Cheers for the Senate Homeland Security and Governmental Affairs investigative subcommittee, which heard testimony Wednesday from consumers and major credit card issuers. Consumers are feeling gouged by the perfectly legal practices of late fees, over-credit-limit penalties and the nightmarish “universal default” — in which credit card issuers raise the interest rate if a consumer fails to pay other creditors on time.
Committee Chairman Carl Levin, D-Mich., is dangling the threat of legislative action to force voluntary changes in the practices of credit card companies.
The companies pass out credit cards like they are free candy, regardless of credit history, then stick users with huge fees. And since they got Congress to change bankruptcy laws, there are few options for consumers to dig their way out of debt.
Posted by Patrice Hein
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52 Comments
IT’S ABOUT TIME.Nothing but legalized theivery.And damnit, why can’t I pay CASH when I travel.Ever try to pay your hotel bill with cash?Good luck.Not only legal thievery, but made where you HAVE to be a victim of it.
“..“universal default” — in which credit card issuers raise the interest rate if a consumer fails to pay other creditors on time.”
I didn’t know about this! What a rip-off.
The real problem is the people who use their credit cards the right way, because the companies don’t make any money off of them, so they have to stick it to the rest of us.
Everything in this country is based on making money, so credit card companies will fight to the death to keep things the way they are. They’re just as predatory (if not more) than payday lenders, targeting the vulnerable. My kids started getting all kinds of offers the minute they got out of high school, I’ll bet I recieve 2-3 offers a day in the mail. It’s easy to see how those who live paycheck to paycheck or have financial problems can get caught up in using credit, then find themselves in so deep they can’t dig out without resorting to bankrupcy. The interest rates are obscene for those who fall behind or miss a payment, and if a person takes a credit card to a 10,000 limit and only makes the minimum payment, it will take them 30 yrs to pay it off.With the combination of impulse buying, living beyond one’s means, and the predatory nature of credit companies, it’s no wonder they’re making huge profits.
People who apply to credit card offers in the mail don’t have a lick of sense anyway.
If your local bank offers you a credit card and you really need one, that is the best way to go.
That platinum card may sound like an attractive offer, but don’t fall for it.
They also need to crack down on thoes checking cashing places…
SOMEONE needs to do something about the credit card companies, thank goodness!
And they need to quit sending credit card offers in the mail. That is how my husband’s identity was stolen years ago.
If you ever try to get them to stop sending you offers, GOOD LUCK, took like a million phone calls and finally threats.
Yeah, fleet; read you cardholder agreement (hopefully your eyes are better than mine) and see what it says.
Jimmy: don’t kid yourself, the companies make money even if the holders of their cards pay off the balance within the grace period. The “discount” on payment assures that. The interest, additional fees, etc., are there to make additional money; not saying they aren’t entitled to interest, for example, but the other fees seem a bit high to me.
Mary: that’s the truth; once a student graduates from high school, the offers come rolling in to young people who likely are not the most credit worthy.
TRACY, I share your frustration; but there are certain security and other risks connected with having cash on the premises.
Just pay off the freaking balance every month and there’s no problem. It aint that hard. If you don’t have the money to pay off the balance, then don’t use the card. Sheesh. I use a cash back card and earn free money. The credit card makes zero money from me; they lose it. The people using the cards stupidly are the blame. They are not victims, they’re just not using the card right.
“They also need to crack down on thoes checking cashing places…”
Why? If people want to go there, why stop them. I’m assuming they are consenting adults. They are told what the deal is. Are you a nanny-stater?
“And they need to quit sending credit card offers in the mail. That is how my husband’s identity was stolen years ago.”
Dear Goverment:
Please save me from myself.
Thank you
Vaughn, What is this “discount” on payment?
“The real problem is the people who use their credit cards the right way, because the companies don’t make any money off of them, so they have to stick it to the rest of us.”
Jimmy, you have GOT to be kidding. So we responsible credit card users use the card correctly then the credit companies are out to get you?
Who’s making you use the card?
Who’s making you not pay it off?
SOB, generally speaking, when one uses a credit card, and the credit card company pays the transaction, it “discounts” the amount received by the merchant. It is my understanding that “in the beginning”, the face amount of the transaction was reduced by 1.5%; these days, a reduction of 3% or more is common.
I’ve always tried to get a discount when paying cash; sometimes I’m successful, often I’m not.
BTW, the credit card companies hide the “discount” as an administrative fee for convenience of the merchant.
Hope this is of assistance.
Ok, I’ve heard of that kind of thing. But, I’ve been using my credit card for most everything for many years and have no indication of that happening. I know the credit card companies charge a fee for merchants to use the cards via transaction processing though. …well, maybe that’s what you’re talking about.
Yeah, SOB, that’s it. Interestingly, for those of you who so choose to do, when paying income taxes with a credit card, the fee is added to the balance due. The amount of the fee added should give one an idea what the merchant receives net.
I know about those “service fees” to pay things like income tax. But, those fees are clearly stated and still the payer’s choice. I’ll never pay for such a service.
Thank you SOB for your posts. I was going to type up something very similar until I read yours and now will just agree instead of repeating. I pay mine off every month too; every once in a blue moon it’ll take me 2 payments but still, I make sure to never get into this debt problem. The people complaining and getting into problems with these “bad” credit card companies have nobody to blame but themselves.
“Jimmy, you have GOT to be kidding. So we responsible credit card users use the card correctly then the credit companies are out to get you?
Who’s making you use the card?
Who’s making you not pay it off? ”
Obviously, my ironic point didn’t find its mark.
People who are living literally paycheck to paycheck don’t have the options available to those who have a little more financial security. Not to say they won’t get there someday but right now the fridge needs replaced, the car must have new tires (at least one) and the baby needs a prescription (full price because they can’t afford insurance either). This is the week the rent or house payment is due and that leaves nothing until next payday. How do they keep the baby’s milk cold, get to work without tires on the car and get that medicine?
Low-interest credit is not available to that person. Sears won’t sell them the fridge on credit so they go to the place that rents to buy. They pay several times the cost of that fridge to the rent to buy place but that’s the only option.
Or, they put it on one of those credit cards. They truly are given out like candy. This family accepted the offer so they would be able to get past this exact situation. They never intended it for a vacation or anything frivolous.
They can’t afford daycare so the parents work two different schedules. When they are off work and supposed to get some sleep they are caring for the children because that’s when the spouse is at work. Or, one stays home and the other gets two or more jobs.
They are making the family meal out of whatever is in the kitchen. Most nutritious? No. I’ve seen some who appear to make a meal out of the dishwater in the sink because that’s all I saw in that kitchen.
These people aren’t asking anyone to help them. They are doing it on their own and hoping for a better future. But in the process they are digging a deep hole out of necessity.
And the credit card companies are handing them the shovel.
Jimmy, I’m glad to hear you were kidding…..I guess your humor was too subtle. That happens to me too.
So….what? The credit companies should give them money? These people don’t plan their lives and don’t save money and don’t budget and then don’t pay their credit card bill in full or on time then it’s not their fault? Come on. Let’s not add credit card companies as another welfare giver.
“Thank you SOB for your posts. I was going to type up something very similar until I read yours and now will just agree instead of repeating. I pay mine off every month too; every once in a blue moon it’ll take me 2 payments but still, I make sure to never get into this debt problem. The people complaining and getting into problems with these “bad” credit card companies have nobody to blame but themselves.”
Sorry, it ain’t that simple. The credit card companies have been INTENTIONAL about who they send cards to, and they are looking for people who are unlikely to be able to pay month by month, and they are providing incentives to use the card and build up a debt before raising interest rates. When the credit card issuers came whining to the Republican Congress about making it harder to declare bankruptcy, what they were doing was requesting to be sheltered from the consequences of their own actions. I remember being shocked when, as a young man, I got my first credit card, made my payments on time, and was informed when my card expired that it would not be renewed because they were not making enough money off of me (Being young, just out of college, and having an entry level job, I was technically high risk, and they were hoping that I would get myself into debt with them). True, that was many years ago, but it was a shock, and I don’t think the way of thinking has changed. When my late wife had a lot of medical issues and we were having to use credit cards to make medical payments, we got a whole lot of offers for cards then (the joke was on them, she knew how to manage large amounts of credit). Now that I have my one card, and am making my regular payments (like you, mostly every month, once in a while every two months), I don’t get many offers anymore (not that it matters, I wouldn’t use more than one card anyway).
But the fact of the matter is, it is not “nanny state” to decide that lenders have to assume some of the risk for their practices, and to insist that the playing field not be tilted so that the risks are entirely assumed by the borrowers. After all, isn’t that what free enterprise is supposed to be about…assuming risks? I find it curious how it is assumed by some people that if people with little money recieve protection, its the nanny state, but when corporations and the wealthy recieve protection, its supporting the free market. Actions and practices have consequences. I’m not saying that people who borrow irresponsibly should be sheltered from the consequences of their actions (and having to declare bankruptcy is a consequence), but lenders who target high risk consumers should not be sheltered from the consequences of their actions either (such has having customers declare bankruptcy rather than make high interest payments for the next 30 years).
“Fleetwood: I’m assuming they are consenting adults, yada, yada, yada.”
Now, I KNOW that you don’t believe that, Fleet.
It is my understanding that most vendor fees are at 3%. Credit card companies make money coming and going.
I have heard that contrary to the popular notion that declaring bankruptcy these days is significantly more difficult that it was before this recent federal legislation, is not the case. Anybody else know if that is true or not?
“So….what? The credit companies should give them money? These people don’t plan their lives and don’t save money and don’t budget and then don’t pay their credit card bill in full or on time then it’s not their fault? Come on. Let’s not add credit card companies as another welfare giver.”
Why don’t most businesses take checks. Because too many checks bounce and the business loses money. So, the business takes the responsibility to no longer take the risk of taking checks.
For credit card companies, right now, they aren’t doing the equivalent. They are TARGETING the people who are not likely to be able to pay the monthly payment. They are (or at least used to) handing out absurdly low opening interest rates to encourage people to make purchases, and when the working poor are trying to make ends meet, that is a real temptation. They do this in the hopes that 3 months later, when the interest rate is jacked WAY up, they will have high interest payments coming in for years. And, these are the companies who came whining to Congress about customers declaring bankruptcy on them. Duh. You target a high risk market, you should assume the risks! The bankruptcy bill that was passed was intentionally designed to shelter the card companies from those risks.
Yes, it’s their fault too. No, they should not give money away. But if they want to target high risk customers, they should assume some of the risks. If they don’t want to assume the risks, stay with the customers who are better risks. Most every other business does, why should the “nanny state” protect lenders from the consequences of their practices?
“I have heard that contrary to the popular notion that declaring bankruptcy these days is significantly more difficult that it was before this recent federal legislation, is not the case. Anybody else know if that is true or not?”
I don’t know for sure on the broad picture. I do know of a couple who had to help their adult daughter (who has significant learning issues and who was married to a guy who spent like a sailor on leave) declare bankruptcy, and they had to do it before the new law went into effect or she would have been out of luck.
One reason that there has been a pretty conducive environment for financial companies is that those folks were top contributors to the current administration:
http://www.opensecrets.org/presidential/contrib.asp?id=N00008072&cycle=2004
SD, I’m not a BR attorney; but it is my understanding that so long as the income of the party/parties is under the median income for the state in which the Petitioner resides, the only “new” impediment to filing is the requirement to go to a “debt relief” agency for a class for which a fee is paid, and a certificate issued, to be included in a Chpater 7 filing. However, if the Petitioner’s income is greater than the state median, Chapter 7 (liquidating bankruptcy) is not available, and a Chapter 13 filing (plan to pay off the creditors pro rata, likely not 100 cents on the dollar) is forced upon the Petitioner.
Long winded way to say that for some, it isn’t; for others, it is.
“…why should the ‘nanny state’ protect lenders from the consequences of their practices?”
An excellent question. And what would the answers be? Mine is: they should not be protected from their high risk practices.
However, there has always been a shadow type economy where the services of pawn shops and the like have been used. They do serve a purpose, otherwise they would not exist. If these shadow lenders are eliminated that does have adverse impact on their customers, too. It would help if there was some way to encourage mainstream lenders into providing loan products for people with fewer resources.
Good point Steven. The few ways our working poor have to get money is always more costly to them than the many ways the more financially secure have available at lower costs.
Aren’t there laws about how much interest can be charged? Is this why all the other fees and such are added (because the allowable interest is already being charged)?
I don’t like governmental controls. I don’t even trust government. That level of trust has hit rock bottom since the current group took office. But if we expect individuals to be responsible then why shouldn’t we expect business to be also?
I really do long for the days from the movie, “It’s a Wonderful Life.” George wanted to be able to make a living while his customers also got ahead. He offered a service and expected a fair profit. Did those days and those kind of business men ever exist? Am I just a pollyanna?
As far as having success in lending to people with “fewer resources” (whatever that means), remember the just-concluded life of Communities United Credit Union.
Hopefully the increased exposure generated by the hearings will raise public awareness of predatory lending practices and the need for disclosure. For instance, Dodd has stated that he will address interchange fees in an upcoming hearing. Americans paid $30 billion in interchange fees last year, about $300 per family, yet over two-thirds of Americans have no idea that interchange exists. Yet, when they are made aware of the fee, 9 out of 10 consumers feel that more disclosure of interchange fees is necessary. This type of public awareness can put much greater pressure on the card companies and Congress to address this situation and affect real change. You can find more information on interchange fees and the need for disclosure at http://www.unfaircreditcardfees.com.
Posted by: Tracy at 7:38 am“Ever try to pay your hotel bill with cash?Good luck.”
Tracy –The cash that you use (that all mighty dollar) is an official currency of the United States.On every bill it is printed “This note is legal tender for all debts, public and private”.Any place within the U.S. that refuses to accept the official currency of the United States for any debt that you have occurred, then that debt is null and void, bill paid in full.I do not have any reference to this, it has been a long time since I have seen it but it is a currency trade law that very few people know about.
This credit union: http://www.cffcu.com/helped WSU put together a survey to find out about people who use payday/cartitle type loans. They were investigating how to provide more mainstream loan services to these poor people.
As you will note, the CU is affiliated with the Catholic church. Payday loan-type businesses target non-English speakers who are afraid, for various reasons, of dealing with a mainstream lenders. For the catholic church these types of borrowers are also a portion of their constituency.
So, yes, Linda it is possible for a business to do what is right and make money. Only some pretty short sighted people think that these two concepts have to be mutually exclusive.
It is my understanding that most vendor fees are at 3%. Credit card companies make money coming and going.
“I have heard that contrary to the popular notion that declaring bankruptcy these days is significantly more difficult that it was before this recent federal legislation, is not the case. Anybody else know if that is true or not?”
The law made it near impossible to declare chapter 7 bankruptcy if you make over $36,000 per year. Most people that declare make less than that so it really didn’t have that large of an effect other than the “debt management” class people have to take. People talking about credit card companies wanting it to be hard to file bankruptcy don’t realize they were actually targeting people who filed that did NOT need to. People were taking advantage of the law and not having to repay debt even if they could.
Hotels do want a credit card before they’ll let you check in, because they don’t know if you are going to walk out with towels, lamps, carpet, TVs, etc.
That doesn’t mean you have to abuse your credit card by buying things you can’t afford.
Time was, if you had to repay a loan with those interest rates and defaulted, the lender would have your legs broken; now they can do much worse, and legally! Credit card companies and payday loan outfits have simply taken over the old mob loan shark operations.
Repubs. and credit card companies blocked the exits for the poor chumps, now they just squeeze more juice out of the onions. They should all be ashamed, except they would have to have a shred of decency first!
Hotels only ask for the credit card as a precaution. You’re more than welcome to pay cash, but you must state that is what you wish to do upon registration.
Also, if you use a debit card, they do put a hold on the money. So even if they don’t charge it, your money might be tied up for awhile. So you might as well just pay for it off the debit card.
Here, I have the answer: Since it isn’t right to expect people to have personal responsibilty for their actions, let’s outlaw credit card companies.
Life would go on.
All I know is that the credit card companies really fought to make it harder for people to take out bankrupcy and they target the vulnerable with their marketing techniques. They lend money irresponsibly and encourage people to overextend themselves, but yet they want to make it almost impossible for people to be irresponsible in paying them back by taking out bankrupcy.
Never owned a credit card and never will.
Well, as far as outlawing credit cards, we used to have laws against usury (loan-sharking), but the credit card companies and banks lobbied hard to have them repealed, raised interest rates exhorbitantly and been making profits lately that would embarrass a drug lord!We need to get laws against excessive interest rates back on the books. If they can’t turn a profit without resorting to highway robbery, maybe they shouldn’t be in business.
So true, it’s the obscene interest rates that are the problem, once you get in over your head there’s no way out, except bankrupcy.
Mary,USED to be no way out except bankruptcy; now that that’s gone, there’s just no way out!
Just be responsible in the first place. Simple self-control. Be accountable. Live within your means. ….I could write a book.
Easier said than done, SOB. What if you were a single mom living paycheck to paycheck and trying to raise your kids alone because your asshole ex-husband took off with another woman and can’t be found and your car breaks down and it’s the only way to get to work and your kids to daycare? What if your kid gets a nickle in his throat and you have no insurance because you just changed jobs and the insurance doesn’t kick in for 30 days and the doctor wants $700 up front to take it out?I could go on and on about all the people I’ve seen stuck between a rock and a hard place, but you get my drift…life isn’t always so black and white. Most people want to be resposible and do what’s right, but life happens…and then what do you do?I’ve seen how people struggle and suffer, I could write a book, too.
Mary, couldn’t agree with you more, but I’d also like to point out how the credit card companies market their cards to people they know, or ought to know couldn’t begin to afford their interest rates (which are mentioned only in 4-point type in light gray ink on the back of the offer). I keep hearing about personal responsibility here, but don’t these companies have some responsibility too? Or is that too much for the capitalist system to bear?I might also mention in this discussion that my wife died almost 18 years ago, and they still send her pre-approved offers for credit cards about twice a week. If only I knew a really good medium…..
And the most striking and unexpected action on the part of credit card companies is that they continue to push upon you credit cards even if you are in debt and your credit history is worse than fair. I picked up some of the cards but i knew very well how to profit by them. So watch out for rates if you want to get such a card
It appears congress is attempting to set down rules on the credit card companies. The most interesting is how long would it take to pay of the balance if minimal payments were made. Credit Card companies have many incentives to get your business, one is rewards programs.
Credit Card Rewards Program Poll: http://polls.hopto.org/polls.aspx?poll=23&partner=0&Desc=Best_Credit_Card_Reward