Cow Tipping was Fun but Borrower Tipping Pays Better

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Rural kids, like city kids, get bored but their entertainment options are more limited.  Anyone familiar with farm country knows about cow tipping as late night fun.  The game is to sneak into a field at night and push a cow that has fallen asleep on its hooves.

Legislators and bankers have unintentionally created a new version I call borrower tipping.  More on that later.

Our elected representatives trumpet the good they do by passing legislation designed to protect the citizenry.  Frequently however the law of unintended consequences comes into play and the citizens get stuck with higher costs at the end of the day.

The Credit Card Accountability Responsibility and Disclosure Act, signed into law in 2009, was well intentioned to protect consumers from hefty fees for self inflicted acts like paying late.  Banks being for-profit entities and wanting to maximize profits have found some ways to get some of that fee income in spite of the new law.

The Wall Street Journal reported that some banks are increasing the minimum payment due which can have the effect of causing some borrowers to miss their payment because they can’t pay the new, higher minimum payment. It’s hard to believe that banks would stick it to their customers but stranger things have happened during the financial crisis.

The motivation of congress or lenders is beside the point.  Borrowers that can’t pay are now tipped over into paying late and incurring a late fee.

What lessons can be learned:

1.  Check your credit card statements very carefully for any change in the minimum payment due or the payment date to avoid a late fee.

2.  Make a commitment to retire your credit card debt as quickly as possible.  Paying the minimum payment is a sure way to give more of your wealth away to lenders.

3.  Ask a trusted person for advice before borrowing money to make sure it fits your ability to pay and matches your financial and lifestyle objectives.

4.  Remember that lenders are in it for profit.  Their job is to take as much of your money as practical and your job is to hold on to as much of your money as possible.

5.  Legislators want your votes and draft legislation that looks good on the surface but sometimes underneath lies a trap with higher costs for the ones they tried to protect.

What will you tell your legislator about the Credit Card Accountability Responsibility and Disclosure Act?  Hopefully they won’t rush to fix what is now more broken.

Related Articles

• Credit Cards: Here Come More New Fees (online.wsj.com)
• A Guide to Personal Loans (creditloan.com)
• 50 Articles About Paying Down or Paying Off Credit Cards and Your FICO (creditscore.net)
• ‘GMA’ Quick Tip: Managing Your Credit Cards (abcnews.go.com)
• Credit card issuers keep inventing new fees to replace the old ones (walletpop.com)
• Thousands wasted on credit card minimums (independent.co.uk)
• How the Credit Card Act of 2009 Affects Consumers (applyforacreditcard.com)