the visible hand

it is the theory which decides what can be observed – einstein

cc: moral hazard

Posted by ecoshift on December 28, 2007

I don’t normally tell personal stories here, but this bit of anecdotal evidence may be relevant beyond my personal experience.

I just got off the phone with a representative of Discover, the credit card provider. Discover has been pretty good to me. They offered a low introductory rate and a reasonable ongoing rate after that — and they have stuck to their agreement until now. In a previous post on this blog (linked below) I noted some scary language in recent credit card agreements: “We reserve the right to change the account terms (including APRs) at any time for any reason.”  According to the phone call today Discover is giving some similar reserved right a bit of exercise.

I called because they raised my variable rate by 5%. I’d been away from my desk for a weekend and came in two days late on a payment back in November. I thought I might be able to talk them into bringing my rate back down based on my decent credit rating (FICO 700+) and a long history of timely payments. Instead I was told that the increase has nothing to do with my account history: Discover raised interest rates 5% for over 900,000 of their customers due to the business conditions that they, Discover Financial Services (DFS), currently face.

Imagine that. Wow. Moral hazard anyone?

Here’s a link to my previous credit card post and below that an update on the business conditions that DFS faces:

Caveat emptor: deceptive credit card terms and conditions « the visible hand

As far as the credit card companies go, they can change the terms that apply to an existing balance at whim. Read the fine print. Here’s the line from the most recent offer to cross my desk: Rates, fees and terms may change: We reserve the right to change the account terms (including APRs) at any time for any reason, in addition to APR increases that may occur for failure to comply with the terms of your account.

Discover to take charge for UK card business | Reuters

NEW YORK (Reuters) – Discover Financial Services (DFS.N: Quote, Profile, Research), the credit card company spun off by Morgan Stanley (MS.N: Quote, Profile, Research) five months ago, said on Monday that it would take a charge to write off part of its Goldfish credit card business in Britain, where consumer credit has deteriorated.

The noncash write-off covers substantially all of Goldfish’s goodwill and other intangible assets, which totaled $422 million as of August 31, Discover said. It will take the charge in its fourth quarter, which ended on November 30…

“Continued disruption in the UK financial markets, higher interest rates and our decision to reduce our loan exposure to the UK market have negatively affected the book value of our Goldfish business,” Chief Executive David Nelms said in a statement…

Separately, Discover said its board had authorized the repurchase of up to $1 billion in common stock through November 30, 2010. The buyback covers about 12 percent of Discover’s reported shares outstanding, Reuters data show.

I once had a goldfish that died. I had to write off all of his goodwill. I feel their pain.


One Response to “cc: moral hazard”

  1. […] Read the rest of this great post here […]

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