1 of 1)
12-09-2009 @ 8:45PM
Tracy said...
This a great idea. Credit issuers have been profiting on money people spent that they didn't have and that is not a sustainable business model, thus the recession. In reality though, consumers will spend more on the items they buy if they use credit anyway, so isn't it better to just live within your means?
Tracy
http://downturnliving.com
Reply
12-10-2009 @ 8:56AM
glenn said...
The restrictions were the way it used , at the least for the way they treated me , I never signed up for instant credit , the promotions genarally aren't that great and if you've ever dealt with credit before then you'd understand credit and just how it all works , the fact that getting 10% off your present purchase , you first need to look at how much your purchase is and whether its really worth it , lets say 10% off of a 1000 turns out to be 100 bucks , well that would be worth it , but the credit card company drawing up the terms for that card can place you at any percentage rate they so desire , So end up carrying the balance of 900 at 24.99% ( or even as high as 34.99% ) interest rates , now tell me if you take even 6 months to a year to pay this off , where's the savings ?
Reply
12-10-2009 @ 9:03AM
glennbob said...
with all the knowledge out there now about credit ( there certainly is a lot more now than a couple of decades ago ,hence the internet ) people need to understand and learn restraints about using credit , I'm probably one of the worst when it comes to credit , I made things fly at paying 1600 to 2000 a month for over 25 credit cards , I did this for over 4 years until last year and everything came crashing down around me then this past summer I had no choice but to file for chapter 7 . I went thru this back in the early to mid 80's as well and in both cases it was the stock market that failed me by bringing the economy to complete halt , I'm not blaming them for it all , I had crdit then ( as I did now ) and definately over extended it in both cases and used the law to free myself from it , But this time was different ------
Reply
12-10-2009 @ 9:12AM
glennbob said...
-----------the difference being that now we all saw just how badly and poorly the banking industry handled credit themselves , with the inception of the internet , there's not a lot out there ( scam wise ) that goes unnoticed or posted without someone finding out about it , the banking industry failed the people this time , if you take a hard look at just how this lastest recession took place and take that knowlodge or info and compare it to recessions of the past ,( and even the Great Deppression)you'll find that the real causes were not that different , which tells me Wall street hasn't learned a thing and needs to be tamed thru government resources instead of a loosely run congress ( who on the taxpayers dime ) can afford let their credit run amuck because we the people end up paying for their personal generosity to themselves without any regard to the American people or people of the world for that fact -------------------
Reply
12-10-2009 @ 9:23AM
glennbob said...
--------- so if your paying attention and understand who was behind it all , then you might pay a little more attention to who you put in office the next time you visit the voting booth , don't get me wrong here I blame myself primarily for my credit woes over the coarse of my life , I just simply like to have things that I cannot afford , just as well all do . But , I didn't need any help creating the issues that plagued me either , sometimes those offers are just too good to pass up - I'm glad that there will at least be new laws that will go into effect to stop this mindless credit fiascoe the banking industry needs a few lessons of its own , unfortunately they won't ( or unwilling) too make those changes themselves , so it needs to be done thru legislation , we've already seen just how the conservatives handle it , hopefully the demos will get it right !!
Reply
12-10-2009 @ 12:52PM
Bas said...
I'm sorry, but "offers too good to pass up" and "I just like to have things that I cannot afford" are 2 of the most ridiculous excuses I've heard in a long time. Sure, the banking & credit industry sucks, but you went thru bankruptcy TWICE? Guess who really suffers for that? Me, and others like me, who actually live within their means. You sound like an alcoholic complaining that you can't get sober because there's a bar on every block.
Reply