Credit Card Debate over Consumers' IQ
Over the past week, I've attended two heated discussions on the future of the credit card industry. The first, last Friday, was hosted by the Consumer Federation of America, and the second, Tuesday, was a Senate hearing on credit card interest rates.
The arguments are basically over whether credit card companies treat their customers fairly. Consumer rights groups and certain members of Congress, such as Sens. Carl Levin and Claire McCaskill, Democrats from Michigan and Missouri respectively, think credit card companies are unfair in the aggressive way they solicit customers and then raise interest rates when customers start to struggle with their debt.
As McCaskill put it, "It seems part of the problem is that the behavior you encourage is the behavior you use to raise interest rates." (McCaskill has personal knowledge of the problems with this system: Even after the senator closed one of her mother's credit card accounts, her mother received blank checks from the company in the mail.)
On the other side of the debate, credit card providers argue that without the ability to raise rates on those with high risk factors, they may have to raise rates on all customers to offset the losses from that group, or stop offering credit to some people altogether.
The thing that strikes me about this debate is how often we consumers are talked about as if our minds are barely functioning. One woman, who identified herself as an employee of the Washington, D.C., government, stood up at the Consumer Federation of America meeting and suggested that card companies put the following warning, written in large lettering, on all of their statements: "If you use credit cards, you could end up in major debt." As one woman whispered to her friend behind me, "That's like writing on candy, 'Eating sugar may rot your teeth.'"
We don't need such obvious statements. We just need some basic facts. For example, how much am I paying each month in interest? What will cause my interest rate to go up, and how will I be notified if it does? What fees am I paying, and why? Without that information, a customer can suddenly find herself paying 24 percent interest, as Janet Hard testified she did with her Discover card. Her interest rate ballooned even after she made her Discover payments on time, partly because her credit score had declined and Discover deemed her a credit risk. Had she known about the interest rate hike, she could have closed her account in advance of it. (Credit card companies do often disclose this information somewhere, but it tends to be in an unintelligible form or in small print that's easily missed.)
Customers aren't stupid. We just need to be informed of how companies plan to treat us before deciding where to spend our money.
Please leave your own comments on the credit card debate below.
Tags: credit cards | Carl Levin
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Reader Comments
Credit card interest rates
I have cut up ALL cards when the news that congress was allowing companies to raise rates astronomically. But I already had lard balances that I could not pay before the rates went from 8.99% to 29.99%+. Now I pay them as I can an they keep making money off me and I haven't even used the card in over a year.
I have called the companies to work with me but they won't. They have you over a barrel....if I stop paying I ruin my credit and the bill keeps growing.
The excuss they use for not lowering my rates so I can get it paid off is that I closed the acct. They say to reapply and when I have an active account they will work with me on lowering they rate. I apply for a new account and they deny me because I have a balance and closed my account.
GIVE ME A BREAK. Oh they send me an application for a new account every month too. GO FIGURE.
One card company went up on my rates when they mailed the invoice to me so late in the month that there was no way I could recieve it, write a check that day, mail it that day and have it reach them on time. I called them but how many others haven't?
I have even been to consumer credit couceling and that's a joke. I have to give up all my cards, pay them a fee each month to help me pay my bills. No thank you I am doing it myself and do not have CHASE rule my life.
I am on the road alot and need my gas cards.....now that's another story in it's self.
credit card practices
Your approach to the story is a different one. I've been reading several now for hours and what you write would have helped me stay out of dept. Instead I got lots of trouble.
I am being taken to court by a collection agency that has bought the "charge off" or dept from my bank. I started my own small bus. and would take out cash advances to finance it. I'd experienced every interest hike, cash advance fee, late charge, finance charge, overlimit fee, balance tranfer fee -you name it. All at least $29.00. and up to 35.00 each month. No payments ever applied to the balance. It all went to fees. I got the invoices w/ a week turn around due date and the stange excuses of it's the US mails fault we don't receive your payment and we need 22 days to process it. Right!
It brings back bad memories. Believe me the dept was not for new clothes or dinners out. A friend who did have all that was declaring bankruptcy (a few yrs ago). I tryed in vane and instead to try to pay it off without the courts help. Obviously, I could not dig my way out of that and it just became useless to try. The sub prime morgage lending reminds me of the credit card game. You sell people one rate they can manage, then give them another they cannot. Keep them there- then if they stop sending money- just sell of the dept to a collection agency. They call the morage loans sell offs reconfigured and restucturing, of course.
Capital One Credit Card Ripoff
Capital One raised our rates over 50%. We were never late, paid more than the minimum balances, and was no where near our credit limit. We did not have a FICO score drop. When asked they only say it was a business decision and they have the right to raise my fixed rate card as much as they want.
Credit card reform
The head of the credit card unit at Bank of America explained that customers deemed a lower credit risk get lower interest rates and higher-risk ones get higher rates. So how come people who don't carry a balance have double-digit interest rates? I've talked to many friends and colleagues who don't carry balances and all have interest rates in the high teens. Since they pay off their balances, the rate doesn't matter. But what if you lose your job and can't pay them off each month? Suddenly you've got huge interest payments in addition to the balance. I'm sure this is how many people have gotten into trouble.
Credit cards
Oh, quit your whining. It's about living within one's means. IF YOU CAN'T PAY CASH YOU CAN'T AFFORD IT! It's that simple. Why is that so hard for so many people? The last time I paid credit card interest charges was in 1983 when the bimbo I was married too left because I refused to take out a loan for a vacation we couldn't afford.
The only "product" that credit card companies offer is immediate gratification. So control yourself.
The credit card industry refers to people like my wife and myself as "deadbeats" because we use credit cards (all two of them) all the time but pay off the balances in full every month. I guess the two to five per cent of each transaction they collect from the merchants isn't enough.
High credit rates
I have a Chase Credit card and without notifing me they raised my interest rate from 8.9% to 18%. I am never latge nor do I ever send in the required amount. If the payment is $50 I will send in $100-200 per month. Their excuse was I have a $4,000 limit and my balance was $2800. So now I am considered a risk even though I have had my card for years, never am late, and always paid more than the required amount. I called and told them I am on a fixed income and could not afford such a high interest rate. They also charge me $8.00 for fraud protection and almost $40 a month for insurance on my account so where is their risk? I hope someone steps in and helps the consumer with these greedy, gouging banks. The Bush administration gave them a green light to do what they please and they are going nuts--I call it theft and abuse of their customers.
Credit Card Interest Rate Abuse
I believe that Congessional attention to the credit card process has been a long time coming. There is not a reasonable justification for the high rates that cards charge when they start to increase. I am an informed credit card user fully aware of the tactics used to increase rates. It isn't about risk, its about inevitability. Even the most concientious credit card user will make a mistake in making payments on time. There have been state laws that set limits on interest rates as usurious. Like others, I have decided that credit cards are dangerous to one financial well being.
Unusual situations
Thanks for sharing your thoughts -- if you have an unusual experience, like having your rates raised to over 50 percent, which I have never heard of before -- please feel free to email me at alphaconsumer@usnews.com so I can investigate the situation.
Late fees collected even if payment recv'd on due date
I agree pretty much with walt of WV. I do not buy what I can't pay for and pay in full each month but I got a letter from Chase today that I have a problem with....They are changing the way they collect late fees. I'm not late with my payments either but I think what they propose is unethical. They say that they will now charge a late fee if the payment is received on the day it is due if it is received past a particular time (which they do not specify). If you set a date, that date should be good until midnight when that day ends. I agree that the proper thing to do is to mail the payment plenty early but.... Oh, and the late fee will be charged on the entire amount not on just the balance after the payment.
Cash Advance Rates
I have a credit card which is mostly Cash Advances. I know this is a risk to the lender, but I have paid on time every month at very high interest rates. The card has been paid off by the amount I have paid plus hundreds of dollars in interest. This is no longer a risk to the card issuer, yet I am still expected to pay those high interest rates. Something needs to be done about this. The debt has been paid, and now they will just sit there earning hundreds of dollars in interest. These are the tactics of a loan shark.
To Ann M. Gutierrez of IL
I think you should be able to cancel the fraud protection and insurance. Those are things that usually you have to agree to purchase every month. If they try and talk you out of it, STAND FIRM AND SAY NO. Tell them you will report them if they don't discontinue it immediately!!! Also say you want it in writing that you cancelled it.
How do they get away with what they do??
I had a problem with Capital One Bank where I had purchased a year ago. It was for $16,000. and I now owe 2400. They gave or sold my account to a collection agency saying I missed a payment. I didn't miss a payment they collect right out of my account. I paid almost 14,000 dollars in one year........where'd I miss a payment that they take out of my bank. Here's my point...I called them tried to clear this up but they would not talk to me. I have excellent credit and my concern was that they would put this on my credit report. I called an attorney but they don't handle this type of case. I had no where to go. The credit report agencies always seem to take their word over the consumer...........we have to have the proof. This is so wrong. I finally contacted my state banking dept. and the state attorney generals office. It is now cleared to where it should be but I am walking on shells wondering when they do their next act. They not only punish the late payers but anyone that will fall for their tricks.
I will not use Capital One again but which ones can you trust.
Double edged sword
I also agree that the credit card companies take advantage of people but in the same vein, consumers need to read articles like this one or any of the large number of personal finance books that can clue them into the risks of buying on credit.
As long as consumers use credit cards (or any retail credit for that matter) unwisely, the lenders will reap the rewards. Are they unscrupulous and unethical or just profitable capitalists? It depends on if you are the one holding the short end of the stick, doesn't it? Until people start choosing to make purchases with cash instead of using retail credit, I do not believe there is much the government can do to help. As consumers, we need to help ourselves.
Credit Cards
Have to agree with Walt of WV about stop your whinning. I had to file bankruptcy 2 years ago because of the interest rates. It was hard at first but got used to the "don't buy unless you can pay" theory. At least 2 times a week I receive notices they will give me (now up to 10M) for signing up. But read the freaking rules and if you don't understand them find someone that does.
Never too late, and sorry
I also have never been late and had my rate changed from a fixed 7.9% to 21.99% by BofA. They had taken over MBNA, and so then had two of my loans instead of one. They then showed late payments on the former MBNA account, even though I had the banks own bill pay service pay them on the due date. I had that reversed, and thought the problems were over. Then they raised my limit on the original BofA account and said I could extend my low promo rate a few months if I used it. After using it, they raised the former MBNA loan to the 21.00%. They said I was using too much of my credit, and wouldn't budge.
I also found out that the home loan that I paid off, and had never paid late, dropped off my credit reports after a few years - that also lowered my credit score. The credit bureaus and Fair Isaac are complicit in this bank abuse.
The 7.9% rate had been in effect only two months after a 0% intro rate, when it was raised. I started a savings account with BofA 50 years ago in Kindergarten, and have been with them continuously for the last 30 years. I went from a manageable debt to one that is very difficult, and may eventually not be possible to pay. I'm doing everything I can to pay it off quickly before the extra interest becomes too much. It's been an extra $1000 in only a few months. I cannot understand treating any customer, much less a loyal long-term customer, in this abusive way.
People must be made aware and boycott abusive lenders. The lenders need to see that the short term gains do not payoff in the long run. Meanwhile, I hope those of us who are caught up in this can survive financially. Sometimes things happen in life where you need to use credit, and that is often the worst time for a sudden added expense. I would hate to be broken at this stage of life by my own bank.
Home Depot charges 20 per cent per month on your balance. Is that 240 per cent per year? My thoughts are Gov won't do a thing about the problem because they don't want the boomers to retire. They can't afford to pay the SS because they have already spent it. So raise taxs-Medical-Fuel etc and keep us off the program.
Credit Card Company's lack of disclosure is the issue.
WDW of Florida, you CAN'T agree with Walt of WV because you filed for bankruptcy! All of the people that Walt is condemning are those who DON'T want to file for bankruptcy but have been trapped by deceptive Credit Card debt. Get back on the debtors side of the discussion, the indentured side that was tricked by low low minimum payments. I'm sure anyone who is deeply in debt would agree to rip up all of their cards in exchange for having their current debt forgiven.
As for the doubling of the interest rate for Capital One. Paula of PA, complaining about the rate going from 4.9 to 9.9 percent and condemning Capital One for doing that doesn't seem fair to me. Capital One offered that 4.9 rate for at least two or three years, maybe longer, it was really a nice gesture actually. My only complaint about that situation was for the people who signed up for the 4.9 just a scant few months before it was lifted back to 9.9. I seem to recall the advertising for that rate might have been going on just a few months before the rate was lifted to 9.9.
But still, you can't put that in the category of all the other cards that charge anywhere from 14% to 29% interest and always have.
Credit Card Companies ARE to blame for not disclosing that when you only make the minimum payment, you are actually paying 4 to 5 times the interest rate. Example, a 20% interest rate is actually an 80% to 100% interest rate if you only pay the minimum. On top of that, whatever you bought is depreciating in value, unlike a home that usually will appreciate over time. Yet the banking industry has set up credit card debt as if it were like a mortgage, and for that they should be brought to justice.
I offer a solution on my website http://www.credit-card-cap.com
also on http://www.credit-protector.com.
Divoce and credit
I agree we all should be responsible. However sometimes things get out of hand. A job lay off. and injry. A divorce. You end up using the card that you never used before. In my case I had great credit but never used it.
I got divorced because my husband had a girlfriend and was using his card for hotels. meals, gifts. you name it he used it for her.
Before the divoce was final he had spend over 80.000 dollars.
I called all the companies when I found out what was happening and let them now to take me off the accounts. They said he had to do it because I was just an account user. I never used the cards he had I had my own. And divorce decrees are not honored in community property states.
Just and FYI to all that have credit cards
Credit used with thought
Walt of WV -- My thoughts exactly. "IF YOU CAN'T PAY CASH YOU CAN'T AFFORD IT! It's that simple."
Wake up people, Your handed your credit card to the merchant to pay for an item that you knew damn well you did'nt have the cash to afford. But you wanted it NOW, and now its not your fault but the greedy credit card companies. Come on wake up!
Credit Card Debt Solution.
Hi Richard, a substantial part of the economic growth that has been part of President Bush's tenure is a direct result of all the credit that was handed out.
Banks overloaned money to too many people. Rather than take responsibility for overloaning too much money to too many people the banks want to blame the consumer, "write off the debt" and then probably raise the interest rates on those who still are trying to pay off their debts. It wouldn't surprise me if the banks also sneak these deadbeat accounts into other stock offerings.
NOBODY should have their debt "written off" without first determining if they can pay off their debt interest free. Nobody talks about this novel approach yet it would be a better approach versus any proposed tax cut and far less condescending. We don't need the government to "rescue" consumers from greedy bank programs and the bankers that can't comprehend the concept of overloaning nor take no responsibility for their actions.
http://www.credit-card-cap.com
http://www.credit-protector.com
Credit Unions
Predatory lending is _tanking_ the US economy. Sub-prime mortgages and credit card rate rate flimflams are ironically killing the geese that lay the banks' golden eggs.
The only answer is to pay cash and avoid credit. If you find yourself making an informed decision to take on debt, go to your local CREDIT UNION for mortgages, credit cards and personal or student loans. Those institutions are not "for profit" entities in the same ways that banks are, and can generally be trusted to stick to the terms of a contract.
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Credit Unions are the answer!
Check around for a local credit union that you can join, and if you want or need a credit card, get it from them. They are loyal to their customers, are not profit-making entities, and are usually very quick to resolve problems and responsive to their customers. I belong to two, and only use their visa and mastercards. It's the BEST CHOICE out there!
Loan sharks
This isn't anything new in the world. The credit card companies are increasingly becoming loan sharks, preying on those who -- whether through mismanagement or desperation -- make any mistake. I broke my leg and was late on my Household Bank payment by a couple days -- they charged me a fee greater than the amount I was supposed to pay. This can be used as an excuse by other companies to send rates through the roof. They feed on the misfortunes of others -- it's one thing to offer higher interest rates to people who are bad risks, it's another to raise rates once someone is struggling.
We need to simplify our lives when we can -- though hospital bills are the budget- and credit-death for many people, I don't know what to recommend to people who have something worse than a broken leg.
Except we all should get rid of the politicians who are in the pockets of these loan sharks: see if your local politician supports fair restrictions -- for example preventing "universal default" where we can pay a credit card company on time but they raise our rates for being late somewhere else. Especially the politicians that support bailing out the banks but letting individuals get sharked, get rid of them!
Loan sharks
This isn't anything new in the world. The credit card companies are increasingly becoming loan sharks, preying on those who -- whether through mismanagement or desperation -- make any mistake. I broke my leg and was late on my Household Bank payment by a couple days -- they charged me a fee greater than the amount I was supposed to pay. This can be used as an excuse by other companies to send rates through the roof. They feed on the misfortunes of others -- it's one thing to offer higher interest rates to people who are bad risks, it's another to raise rates once someone is struggling.
We need to simplify our lives when we can -- though hospital bills are the budget- and credit-death for many people, I don't know what to recommend to people who have something worse than a broken leg.
Except we all should get rid of the politicians who are in the pockets of these loan sharks: see if your local politician supports fair restrictions -- for example preventing "universal default" where we can pay a credit card company on time but they raise our rates for being late somewhere else. Especially the politicians that support bailing out the banks but letting individuals get sharked, get rid of them!
Credit cards buying your life
Yes, it is hard to not use credit cards when you lose your job and go to unemployment. Credit Cards offer you minimum payment what is every month you need to pay +add interest on that.You paying this long time making them richer and richer and geting your self poor and poor. If you do not pay on time they increase your interest rate and late payment fee making you go more to poor...
Power to the people and make equal every human on the earth, to share with each what they have, then we will not need credit cards or be poor....
We need to help each other equal.NOT I AM REACH AND YOU WILL STAY POOR
PEOPLE NEED TO HELP EACH OTHER ,TO WE be ABLE TO LIVE. THE END OF WORLD IS COMING ,GLOBAL WORMING, We need to stop that togheter...for future
of our childrens... We need think for future......
Peace to the Earth and love each other.....
PEOPLE ARE STUPID!
I strongly disagree with your closing statement. PEOPLE ARE STUPID, and lazy and greedy and selfish. Why do people keep spending money they don't have on things they don't need? Why don't people save more money for their retirement? Why do people max out their credit cards and keep getting more? Why do people spend without a budget and say they have no idea on how to create or keep a budget?
Most people's debt come from poor lifestyle choices like having more children than one can afford or going on vacation instead of contributing that money to an emergency fund. Unanticipated catastrophes like medical expenses are the exception, not the norm
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Credit Cards
I agree. I work for a major bank and I see it all the time. My wife and I always pay our bills on time but still kept seeing our rates go u. This had to do just from using the cards. I think its wrong. We will slowly get oursleves out of this once she starts working in January, but its tough now. I think its wrong. It's like penalizing someone for using their product.
Dec 05, 2007 17:28:08 PM [permalink] [report comment]