Why Credit Cards are Getting Away With It
The Federal Reserve reported recently that consumer credit -- basically everything we all owe money on except our houses -- rose more than 7 percent last month to $2.5 trillion worth of revolving debt. And the price tag is mounting daily as interest charges accumulate even though most Americans are pulling in their belts and economizing.
For years, banks and the credit card companies that service them have been sending us greater and greater sounding offers. But they've been hiding how much interest they'll be charging and how they calculate the outstanding balance. It's not unusual for them to suddenly increase annual interest rates, impose high penalty fees, even shorten billing cycles to make it harder to pay on time. Sure, they disclose their right to do all this stuff when you sign up, but it's in print so small as to give you a headache even if you understand it.
In other words, they're offering what look like great deals, but the deals are becoming nightmares for millions of Americans. Sound familiar? It's just like what mortgage lenders were doing before the bust.
But the housing bust has been something of a wakeup call, and now both Congress and the Fed are considering banning these practices. Yet the American Bankers Association is vowing to block these reforms. It argues that stopping credit card companies from bilking their customers who get behind on their payments will increase the costs of credit to those of us who pay on time.
If this sounds familiar, too, that's because it's much the same argument mortgage lenders are using for why their abusive lending practices should be allowed to continue.
Make no mistake, the Bankers Association is a powerful lobby, and it's not just Republicans they control. Only 11 of 36 Democrats on the House Financial Services Committee have backed the bill so far, and the going is likely to be rougher in the Senate -- which is why the Fed may be the only hope for protecting Americans while avoiding the kind of meltdown that hit the mortgage market.
It's another reminder of how our democracy has drifted into the hands of non-democratic agencies like the Fed, because the political branches are answerable to money interests rather than to the public interest.
For years, banks and the credit card companies that service them have been sending us greater and greater sounding offers. But they've been hiding how much interest they'll be charging and how they calculate the outstanding balance. It's not unusual for them to suddenly increase annual interest rates, impose high penalty fees, even shorten billing cycles to make it harder to pay on time. Sure, they disclose their right to do all this stuff when you sign up, but it's in print so small as to give you a headache even if you understand it.
In other words, they're offering what look like great deals, but the deals are becoming nightmares for millions of Americans. Sound familiar? It's just like what mortgage lenders were doing before the bust.
But the housing bust has been something of a wakeup call, and now both Congress and the Fed are considering banning these practices. Yet the American Bankers Association is vowing to block these reforms. It argues that stopping credit card companies from bilking their customers who get behind on their payments will increase the costs of credit to those of us who pay on time.
If this sounds familiar, too, that's because it's much the same argument mortgage lenders are using for why their abusive lending practices should be allowed to continue.
Make no mistake, the Bankers Association is a powerful lobby, and it's not just Republicans they control. Only 11 of 36 Democrats on the House Financial Services Committee have backed the bill so far, and the going is likely to be rougher in the Senate -- which is why the Fed may be the only hope for protecting Americans while avoiding the kind of meltdown that hit the mortgage market.
It's another reminder of how our democracy has drifted into the hands of non-democratic agencies like the Fed, because the political branches are answerable to money interests rather than to the public interest.
posted by Robert Reich | 8:10 PM
69 Comments:
Such a shame that deceitful business practices are so prevalent in this country. Along with the credit and mortgage industries, the same sort of shenanigans go on in insurance (time inconsistent insurance policies, misinformation). This is having a devastating effect many lives.
But what are we to do about it when our law makers are handcuffed by the lobbies?
Should we have national referendums so that the people can bypass the legislative and executive branches' inabilities to address these problems?
Would campaign finance reform resolve these issues?
I don't know if any of these are solutions, but we really need to do something soon.
While the practices of the credit card companies need to be reviewed, if it wasn't for whorish American consumer spending, the problem wouldn't nearly be as bad.
Have to agree with Trader M.D. on this one. In these days no one wants to take responsibility for their actions and points the finger at business or government. The only fair and permanent solution to the consumer credit problem is to have people read Dickens:
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
On the High-interest credit-card issuers industry, the American over-consumption myth and the fallacy of irresponsible middle-class America as people consumed by appetites for goods they don’t need, and who think little of cost, see Prof Elizabeth Warren
http://bostonreview.net/BR30.5/warrentyagi.html
http://harvardmagazine.com/2006/01/p-the-middle-class-on-the.html
Amnon Portugaly
"if it wasn't for whorish American consumer spending,..."
Thank you for sharing your opinion of whoredom here. I suppose people who don't have to work for a living, and just cash interest checks and buy the latest gigantic thin screen TV with quadraphonic sound are virtuous celibates to you. Go fart in wind! Tax the grossly rich to the hilt and cap heinous per annum income at $1,000,000. If you can't live on that you should be dissolved in sulfuric acid. End Bushshit, Reaganomics, etc. What you gooney preachers know about work & wealth can be summed up in one word: nothing.
I have twice watched the PBS Frontline report on the credit card "industry", and both times my eyes popped and my mind boggled that these companies were allowed - encouraged, even - to get away with such practices.
The earlier commenter quoted from Dickens, which seems most apt since these companies have taken usury to Dickensian heights and beyond.
I am lucky, so far, to have been able to avoid paying credit card interest, although much of that is due to self-restraint. But I can also see how easy it is for people to get sucked into the deadly vortex that quickly leads to an ever-increasing debt load, especially if a credit card becomes the only means they have to raise cash for some essential. This is one reason among many that I have come to refer to this country as the Benighted States of America.
The practices are indeed abhorent. But the consumers behave recklessly as well. I have witnessed people sell a monstrous SUV after only a year to buy anothe monstrous SUV because the second was 3 inches wider. All on credit.
Right now the average teenager is being brought up to believe that he is financiall sound if he can meet the monthly payments. Sort of like his parents. And the government.
So why blame only the banks?
Trader MD
I agree. No one was complaining about lending practices during the housing boom, when many, many were doing very well thanks to variable rate loans. The variable rate nature of those loans was in very large print. This system will not work if folks are allowed to profit in the good times, but not allowed to fail in the bad times. If small print is the problem, one should get out the magnifying glass and accept some responsibility.
"if it wasn't for whorish American consumer spending,..."
If middle class people are "whorish," then what does that make the uppper class?
Please ... try to live as a family of 4 on $50k a year, have someone in your family get sick, injured, or laid off, lose health insurance, and see if you don't cash that "convenience check." Would those circumstances make you 'whorish,' or would you find some other rationalization as to why you are still a superior kind of being?
I believe the point of Professor Reich's post is to point out these firms' shady practices and get the ball rolling on figuring out how to fix things.
Blaming consumers isn't going to accomplish much - at least they deal in good faith with these companies (occasional exceptions notwithstanding).
Although there could be merit in requiring consumers to educate themselves about these industries prior to obtaining their products.
It's obvious that something needs to change. We should focus on figuring out what is the most effective method rather than badmouthing and finger-pointing.
People can get sun burned, but we don't complain that God made too much sun.
The deals are becoming nightmares to those who misuse the cards. Too much debt is the problem. The danger and consequences of getting behind on credit card payments have been present since the dawn of credit cards. This is not new. What is new is that people behave with less fiscal responsibility the farther they are separated from the consequences. Leaders and scholars like Dr. Reich better start promoting personal responsibility rather than the attitude that "the government will save us".
The cost of such a high degree of governmental intervention is the loss of individual freedoms. I don’t want congress babysitting me. I’m perfectly capable of reading fine print, and weighing risks vs. rewards on my own.
It is high time Americans return to a balanced life style. Spending and saving.
Certainly the government encourages this kind of out of control spending by their citizens. And only when times become desperate, do they decide to step in and do something. And to be sure, it will not be a complete fix, but one that makes the lobbies happy and pacifies the masses.
Our government was not formed to be
our moral and financial protectors. And we should not depend on them for that kind of action.
I learned fiscal responsibility from my parents and grand parents. They experienced a tougher life through depression and war and passed on their reality.
We need to start taking responsibility for our own actions. It is also time for schools and parents to take responsibility for teaching the next generation how to keep their financial house in order.
8:55 am Anonymous,
You or anybody else shouldn't have to read any fine print - the time and energy consumers spend jumping through hoops in order to effectively deal with these companies is a major waste. And we can add to that the cost to the company of devising and carrying out these practices, and that of dealing with angry/confused customers.
The principle that is forefront in my mind is that markets work pretty darn well when participants are well-informed and there is relatively little uncertainty.
The current institutional arrangement is not yielding these results (I expect because of monopolistic power in the credit industry). So, it may be reasonable to explore institutions that the government can implement in order to foster fair dealings. A good place to start is to simply outlaw the deceitful practices that Professor Reich mentions.
While our lawmakers are at it, they should outlaw mail-in price rebates as well, as the same principles apply - we should not have to make copies of receipts, waste stamps, and wait 6 to 10 weeks in order to get things at advertised prices. (My apologies in advance if this afterthought leads the discussion astray.)
More of the same, we need the government to protect us from ourselves. If you want a Nanny State, move to Europe. If you are dumb enough to enter into a contract without fully understanding the conditions you are a fool.
I'm someone who decided to carry credit card debt since the dot-com bubble burst and my stocks in 2001 were worth about 10% of their 2000 value (which I'd planned to use to pay off the debt). Don't yell at me, I have about equal debt to ready cash on hand, I just choose this way to allocate my funds.
I've noticed a HUGE change in the last 2 years or so. First, there used to be a cap on balance transfer fees. So for 6 years, I paid 0% interest on my balance, just $75 max to transfer it every 9-15 months. In the last two years, the cap came off the fund transfer amount, there are very few companies offering 0% rates any more, some companies don't even DO balance transfers any more. Also, the rates used to be capped at 24% by usury laws. Have those been repealed? Because the interest rates that are and can be charged these days are APALLING. And late fees? They're now $29-$39 dollars, up about30-50% from 2-3 years ago, which to my mind is enormous. Even if I almost never pay one, it makes me mad for people who do.
So for whatever people have done to get credit card debt, they probably got the debt then watched the industry change underneath them and change the terms of their contracts significantly. I for one have seen the industry change in new and scary ways in the last 3 years. I'm planning to cash out in the next 15 months or so because of these usuruious new practices. I used to have good relationships with my credit card companies, but now I feel that every last one is out to screw me, and I'm not the one who changed.
Some of us commenters seem to be talking past each other. No one, as I understand the conversation, is actually arguing against the merits of personal responsibility or the amelioration of moral hazard by third parties. This is, in my opinion, a straw man argument, and it's obscuring for some of us the issue at hand.
What is being considered is rather the need for corporate responsibility and a semblance of fairness toward customers. No one appears to be advocating for the impairment individual rights or liberties--heaven forbid. But we have to level with ourselves about the realities of human nature and always uncertain life circumstances.
In the real world, it will be noted that not everyone has the same information or can make retrospectively optimal choices all the time--if at all. As one of the most lucrative profit centers of retail banking, the cause of credit card lending hardly needs impassioned advocacy. It is a resounding business success and probably always will be. Should corporations be socially responsible, or even accountable, and if so, to whom? Is there such a thing as reckless lending, or is lending to everyone, regardless of income and credit history, a prudent business practice that fosters a resilient, strong democracy? What responsibilities come with which rights, be they on the part of corporations or citizens?
Dr. Reich,
Reckless consumer spending behavior, irresponsible credit card behavior, lack of knowledge of credit card usurious practices... are all valid causes of the credit card mess Americans are in. But I don't think they are good excuses for having no proper debt level regulations.
For, unfortunatly, we do live in an imperfect world where vast numbers of people become trapped in dangerous financing habits ... an addiction for some not unlike drugs... and partly driven by an economic model that depends on high Consumption in the 70% of GDP range.
That's why I argue for Government intervention to control the normal excesses of its citizens. It's not about loss of freedom. It's about preserving financial sensibility, and solvency by avoiding debt enslavement ... which, by the way, is a kind of loss of freedom.
So sometimes we need balanced fair regulations to protect the general masses from themselves. Here are a few I suggested in your March 20th article entitled, `Moral Hazard Redux.´
1. Europeans have an average of 2 credit cards compared to 5 in America. Recommend that NO ONE be allowed more than 3 credit cards without demonstrating a perfect 10 year credit card payment history and/or who does not have an income after tax meeting the Safety ratio at least 3 times all types of annual debt payment obligations (including the new card application spending limit).
2. Every credit card monthly payment must include a 2% payment towards the outstanding principal balance on the credit card. NO credit cards are allowed that permit interest-only monthly payments or where there is no history of a stable working income.
3. All banks and credit card issuing organizations have access to one, uniform central credit card data base (connected to Regional centers) having precise and accurate information on individual credit card balances number of credit cards, total monthly payments and default history, if any.
4. All mortgage lending institutions are obligated by law to check the Regional credit card data base as well as all other debt obligations (car loan, home equity loans, etc.) before awarding a home mortgage loan. As a Safety ratio, net income after deduction of income tax and all other debt obligations must be at least 3 times the annual mortgage payment. Lending and credit card institutions violating this rule would be subject to stiff fines and close Oversight by State Treasury authorities.
5. Taking out a credit card to pay off an existing credit card is not allowed unless prior credit card is retired and new credit card approved spending limit is same as prior credit card approved balance and meets ratio cited in #1and # 4 above.
Tough? Yes. But these guidelines reflect closely the rules in Holland that work well for everyone. They encourage prudent spending and also more savings ... the latter in turn supporting liquidity of financial system ...e.g., improved ability of banks to finance investments in slow economic times (thus softening economic downturns).
While perhaps above solutions for the disease may not be perfectly adaptable to the U.S.debt patient, we need to try some Intensive Care
to free ourselves form the obscene interest rate and fee practices of the card companies... playing on human weaknesses. Frank Thomas, The Netherlands
I agree with Frank. Bank lending practices for credit cards must be strictly regulated in the US.
The alternative will be massive defaults and you know who will backstop these. The Fed's balance sheet is already awash in CDOs and CDSs.
If the banks would absorb the credit card losses, they can take all the risks they want. But that will not happen today. The US taxpayer will be left holding the bag.
“That's why I argue for Government intervention to control the normal excesses of its citizens”.
Folks, our US government is $10 trillion in debt and growing, causing the purchasing power of our individual savings to continue to decline. Do we really want our government to tell us (corporations or individuals) how to control our “normal excesses”, or how to be socially responsible and fair?
Thank You, Amnon, for the link to Prof. Elizabeth Warren's article. Her essay is an excellent read, and highly recommended to all.
To Anonymous;
Your critique of my (unintended) broad statement: "That's why I argue for Government intervention to control the normal excesses of its citizens" I totally agree with.
I meant to say control of personal financial debt excesses that come back to not only destroy individual financial stabilty but a society's financial stability as well.
Your second point of concern about our Governnment's management of its Debt and Deficit responsibilities is also right on. But it is an entirely separate, complex matter involving our political parties and leaders.
We still may respectively differ on need for more stringent Federal and/or banking controls of credit card debt, but that's ok.
"Do we really want our government to tell us (corporations or individuals) how to control our “normal excesses”, or how to be socially responsible and fair?"
Isn't this where the rule of law in a democracy comes in--adjudicating social responsibility and fairness among competing interests? In terms of consumer protection statutes, one may persuasively argue that the law has become attenuated in recent years. But when it comes to proven cases of corporate recklessness, malfeasance, and greed, are not we the taxpayers ultimately on the hook to backstop this moral hazard? Double stardard? Why doesn't this aspect of the debate get much play?
Mr. Frank Thomas,
Just to let you know, I am respectful of your thoughtful and eloquent opinions.
For too long we've lived in a nation where government regulations protected the citizenry from making stupid mistakes.
The Depression Era Generation enacted those laws and regulations, because they knew that without them, the finance sector would become increasingly predatory. They learned the hard way.
Now most of them are dead and no longer helping to set policy. Those setting policies believe in infinite growth and infinite free lunches. They've removed the barriers that forced institutions to behave in an ethical and responsible manner.
But we've all grown accustomed to believing that everything works differently now. That because we are allowed to engage in some sort of behavior that this behavior is reasonable, responsible and ethical.
All too often from bank employees, when I ask about this or that predatory fee, they tell me that the law requires that fee to be high. I ask, does the law say you must charge that fee, or that this is the limit? They give me a funny look and tell me that they have to charge the limit of what the law allows. That's the law after all.
So if the government removes barriers to irresponsible finance, then the banks interpret this as meaning that they move to align themselves with those new limits, even if it is irresponsible to do so.
Since the banks lobby to remove the regulations, they are in essence lobbying to act in a fiscally irresponsible manner.
And why not? The tax payer will cover their losses and guarantee all of the bad paper that they can create. It is our responsibility as taxpayers, to make sure that the banks always make a profit, even as they work hard to hemorrhage money at maximum rates.
Now the world of finance has a safety net. The government will borrow money and give it to them as fast as they can throw it away. But actual human beings must act responsibly. These problems are after all, being blamed on us. It's therefore my fault that Bear Stearns got into a pickle. It's my fault that CountryWide made those bad loans.
But we the public got used to thinking that the finance industry couldn't legally practice predatory lending. No one posted billboards on I35 announcing that the Congress was repealing laws and regulations designed to protect the public. That finance was becoming the Wild Wild West, with the government, financing the robber barons with our tax dollars.
But I think the public is catching on. We as a nation are beginning to wake up to the fact that our government is here to help the finance industry strip us bare of everything we possess.
As a result, I expect that the finance industry's ability to make loans to the common folk will continue to diminish. The government will have to take a larger role in giving them free money to profits up. the money supply must increase, to stave off another depression.
And as the price of goods increases, people will find themselves unable to repay loans anyway.
Credit is becoming something that only rich people can afford. The common folk need to give it up. It's not for all of us. we can still benefit from predatory lending through rising taxes, and the rising price of goods.
And another thread, someone mentioned that there is no shortage of oil, as gas stations aren't running out. Of course not, as they run low, they raise prices. There is a severe shortage of $2/gallon gasoline. If gasoline rose to $100/gal, there would still be plenty for people who can afford it. Those that can't afford it, will quit buying it, making more available to those who can afford it.
I am an advocate of individual responsibility, so I believe taxpayers should not be on the hook for corporate recklessness, malfeasance, and greed. The debt and equity holders should.
Perish the thought that anyone would read the terms and conditions before using the card...
"Perish the thought that anyone would read the terms and conditions before using the card..."
The laws are the limits, and those laws have been changed. tyhe laws were changed while people were still using the cards.
So essentially, Congress changed the terms of contracts that were already in force.
The best way to protect yourself, is to never use credit cards. After all, the contract can be changed on you at anytime. The small is only the contract when you sign. Next month it can change without notice.
In this age of uncertainty, only fools use credit cards.
A couple of things.
1. It's a sad thing - and we're not supposed to say so - but the truth is, a great many people out there are not terribly bright, while the credit card companies have hired people who are very bright to figure out ways to trick these people. Over the years, not surprisingly, the highly paid bright people have managed to figure out how to trick the not-so-bright people into doing things they shouldn't, which is not surprising. Furthermore, they keep working at it. This is why we need a "nanny state" to protect some of the people; the competition is unequal..
2) Interestingly, a lot of very bright, high-I.Q. people (called bankers and brokers) keep getting themselves into trouble over debt.
This shows, presumably, that the ability to trick oneself or be tricked is very widespread; it is just a matter of finding the right tricks and weaknesses for everyone.
They seem to be happy to have the "nanny state" bail them out, one might add.
Well said on the point about bright and not bright people.
I bright guy I used to know, wrote commercials for a living.
When asked the question as to why he wrote silly and stupid used car commercials, he answered, "Half of the population falls to the left of the median line in intelligence. They buy cars too."
We've come a long way, in becoming a society that automatically blames the victim, when he or she is cheated by thieves.
I don't believe it is unreasonable to expect that credit card issuers be legally held to a standard of ethics. But the reality is, that they are not. They used to be, but those days ended, and no one told the public.
Now that there are no longer any meaningful legal limits on credit card issuers, we should not be signing contracts that state that the issuer may change the terms of the contract at any time for any reason. When the law set limits on the issuers, we knew that they couldn't unreasonably cheat us.
Now the sky is the limit. A $50 debt can be legally compounded into thousands of dollars of debt, for no reason at all. The contract can be rewritten to say anything they want, and they don't even have to tell you.
The world of finance is now the Wild West and their ain't no sheriff in town.
Don't deal with the banks. We get our credit cards through our credit unions at reasonable rates without the gouging. We've canceled ALL our other credit cards. And haven't had a bank account in over 20 years now.
And blaming the consumer is ridiculous when they are being charged usury rates. That is the issue being discussed, NOT the level of debt. If you are not paying obscene credit card rates, who are you to criticize those who are being gouged? This attitude lately of "oh, it's all their own fault" is just stupid. It is NOT the average worker's fault when they are underpaid while executives make 300-400 times their salary.
Change the attitudes, people -- or just shut up already.
We do need to get rid of the lobbyists. All of them.
This is why I have a shredder next to my mail box. As soon as the credit card offers come it they go into the shredder. These 0% offers are not regulated and the companies can change their credit terms at any moment without notifying you. Of course, that is stated in the light grey type on the back of the forms, but who can read it? Credit card companies are modern day loan sharks. I agree that many consumers have no leverage since many depend on credit to float their extravagant lifestyle choices. I agree that the Front Line series on PBS was excellent.
Let us remember that Dr. Reich, while criticizing the practices of credit card companies, did properly point out that the details of such were disclosed, albeit in fine print. Weasledog’s claim that “the contract can be rewritten to say anything they want, and they don't even have to tell you” is simply untrue.
Donna, you seem have to taken personal responsibility, and exercised your right of choice by choosing a reasonable alternative to bank credit cards. Good for you. Let us remember, all lenders are right to charge a higher price for greater risk. Borrowers who pay back their debts as agreed are not affected by any of this.
What angers me is how these companies are screwing even their "good" customers. We don't owe anything except on our house and one student loan. We pay everything on time, each month. Last month, the credit card company sent us our bill and we didn't open it until we went to pay it - on time. Lo and behold, they decided to move up their due date by one week, and we had to pay a $30+ fee. Imagine all the money they are making from their conscientious consumers that can afford to - and do - pay their bills each month.
It all seems so weird to a non-American like me. How can complaints that consumers don't take responsibility have any credibility in the wake of the Bear Stearns bailout? Responsibility is sooo out-of-date, people!
Thank You Amnon Portugaly, for the link to Prof. Elizabeth Warren's articles. I have been looking for this common sense analysis for years. It’s a shame that people on this blog do not read these articles. This quote is true:
“High-interest credit-card issuers and sub-prime-mortgage lenders operate only because a careful combination of deregulation and protective regulation permits creditors to charge fees and interest rates that would have landed them in jail less than 25 years ago. If millions of Americans believed that families were losing their homes because of deceptive marketing and oppressive contract terms, there would be a public outcry to change the regulations that favor banks over consumers. But as long as Americans believe that the only people in financial trouble are the spendthrifts, there is no reason to restrict the lenders. Everyone is getting just what he deserves.”
“The credit industry has good reason to spend money to influence changes in bankruptcy law. Over the past decade, investor profits on credit-card debt have outstripped every other form of lending—even after all the bad debt and bankruptcy losses are taken into account. A multi-billion-dollar wealth transfer has, in fact, taken place, but not the one the credit-card industry claims. Families that have lost jobs, families that have no health insurance, and families that have split apart through divorce or death have paid billions to credit-card companies and their investors. And it is worth noting that across the United States, half of all families have not one dollar of savings put aside for their retirements, and 73 percent have not one dollar in the stock market. Paying dearly for consumer credit has not created a wealth transfer within the middle class, but rather a transfer from working families to upper-income families.”
“Politics and ideology help to sell the over-consumption myth, but perhaps it also survives because it is comforting. The families who fall into financial ruin are ordinary. Their circumstances are ordinary: job loss, medical problems, and family breakups are cited in nearly 90 percent of bankruptcies. Perhaps the over-consumption myth is a prayer. It nourishes the idea that families who have lost their financial footing are different from us. If we can believe that those in serious trouble are morally suspect, it is easier to glance away from the dangers of everyday life. Those of us who clip grocery coupons, who would never buy $200 sneakers, and who always buy in bulk are surely protected from the sudden jolt that sends people reeling out of the middle class. Thus we avoid that terrifying moment of connection with a person caught in a financial disaster, that frightening realization: there but for the grace of God go I. “
“The over-consumption myth may be little more than a fairy tale, but it has the power to maroon families—both emotionally and financially—just when they most need support. And it has the power to distract attention from people’s real vulnerabilities. Changes are needed to increase the safety of the middle class; even modest ones could make a big difference. But change requires a consensus that something is wrong. So long as Americans can be persuaded that families in financial trouble have only themselves to blame, there will be no demand to change anything. If we are to get on with the difficult business of protecting middle-class families, the over-consumption myth must be laid to rest for good. “
This is another fine mess those Republican voters have gotten us into. When are regulators going to start working for the American people instead of the Republican Party?
as you describe it, the situation sounds just like voluntary prostitution and then the ones being banged scream that they are victims. if you buy something on credit it means that it is not for your level of income and you are overstretching. the ones who lend you know that you can't afford what you are buying and use practices to ensure faster recovery on the principal and the risk free level of return, anything else is just welcome.
Bruce Barnes,
Your source information is to the point. It's why I think much stricter regulations are critically needed along lines
summarized above in my post about credit card culture and controls in Holland.
You have to attack the enemy with force ... the only thing they understand. But the enemy has won if we can't get our politicians to do the right, common-sense things about controlling the credit card issuing thieves...as well as those vulnerable to the "borrow and pay later" syndrome permeating our society under the pressure of trivial, rampant Consumption.
If you read your credit card contract, it does say that they can change the terms and conditions at any time. These are the things that define a contract.
So yes, they can change the contract at any time.
Prostitutes get paid per job.
Now if they only got paid once, then became slaves and had to perform avoe and over for free, that might fit better.
But I don't really agree.
Buying a child's shoes on credit, doesn't place you in the same situation as a prostitute.
And as was already mentioned, job loss and medical issues are what get's you in trouble.
Now people who don't have to work for a living and are independantly then you don't even need a credit card, except as a convenience.
If you aren't independently wealthy, then you should not have a credit card at all. When you lose your job, or when you come down with an illness, the credit card corporations will rape you and you'll be in bankruptcy court.
So I hope those arguing that credit card corporations have the right to practice predatory lending and their victims had it coming, are either independently wealthy or don't have a credit card. Otherwise they are practicing hypocrisy.
Phil Rezzutto!!
The Money Store!
Perhaps we should remember that credit companies allow us, if we choose, to receive short term credit at a 0% interest rate as long as we repay our debt within the billing cycle. All we have to do is spend within our ability to repay, open our statement, and repay our debt. That is a great deal if we are willing to take it. But we don't, and then we complain about the consequences as "predatory", and ask how they get away with it. Good grief.
If we need a long term repayment schedule, we should learn to take out a long term loan. If we need short term credit, we can use credit cards. Either way, we need to be responsible enough to repay our debts.
The credit card companies are providing a product that many of us are misusing.
I understand you point Anonymous, but the credit card corporations hate people pay off their balance, they call them 'Deadbeats'.
I don't agree with you that the Credit Card corporations are blameless and innocent. I don't believe that contracts that can be changed at anytime by one party without the other's knowledge or approval are ethical. The credit card corporations certainly wouldn't sign if the agreement allowed the borrower to change the terms. And I doubt they would borrow from the Fed with those terms.
I believe though that you made my point. Unless you know that you can pay off your card, even after getting fired or put in the hospital after being hit by a bus, then don't use one. Like you argued, if you don't have complete control over your future, don't take the risk.
People who depend on jobs for their income, face too much uncertainty to use use credit cards.
Like the Steve Martin said in that old SNL skit, "If you don't have the money, don't buy it."
Using credit cards is commonplace for most Americans and I am one of them. I don't expect anyone to lend me money for free and I expect that I am responsible to pay it back. That said, there should be some regulation on the actual contracts, interest rates etc. I am contractually obliged to pay back the money but the lender really has no contractual obligation at all since that part of the contract can change "at any time for any reason". People like me keep this friggin' economy chugging along, reasonable credit regulation will keep this train from derailing.
Given the Fed lowers interest rates to 2%, then the credit card rates should be lower.
Given the housing debacle when does the powerful American Banking Association run out of money for lobbying Congress?
The following is from:
http://bostonreview.net/BR30.5/warrentyagi.html
As we set aside the over-consumption myth, we need a meaningful agenda for change. Describing that agenda would require volumes, but its basic ideas are simple. They pinpoint where middle-class families are vulnerable and how the government can best help them.
Credit. Each year millions of families are trapped by credit-card issuers and mortgage lenders that market deceptive products and use unscrupulous billing practices. America needs to develop product-safety standards for credit cards and mortgages, just as we have for all other consumer products. No one can sell a toaster in the United States that has a one in 11 chance of burning down someone’s home; likewise, a mortgage that has a one in 11 chance of putting someone in foreclosure should be banned. Credit products should be clear, honest, and not loaded with tricks and traps.
Schools. A failing public-school system affects more than the poor children who are trapped in it. It also puts enormous pressure on middle-class families to buy property in the right school districts, thus pushing up housing prices. Improving the quality of public education would diminish the financial pressure on middle-class families.
Preschool and college. A generation ago, we all paid taxes to support the 12 years of education we thought every child needed to be solidly middle-class. Today parents are on the hook for two years of preschool and four years of college—and they pay this out of their own pockets. Those six additional years of tuition payments are not extras; they have become part of the minimum standard of education for middle-class work. It is time to expand public education to cover the basics.
Health and disability insurance . Decent health insurance is rapidly becoming a luxury that median-earning families cannot afford. Faux insurance and no insurance are leaving millions of families one diagnosis away from financial meltdown. It is time to get serious about making health insurance affordable. And health insurance alone is not enough. National short-term disability insurance—to cover illnesses and accidents—needs to be on the agenda as well.
Savings. Creditors have spent billions of dollars to advertise the attractiveness of debt. America needs a few rules that promote family savings: checkoffs so that tax refunds can go straight into retirement accounts, easier payroll deductions, and tax incentives for all savings. It would also help if the chairman of the Federal Reserve promoted saving rather than pumping up home-equity borrowing, putting the interests of families—not the profits of banks—first.
Retirement. People must not be abandoned when they can no longer work. When a company promises an employee a pension, the government has a responsibility to make sure the company is setting enough aside to meet this obligation. Social security must remain secure, but programs to encourage saving and to buttress employer-sponsored pensions are also necessary to ensure the long-term security of the middle class.
This year another million and a half families will file for bankruptcy, and mortgage foreclosures are already hitting record numbers across the country. When George W. Bush signed the bankruptcy bill into law earlier this year, he made clear his vision that whatever troubles face American families, it is their own fault, and his plan is to punish them. America’s middle class deserves better.
Elizabeth Warren is the Leo Gottlieb Professor of Law at Harvard Law School. Warren and Tyagi's article is adapted from their book The Two-Income Trap: Why Middle-Class Parents are Going Broke with the permission of Basic Books, a member of the Perseus Books Group.
Amelia Warren Tyagi worked as a consultant with McKinsey and Company and co-founded the health benefits firm HealthAllies. She lives in Los Angeles.
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Yep, I've read the Warren articles. Even more recent is the media finally admitting the unemployment numbers are much higher than the monthly jobs creation report:
http://money.cnn.com/2008/04/02/news/economy/jobs_outlook/index.htm?postversion=2008040316
At the same time the US labor secretary was chirping on the Wall Street Journal web site about 5% unemployment being reasonable, the CNN site was running the article above. If you count people who can only find part-time work but who would like full-time work, the uneployment rate is much closer to 10%.
I haven't heard yet the candidate who will bring bring credit card rates down. One blogger proposed consumers just stop paying credit card monthly balances until the entire financial system crashes.
Dr. Reich:
Though I understand the isolated presentation of the various ills that we face today, the approach fails to weave them all into the tapestry of an economic system and therefore tends to elicit argument and solution aimed at each individual aspect without a reflection of the affect on the whole.
Much has been written here about "overconsumption", about frivilous spending, about ignorant financial management. And of course, much of that is posed as the real problem, the cause of our ills. There is some validity in those arguments but the problem is not that simple.
Simplistically, let's look at those expenditures outside the sphere of what is considered necessary. Why do we desire all this "stuff". Sure "stuff" is nice to have but what really drives us to make inopportune spending decisions. I don't have all the answers but consider just one, and a big one.
Marketing, especially advertising, has segued from amusing, jingoistic attempts at establishing brand recognition to a far more subtle, almost subliminal, approach to painting a picture which appeals to some of our most deep seated desires; our visions of what represents a utopian existence. Marketing has in the past 50 years become, not an enhanced, improved art form, but a science. Marketing folks are paid big bucks to find and expolit the emotional "hot buttons" residing in all of us. They know far better than each of us what those "hot buttons" are and what tweaks them.
It is human nature to act more on emotion than fiscal prudence. Many, usually those with higher educations, but they are by no means exempt from emotional decision making, have acquired the discipline to maintain better control over their spending. God bless them. The vast majority of us ofen fall victim to our emotions. Shopping, including frivilous spending, can be therapeutic to relieve stress and frustration. As absurd as it is I have known people, when faced with near bankruptcy, who will go out and spend money, falling back on the thought: How much worse can it get? Could that be the result of the marketing message that things will be better if you feel better?
Credit cards have allowed this behavior to occur with ease. When I was young (Abe and I went to different schools together), you had to bleed real blood to get a loan or a department store credit card. Today, credit cards and access to them, are more prevalent than clean air. Even their advertising pushes the idea of live today, pay tomorrow. Implicit is that should tomorrow never come, we can work it out, by the way we have this insurance program for a small fee.
Now it can be argued that caving to this pandering to our primitive desires is dumb, is totally irresponsible, but we are deluged with these messages and when we get weak from the stresses of everyday living, succumbing is far too easy.
Few of us start out planning on maxing out or abusing our credit cards. An emergency repair here, an appliance breakdown there, added to a few clothes or a new car payment, a better TV purchase and all of the sudden the aura of responsible credit goes out the window. When you have been operating in a prudent manner and circumstances present a monkey wrench, it is not always easy to shift spending gears timely.
A bigger factor, and a real one, both with discretionary spending and spending for necessities, is that our economic growth has segued to a dependence on consumption. If we don't spend, especially on "stuff", our economy suffers. When our economy suffers, jobs are lost. When jobs are lost, families face insurmountable peril.
Many argue that less spending and more saving is the answer to our microeconomic problems. Now the argument for more savings, beyond the safety net aspect, is that more credit will be available for business formation and business growth. That is a truism. When 70% of our economic growth is consumption if we reduce that percentage significantly by putting more into savings, demand for goods will decline and there will be fewer new businesses and much less business growth. Conceivably there is a happy medium, but is it controllable? We Americans tend to be obsessive/compulsive and should we shift to more saving it is not unlikely that we might tip the scale to far.
On those necessities coming from disposable income leading to discretionary income, we have housing, transportation, utilities, food, health insurance, etc. Our options in this venue vary from minimal to almost none.
We need health insurance, most of us get it through our employers, many employers offer us options that are often akin to betting either pass or don't pass on the craps table. It is not uncommon that folks will chose the cheaper premium option because they know the income impact of that one, but have no idea of the probability or the financial difficulties that can occur from a catastrophic medical event. That choice at this point is about the only choice we have in health insurance coverage. As health insurance costs rise, as premiums go up, as employers increase our share, we have no real options other than that which I stated.
Food: We have some latitude in altering our food purchases from time to time as prices move up or down. We do have to eat, however, so our latitude is limited. A healthy diet, not always a consideration for many, but important for growing children, would require something more than just soup.
Transportation expenses: Predictated, primarily, on our work situs versus our home situs. For many the distance between these two points, if a consideration at all, was made when gas and oil were much cheaper. The logistics and cost of moving closer to work seldom yields a present value savings. For the most part the costs in this category are minimally controllable.
Utilities: Perhaps the most controllable in the short term. Managing the thermostat, altering cooking habits, can save reasonable amounts on monthly expenses. The longer term issues, should everyone practice sound discipline in this area, is that incomes for utility companies will decline. This could lead to job losses and easily will result in rising prices. Though generally regulated, those regulations allow them a reasonable rate of return so if incomes decline usage rates will rise.
Housing: The most interesting and complicated purchasing decision we make. I won't go into all the variables that folks consider when buying a house but just a couple of significant ones. Size and cost: Our decision criteria change as we progress, both in income and family size. At some point in our younger years (assume a married couple) the rent versus buy question becomes an option. Depending on incomes, now and anticipated, we usually start with a "starter" home. This will be a smaller home, bigger than our apartment and allowing for inital family growth, but far from our ultimate goals. One could argue that prudence would suggest nothing more than a two bedroom home, keeping mortgage payments low and manageable. Fiscal responsibility is such bliss.
Then consideration #1 hits us. Two bedroom homes are not easily resold and therefore provide only minimal appreciation. Knowing that one day we will want to buy a bigger house, it makes better sense to buy a three bedroom home even though it may strap us a little at the beginning.
We go through this process a few times in our lifetime driven by our dreams and our family and income growth. In each instance, not wanting to be perpetually moving, we seek home that fits our needs and our dreams at each step. It is conventional wisdom that we extend ourselves a little at each iteration as long as we are in a rising career mode. This usually leads us to buying, in the later stages, a home that we intend to spend the rest of our lives in. At that point, still expecting income growth, we might extend even further the impact on our financial situation knowing that shortly income increases will level us out and we can live happily everafter. At all these decision points the tax implications are a major factor.
Historically the system aided us as well. In our first purchase, the mortgage company, placed tight restrictions on how much we could afford. As we grew financially and maintained a reasonably good credit standing the mortgage companies allowed us more and more flexibility.
All this thinking and planning generally works out well and we have sufficient equity in our homes at retirement to offer us a variety of options. Unplanned, unexpected and unknown events can wreak havoc at any point in the journey. Have we been financially irresponsible if we can handle our financial obligations until the unexpected occurs? Should our decision to buy a house be predicated on the most heinous of possible scenarios? Even the best managed businesses in the world do not practice that kind of decision making.
The whole point of this, likely futile, attempt, is to portray a more complicated picture to our propensities to consume beyond a simplistic condemnation of irresponsibility.
After all this, at least I feel better.
First, it is very difficult to live in this society without a credit card. Try, for instance, to rent a car or pay for an emergency repair when away from home without a credit card. You can't shop online (never, ever use your bank debit card online) or order tickets over the phone. You'd have no credit history and therefore would have trouble buying a house and might not be able to rent an apartment at all.
Second, the credit system in this country stands in for the safety net. It's not surprising that single mothers with young children have credit problems. As do people who lose their jobs, have medical emergencies, and so on. That's because we don't support low- and moderate-income families adequately, have meager unemployment benefits and don't provide medical care for all of our citizens.
There are probably some people who are profligate, who hauled out the credit card to pay for something unneeded and unaffordable, and never stopped. (The number of people who did this at least once, though, is much larger, and includes almost everyone who has or had a credit card.) But these are in the minority--more people haul out the card to pay for car repairs than for expensive vacations.
Robert,
It would take a man wiser than me to figure this out (perhaps you could have a grad student look at this) yet there is definitely a correlation between this current American generation being the first not to do better than their parents and the deregulation of the credit card companies.
If credit card companies could only charge 10%, then only those who should get the credit would get the credit (perhaps price ceilings are bad) I just had one econ class so I have no idea.
Even the usual "capitalistic" practice of using another credit card provider doesn't work...they are all trying to screw you. I would suggest using a credit card provided by your local credit union. They're non-profit, don't have dividends to pay to shareholders on the stock market. My CU only charges 10% interest on my mastercard and has a full 30-day billing cycle. If I would call with a problem, I'd have my local CU rep on my side.
There still are large differences between credit card companies re: grace periods.
One of of my two cards requires payment within 10 days of receiving the bill in the mail. My other card has a grace period of nearly three weeks.
Too SHOWTIME had an interesting documentary on the credit card industry last week. It was made in 2006 before the current credit crunch hit home.
What really galled me was an interview with a former credit card executive where he said that the card companies keep lists of VIPS in a position to damage the industry if they get pissed off. Such people are treated FAR more leniently than other customers in a variety of ways.
Dr. Reich,
Economic research on advanced Western societies has shown how Wealth drives private Consumption... to the point that consumption has in turn become an increasingly important and in some countries (e.g., 70% of GDP in the U.S.) the most important driver of the business cycle.
However, the effects of wealth on consumption and savings clearly varies significantly across countries because of different types of wealth as well as different financial systems.
This is amply illustrated in some Western countries where -- despite consumption being lower as a % of GDP than in the U.S. -- savings rates are higher; unemployment and GDP growth are stable and reasonable; economic cycles are less volatile and shorter in duration; more system liquidity makes it possible to absorb asymmetric macroeconomic shock waves.
The explanation why this is so gets to my complaint that our vaunted Economic Model is OUT of BALANCE. Before going into this, however, I should explain what is meant by Wealth to better understand its effects on consumption and savings.
Wealth includes three main parts:
(1) Financial Assets: bank deposits, bonds, equities, holdings in pension funds and insurance firms; (2) Non-Financial Assets: housing wealth (a very big part), consumer durables, and other tangible assets; (3) Financial Liabilities comprising mainly mortgage lending and credit card debt.
In latter half of the 1990s, wealth shifted from Non-Financial Assets to Financial Assets, i.e., to equity stock holdings. In recent years, it has shifted more toward housing wealth by increases in house values. Both experiences have shown that equity and housing valuation changes create most of the variation in wealth (and hence impact on consumption) over time.
Of course, household wealth can be increased by Savings and by valuation changes in assets. But few countries achieve both simultaneously (including the U.S., with Holland being an exception along with Ireland, Sweden, Canada, and to a lesser extent UK ,etc.). In general, Savings go down as equity and homeowner wealth grow especially in the U.S. ... but more on this in a moment.
What we´ve seen in the recent U.S. housing bubble years -- in part stimulated by devious, possibly fraudulent lending practices -- is that spending is raised by borrowing against housing wealth through home equity loans. Not only higher realized home values affect consumption but also the homeowner´s ability to refinance a mortgage or take out or expand home equity loans.
Widespread financial deregulation encouraging development of deeper financial markets --like mortgage-backed securities -- have further broadened the speculation in housing wealth with resultant larger effect on consumption than equity investments (which require more cash down). Homes are highly leveraged so borrowing on them gives higher yields on the investment than stock purchases which require more cash down ... a financial principle which is taken to the extreme of course by sloppy real estate lending and borrowing practices.
The irony is that the evidence shows that as households become wealthier they spend more on goods and services and Save Less. However, as mentioned above, in certain countries where housing prices have risen strongly (Holland, Ireland, Sweden, Canada, Finland) Savings rates have remained much higher than in the U.S.
What´s going on? One needs to understand that all existing and new home mortgages in Holland, for example, are given out based on very strict financial rules of job security, an income after tax and all other debt obligations of at least 3 times the annual mortgage payment, no interest only home mortgages, etc., etc. Also, land in Europe is very scarce which keeps prices from falling significantly except in the UK which has some of the poor lending-borrowing and speculative practices of the U.S.
But, should the housing market become weaker here, homeowners have an ample cash cushion to meet their monthly mortgage payments as result of prudent lending rules noted above. Another stabilizing factor is that lower/middle class wages are at least increasing each year at the rate of inflation or slightly better.
The same prudence and strict bank rules apply to issuing and using credit cards here, as I´ve already explained in earlier above posts.
This all means the banking system is more liquid to finance Investments during slow as well as good times. Also, European bank regulations already require higher safety reserves and are thinking of increasing them further.
This all brings greater stability to the overall economic system within each of the more mature European countries compared to the U.S. Another net result is that Consumption is in a better balance with Investment in driving the business cycles here and in taming their intensity.
But are there some even deeper factors behind these differences? My hypothesis is that due to the many, many years that lower-middle class incomes in the States haven´t even kept up with the rate of inflation with both family members working (in contrast to Holland, for example), equity and particularly housing speculation has become a kind of last resort to keep up with the times. The problem is compounded when so many of the smarter guys with the exotic financial products make all the money and forward most of the losses to the backs of the working classes.
And the banking system has accomodated this living financial desperation by making lending easier, joining in the deregulation of sophisticated/risky financial products. Last but not least, the Bush Administration has done its part by giving away taxpayer money to the top 10% of society. So, a lot of subtle DOUBLE and TRIPLE HITS have been structurally squeezing the pockets of Mainstream America for some time.
Result? In recent years, these trends have encouraged large numbers of American families to take part in the heated fast buck housing boom and bust syndrome-- as well as a cultural dependency on credit card debt as supplemental income at 20% interest rates.
Problem? None of our best thinkers seems to see that it´s the confluence of these negative factors that is causing our Economic Model to be Out of Balance. Band aid solutions to which are being offered in all directions, but not a coherent, integrated , structural short and long-term attack to the underlying wealth generation and debt mania problems.
I hope to be more specific on some integrated overview of possible solutions when there is time to finish my PART III -Transition to a Stable Economy... meanwhile, above are just humble thoughts of a JOE DOE citizen.
Frank Thomas, The Netherlands
For example, some financial systems are Market-Based (like U.S., U.K., Ireland, Holland, Canada,Finland, Sweden, Australia).They hold a greater share of their wealth in financial assets
The following is from:
“Free Lunch” by David Cay Johnston, pages 18 - 20
“Under what theory of morality do we grant those already in a superior economic or legal position ever more power, especially when that power derives from rules in fine print that defy normal human understanding?”
“Consider one example, the business of lending money. Usury laws that protected consumers against rapacious lenders existed until 1978. Now they are gone because of a Supreme Court decision. In that case the high court warned Congress that it needed to enact new laws to protect borrowers. That warning was ignored in the lucrative trade of selling access, if not votes. In place of rules that protect the vulnerable, the innumerate, and the foolish, our government has set forth onerous new rules that reward those who prey on the poor. We used to prosecute loan sharks. Today a television commercial featuring Gary Coleman urges people to borrow money at 99.25 percent interest, paying back almost $10,000 to borrow a quarter that much. These new rules help Goldman Sachs and Lehmam Brothers and Citibank exploit the poor, the unsophisticated, and the foolish. These lenders, or their fronts, can now charge rates and impose penalties that were illegal, even criminal, a generation ago. These and other lenders engage in conduct that goes way beyond that of Michael Milken, the junk bond promoter who made a fortune pushing risk onto corporate balance sheets the way addicts inject heroin into their veins. Milken was vilified by many; not so the latest usurers.”
“The result? In the past 25 years, one American family in seven has sought refuge in federal bankruptcy court. They filed for relief from their debtors, not to immorally scam the system, but because they were forced into it. Exhaustive research by Elizabeth Warren of Harvard Law School and her associates into bankruptcy court filings has proven that the vast majority of people seek refuge from debtors after any two of three events combine: divorce, job loss, or major medical problems.”
“Today we do not jail debtors. But under a new bankruptcy law written by credit card lenders, we deny some people the fresh start that the constitutional provisions on bankruptcy were designed to ensure. Senators and representatives, after a decade of gathering up campaign contributions from the lenders and their lobbyists, adopted rules that can leave the sick and the jobless at the mercy of corporate Javerts pursuing Jean Valjeans until they die.”
“The checks and balances provided by oversight, inspection, investigation, and in extreme cases, prosecution have all been gutted in pursuit of deregulation and supposedly smaller government. It has become difficult and sometimes impossible just to find someone to take a complaint that an employer refused to pay wages or locked people in to make them work or stole the retirement money.
When there is no policeman on the beat the greatest beneficiary is not the taxpayer who is relived of the cost of maintaining that police officer, but the thief. And when bridges, tunnels, and dams are not inspected and repaired we are all in danger.”
Frank Thomas,
May I suggest you read Dr. Reich’s blog:
Wednesday, June 27, 2007
Financial Entrepreneurship Versus Product Entrepreneurship
“America is the greatest entrepreneurial nation in the world. But there are really two kinds of entrepreneurs here – product entrepreneurs and financial entrepreneurs –and only one of them truly builds the economy. Product entrepreneurs find new ways of satisfying customers. Financial entrepreneurs find new ways of ... well, making money off money.”
In 2007 the 50 most successful hedge fund managers made $29 billion and only paid capital gains tax of 15 %.
In 2003 the federal reserve published a report saying the wealthiest 1 % had one third of the household wealth and the next 9 % had a third and the bottom 90 % had a third. Now the top 1 % has more wealth than the bottom 95 %.
Once there were usury laws. See Wikipedia: "In the United States, usury laws are state laws that specify the maximum legal interest rate at which loans can be made. Congress has opted not to regulate interest rates on purely private transactions, although it arguably has the power to do so under the interstate commerce clause of Article I of the Constitution."
There is every reason to believe the solution should be focused on each state's legislative branch...
If we continue to look for solutions only on the federal level, we are bound ot get caught in the trap laid by the two parties in perpetual power in Congress.
Tom Simon,
If I may comment on your wise remarks... it's a wonderful point you make about encouraging local State initiative to rectify this problem. But the credit card problems and other societal problems reflect excesses, inequities and abuses so huge they need to be addressed aggressively at both Federal and States levels. Hopefully, a clear majority in both Congressional Houses next year will help the process of sensible reforms at the national level.
But, then again, you are quite right to suggest "bottoms up democracy" might well be the most effective force for change... one State tying in with another State ... and another State... and another State ... etc.
Congressional politicians tend to react rather than act proactively. Sadly, they still need that push of local pressure consensus ... because our society has lost that overriding cultural value: "we are all in this together selflessness" for our common interests.
Tom Simon,
To follow up on your words, Americans in their guts are awakening to the reality you allude to and another fellow American mentioned, namely, "We have to come together more to make Government less about politics and more about SOLUTIONS.
Because they can !!!! It is facilitated by the government. And, yes, I agree, the insurance industry is another shameful business now. Especially in times of need, such as illness and such as Hurricane Katrina, where people believed they had homeowners insurance to cover storms, etc. But no, even attorneys who lost homes there could not get anythng from the insurance companies. This country supports these industries that should be fined and convicted of crimes.
Robert wonderful blog. For another angle on why the credit card companies are getting away with it, check out my recent op-ed in the Providence Journal “Our Love-Hate Relationship with Plastic.”
http://www.projo.com/opinion/contributors/content/CT_vyse23_04-23-08_519MS8Q_v8.39d51ad.html
Stuart Vyse
Even when consumers pay their credit card balances in full every month their interest rates can still be raised under a system called Universal Default. If you are late on paying your phone bill or your fico score drops they can raise your interest rate to 30% or more. This is one of the many abuses that would be changed under the Credit Cardholders Billl of Rights Act of 2008. Contact your representatives to let them know how you want them to vote.
A few years ago I was reading about lobbyists and wondering who was supposed to represent the interest of the general public. Then it dawned on me that it is supposed to be Congress.
The actions of credit card companiesare predatory and unnecessary. Predatory practices erode the social contract, and I think the country is better off if most people get a fair deal most of the time. Charge a resonable rate with simple terms, customers pay their bills, no tricks.
Robert,
Great post and great comments by so many.
First I'd like to say thank you to Amnon Portugaly for the links to the article by Elizabeth Warren and Amelia Warren Tyagi. As I continued to read all the comments that came after, I realized few had taken the time to read them.
My biggest issue with the folks that say that there isn't any "personal accountability" is that you are looking at this strictly from one side.
What about the "accountability" of these financial institutions? If the government shouldn't "bail" out those that they represent, then they should certainly not pass laws that "bail" out or help out these financial institutions.
By lobbying to get the bankruptcy laws changed, they were asking the government to help them lower their costs of trying to collect debts and potentially losing money due to bankruptcy.
Bottom line is that they wanted to keep them in debt longer and bleed the consumer dry to the bone, before taking a loss on the books.
So I pose this thought to you... Didn't the government bail out the financial institution from making bad "financial decisions"?
Let's just assume for a minute that the majority get in to debt because of "out of control spending" and not for reasons out of their control (see the Elizabeth Warren article). These financial institutions made a bad financial decision by issuing a credit card to these individuals in the first place.
Which is precisely the issue surrounding the mortgage crisis we're in now. Mortgage companies just dolling out money to everyone, regardless if they could afford it or not.
The government is appointed by the people and works for the people, not Bear Stearns or any other corporation.
I found this article “The Ascendancy of the Credit Card Industry” by Robin Stein on:
http://www.pbs.org/wgbh/pages/frontline/
shows/credit/more/rise.html
which tells how credit card companies can avoid state usury laws.
“…a little-noticed December 1978 Supreme Court ruling. The Marquette Bank opinion permitted national banks to export interest rates on consumer loans from the state where credit decisions were made to borrowers nationwide.”
“In an effort to stimulate the local economy, South Dakota was in the midst of eliminating its usury laws. Mr. Wriston told Mr. Janklow that if South Dakota would quickly pass a bill inviting Citibank into the state, he would bring 400 jobs. To preempt concerns from local banks about new competition, Citibank also promised to open only "a limited" bank. "We'll put the facility in an inconvenient place for customers and we'll pay different interest rates," Mr. Wriston recalled telling Mr. Janklow. "All we want to do is use it to issue cards.''”
“In recent years, however, the credit card industry has found -- and aggressively exploited -- yet another rich vein of profits: penalty fees.As with interest rates, an obscure ruling by the U.S. Supreme Court, this one in 1996, cleared the way for higher fees.”
Also, “In "Secret History of the Credit Card," FRONTLINE® and The New York Times join forces to investigate an industry few Americans fully understand. In this one-hour report, correspondent Lowell Bergman uncovers the techniques used by the industry to earn record profits and get consumers to take on more debt.”
On
http://www.pbs.org/wgbh/pages/frontline/shows/
credit/etc/synopsis.html
I found this:
“Despite the number of consumer complaints, the ability of state and local governments to investigate the credit card companies has virtually been eliminated. That's because the federal regulator for the banks that issue the majority of the credit cards, the Office of the Comptroller of the Currency (OCC) has been engaged in what some describe as a "turf battle" with the states. The OCC has fought aggressively in courts and Congress to nullify state consumer protection laws and curb enforcement actions, sparking a nationwide battle.”
This is another fine mess those Republican voters have gotten us into. When are regulators going to start working for the American people instead of the Republican Party?
that is one great mistake of the credit cards company. it must be solved right then so people will not be scared of fraud.
by the way friend, youve got a nice blog very informative. i love to visit your blog again and again. you can visit also my site at:
http://tradingmarketingonline.blogspot.com
I'd love to hear from you.
Each American these days has a few hundreds of dollars debt with his credit cards. And still banks keep on issuing them. Sometimes credit cards cuase serious financial troubles for the card holders since many companies issue them to get money and then disappear. On this great site www.pissedconsumer.com you will find customers’ reports about different Credit Cards frauds.
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Focusing upon credit card debt and revolving credit lines would be adequate to measure the extent to which mankind makes a commitment to indulge liberty without capitalizing upon human misery.
Scorekeeping that focuses on tolerance of a system that indulges human enslavement and idolizes profits from human misery does little to free mankind for equal opportunity or creative innovation.
Beginning the debate anywhere along the chain of economic incentive loses the power of focus on why humans work at all, and the purpose of maintaining an economic system meant to provide survival for all.
No one needs the mechanization of human beings to produce socialism but all need it to produce social darwinism.
Changing the debate means changing the entry point of the equation of how labor systems benefit both management and labor to produce economics in the first place, and how all fit into that equation - including the production of offspring.
There is nothing to be gained from capitalizing upon human frustration and human misery except lost humanity and lost opportunity.
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