Two Faces of the Credit Card Industry

With the current trend of increasing mortgage bankruptcies and mounting credit card debt, credit card companies may be starting to kick themselves for pushing for new bankruptcy laws.

A couple years ago, the credit card industry was at the forefront of those pushing for bankruptcy reform. As a result of this new reform, debtors are finding it more difficult to file for bankruptcy. Yet, despite the fact that credit card companies wanted this reform, they are still purposely targeting those who have filed bankruptcy in the past.

So, what’s the deal? On one hand, the credit card industry wants to make bankruptcy more difficult. On the other hand, they are purposely trying to get these same people to be their customers. What makes this fact irksome to me is the fact that the credit card industry portrayed these very same people as scoundrels and deadbeats that needed to be treated as such. If these people are so terrible, why would the credit card industry want to include them as customers?

The answer is simple: credit card companies are in the business to make money. Even if someone filed bankruptcy in the past, that doesn’t mean that he or she can’t serve as a cash pig. In fact, credit card companies can get away with charging higher interest rates to these people because they filed bankruptcy in the past. This, of course, translates into making even more money.

Furthermore, customers that filed bankruptcy in the past are even more attractive because of their spending habits. Credit card companies have found that people who filed bankruptcy in the past are more likely to carry a balance on their credit cards, which translates to making more money from finance charges. Credit card companies have also found that people who filed bankruptcy are more likely to take out cash advances. Combine the fees associated with cash advances with the higher interest rates charged for these transactions, and we are talking about some pretty big money.

Therefore, issuing credit to people that filed bankruptcy in the past is all about acceptable risks. Sure, a certain percentage of those cardholders will file bankruptcy again or may default on payments. But, those that make good on their payments will bring more money to the credit card company.

I am not getting down on the credit card companies for issuing credit cards to people that filed bankruptcy in the past. After all, people that filed bankruptcy should be able to enjoy the conveniences of having a credit card. But, it seems to me that the credit card companies could be a bit kinder when discussing these vary same people while trying to get changes made to bankruptcy law. As the saying goes, you don’t want to bit the hand that feeds you.