Losing My Free Ride

I love credit cards. I love the convenience of not having to carry a lot of cash around. I love the fact that I don't even have to consider the humiliating prospect of carrying a man-purse to organize my loose change. As one of those responsible cardholders who automatically pays my balance in full each month (which also keeps me honest about my spending), I love the fact that I get a little bit of interest "float", since the time value of money means that I pay less than face value, plus I get a significant amount of cash back. It's what the credit card companies call a "free ride".

There's news that credit card companies are going to start cracking down on people like me, largely as a result of losing the ability to gouge people who traditionally have been wildly irresponsible with their credit cards. You see, the recent model was all about charging ridiculous interest rates and penalties for people who would either carry a monthly balance, or worse - fail to pay a minimum balance. Now that Congress is cracking down on such practices, the credit card companies are looking for another source of income - the responsible cardholders with good credit.

The article mentions that banks will  "look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks." Ugh.

Here's my defiant retort to the credit card companies. I know that you're not simply making money off of credit card abusers - you're also making good amounts of money charging merchants a percentage of every purchase I make, an interchange fee, which averages around 2%. So credit card companies still make money of those with good credit, who are often people who are very large purchasers - important given that these interchange fees are a percentage of spend. 

Then it comes down to the prisoner's dilemma game theory. Who is going to blink? I won't hesitate moving from Citibank Dividend to AMEX Blue (which I did two years ago upon Citibank capping their rewards) to CapitalOne Rewards to PartnersFirst Cash Back (a useful table of reward credit cards is here) in order to escape the fees or caps on rewards. I suspect that the credit card companies are going to be very careful about rocking the boat too hard, lest they see some revenue sources walk away to other competitors.

We'll see. If I lose my free ride, it was nice playing the system while it lasted.