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Credit Card Issues Give a Break to Borrowers — Even Those Who Don’t Deserve It

When it comes to credit cards, there’s almost always something to be watching out for. At Creditslips, Adam Levitin notes that interest rates on most low-rate credit cards are holding steady, and rates on high-rate cards even fell a little recently. So … what about all those fears that credit would be more costly once credit card reform legislation passed? That was the argument from the credit card issuers. Levitin explains that it’s far too early for any changes in card rates to be linked to effects of credit card reform, which restricted some of the more abusive practices of card issuers, such as arbitrary interest rates hikes and excessive fees. So a drop in rates can’t be tied to the new law. But Levitin can’t help pointing out that if rates had inched up, critics of the legislation would have been quick to finger the new law as the culprit — and will no doubt do so if there are any increases in the future. Just something to keep in mind when tracking credit card rates.

That’s not the only credit card development. The New York Times reports that issuers deluged by delinquencies are starting to cave, agreeing to cut balances in half, or more, for people who can’t pay their bills. Even the front-line customer services representatives — the ones who usually tell you they don’t have authority to do anything – now are getting the OK to make deals. Credit experts told The Times “a line has been crossed.” Usually, card issuers might reduce interest rates, but not the actual balance. Anyone who has ever dealt with a credit card company knows the answer to any negotiation used to always be “no.” But with unemployment climbing, issuers apparently are willing to take whatever they can get, even if it means reducing a borrower’s balance.

Calculated Risk comments that in a financially literate world, people would pay their balances in full each month. There are lots of reasons why that doesn’t happen, from legitimate financial hardship to poor choices. That’s why I’m not sure the move by issuers to wipe away debt is necessarily good news for consumers.

It’s true that borrowers shouldn’t be stuck paying off balances bloated by unnecessary and unfair fees. The card companies should rightly take a hit for some of those practices. Lesson learned.

But what’s the lesson here for some borrowers? Not everyone is a victim of financial hardship. No doubt you know more than a few friends who ran up big balances, buying things they really didn’t need or couldn’t afford in the first place. Now that times are tough, it’s possible some might get their debt sharply reduced. And what will they take away from the experience? That you can run up big debts and still find a way to get out of them?

Credit card issuers are often an easy target, thanks to some of their more egregious lending decisions. But borrowers aren’t always victims, either. The ones facing hard times and really need it may get a break. So will those who still cling to the easy money mentality that helped get the economy into this mess in the first place.

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