Friday, February 22, 2008

Owned By Credit

Coincidently, I found two news articles about credit cards yesterday. This one is about some of the bad card policies out there. While this story explains legislation that will provide consumer protection against unscrupulous credit card practices.

I think I'll go back to my college and professional employment days (do I even remember them?) to perform some analysis on these news stories. It's sounds boring, I know, but I'll do my best to hold your incredibly short attention spans.

First, you must know that I do not have an objective perspective on this topic (surprise!). Back in the day of owning our albatross apartments and using our credit cards just to stay alive, we had a rate climb from 9% to 16% to 24% for no reason. We just got our bill one day and my husband almost fainted. He called the company and fought tooth and nail for them to reduce the rate, as we had been paying on time every month. The best they would do was drop it for one month because we didn't have advance warning (we were supposed to have received a letter that mysteriously never appeared). So, don't expect me to be too sympathetic toward the credit card companies. On the other hand, I also don't support the use of buying discretionary items on credit, either.

Notice in the first article, "The Worst Credit Card Deals in America," it's necessary to tie in the higher interest rates with mortgages:

"Just a few years ago, card companies were stumbling over each other to woo new accounts, offering all sorts of incentives, like zero-interest periods and lavish rewards programs, to get people to sign up.

Then again, so were mortgage brokers."

And . . .

"Of course, this is also playing out against a backdrop of declining spending and rising delinquencies. Bank profits have been hard-hit by subprime mortgage exposure."

These are true statements, and the economy, as a whole, is tanking, but to make that direct relationship an explicit given is unnecessary. The article could have stood alone without the reference to the loan fiasco. It's like saying, "These companies are so unreasonable because of subprime mortgages." I remember the problems with credit card providers going back many years. They've always tried to rip off the general public. This isn't new.

Surprisingly, the claim is made that there are only six major credit card providers (Citigroup, JPMorgan Chase, Bank of America, Capital One Financial, American Express, and Discover). Could this be the reason why they're getting away with highway robbery? And, if you want to stay with a smaller bank, the lengths that they go to make an extra buck rival that of the big companies. To have the benefits of a secured "credit" card, you pay a $59 annual fee plus $140 start up fee and 19.5% interest on the purchases you make--as soon as you make them. This is just to use your money, people. Obviously, the only reason to have a card like that is to build up your poor credit in order to buy something bigger with more borrowed money. Right?

Then there's the card with the 9.9% interest rate and $300 limit that charges you $256 in fees right off the bat. So you 1) use almost your entire limit before you even receive the card, and 2) not realizing this, will probably spend over your limit and be charged an extra fee and higher interest rate. What a deal. This card is rivaled only by the one with a $250 limit that charges $200 in initial fees and a 19.92% rate.

And make sure you check your mail faithfully because if you're on a business trip, miss the bill, and your payment's late, you can expect to pay 30% in interest on some cards. Couldn't I get a better deal in some back alley from a guy named Sal with a deviated septum wearing a trench coat? But, with profits down 35%, the banks need to recoup the costs somehow. With such a captive audience, it's an irresistible temptation that proves to be lucrative.

Don't despair. In the second article we have the government swooping in to save the day . . . or to save consumers from themselves, depending how you look at it. It would be ludicrous for Congress to attempt to legislate a ceiling to how much spending we do on credit. The world would cease to exist as we know it--literally.

"The Credit Cardholders’ Bill of Rights Act of 2008, known as H.R. 5244, would protect cardholders from arbitrary interest rate increases and unfair fees . . . (the) bill does not have any price controls. It does not cap rates or fees . . . (It) would prohibit credit card companies from arbitrarily changing their contract with a cardholder . . . The credit card company would also be required to give you 45 days notice in writing that your rate was going to change."

It will also limit "universal default" and "double-cycle billing," and give a longer grace period. Of course, the banks claim that this will only make credit "more expensive and less accessible." Hmmm. Is that a bad thing?

I say that, if your credit card company messes with you, pay off your balance with another cheaper card. But, before you sign on with any of these providers, read the fine print and be determined to pay off your purchases every month. After all, they can't scam you, if they don't own you.