Thursday, June 03, 2010

Protection racket

Last year the Obama Administration, with the support of its acolytes in Congress, pushed through a piece of legislation known as the Credit Card Accountability and Responsibility and Disclosure Act. Backed by self-styled "consumer advocates", the bill promised all sorts of goodies for credit card users such as restrictions on interest rate increases and fees. Credit card companies, meanwhile, warned the legislation would force them to seek revenue elsewhere, including scaling back rewards cards. Well, the bill went into effect on February 22nd, and a week or two ago I received a letter from my credit card company informing me that my rewards are being scaled back (for example, I now only receive 1% cash back on purchases from grocery stores, as opposed to 2% previously).

Maybe the legislation's implementation and the letter from my credit card company are simply a coincidence, but I doubt it. In any case, I have gone from a situation where I was perfectly happy with my credit card -- always sure to pay off my balance in full every month -- and never faced any problems with my interest rate or fees. Now, owing to the federal government's infinite wisdom, my rewards are being scaled back. Thanks guys.

Unfortunately these busy-bodies aren't content with tilting at the credit card windmills, and are now turning their attention to airlines:

Airline passengers would receive as much as $1,300, up from the current $800, for being bumped from a flight and would have 24 hours to cancel reservations without penalty under consumer protections proposed by the Obama administration.

The new rules would require airlines to fully and prominently disclose baggage fees as well as refunds and expense reimbursement when bags are not on time; provide special notice when fees go up; and notify ticket-buyers if they must pay to check bags.

Price increases after a ticket is purchased would be barred, and airlines would have to give timely notice of flight-status changes. Transportation Secretary Ray LaHood estimated that the new rules would go into effect this fall.
This is sheer economic lunacy which will simply drive up prices. Does Secretary LaHood think that airlines are simply going to bite the bullet and reduce their profits (if the airline is even profitable, which in most instances is unlikely)? Of course not. Rather, they will be forced to either find new means of cost-cutting or simply raise ticket prices. Given the razor-thin margins which already exist and limited opportunities for further cost reductions, I'm guessing we're going to see more of the latter.

Here's a contrasting approach: if you don't like the way an airline operates or the way it treats you, don't fly with them. It's not as if there aren't plenty to choose from. Dear Washington bureaucrats: please stop trying to save us from ourselves. We can't afford it.

Update: It seems a number of states aren't happy about some of the credit card legislation either.

No comments: