The average American is reputed to have $9,000 in credit card debt. Have you looked at your credit card statements lately? Do you know that the credit card issuers have been stealthily jacking up their rates, adding all kinds of fees, and playing around with other aspects of their warm relationships with credit card holders? Would you finance the wonderful dinner you are going to have Friday night with a lender who charges you 25%, 30% or even 35% interest? You would need to have your head examined, but that is what many of us routinely do.
The Obama Administration, in its headlong rush to pack as much as possible into the first 100 days in the spirit of FDR and while ratings are sky high, took on the credit card industry Thursday, fulfilling a campaign pledge for a Credit Card Holder’s Bill of Rights, among other things.
Announcing new legislation, President Obama said Thursday that credit card terms must be “written in plain language and be in plain sight.” Try reading one of the fine print credit card disclosures some time – pour a glass of warm milk, or your favorite ‘Nighty Night’ beverage first – it is guaranteed to put you into a wonderful sleep. But, hidden in there among all the legalistic verbiage, you and other card holders are the equivalent of people in those towns along the Northern European Coast that the Vikings raided for centuries before becoming ‘civilized’ – it’s pillage, plunder and rape time!
Addressing some of the latest tricks of the trade employed by credit card companies currently singing the blues over defaults in their universe brought to you by the economic crisis, President Obama also said: “the days of any-time, any-reason rate hikes and late-fee traps have to end.” This was at a well-photographed media blitz of a meeting Thursday in the Roosevelt Room at the White House with the Head Honchos of the top credit card companies, all sitting stiffly on one side of a long table across from Pres. Obama, suit jackets uncomfortably on and buttoned, with boom mikes peering over their heads to pick up the President’s comments like so many missiles arranged on those trucks the Soviets used to roll out at the Kremlin for their annual May Day celebrations. (No, I’m not joining those calling Pres. Obama a Communist or Socialist – it’s just what popped into my head when I saw the NY Times breaking news release and photo mid-day – honest).
The legislation being prepared for the House vote includes a whole host of ways to reign in bad behavior by the credit card companies, including a provision requiring that credit card companies apply consumer payments first to any account debt carrying the highest interest rate, to maximize the effect of the consumer’s payment. Some of what is contained in the bill being born will undo what was passed in 2005 legislation which made it a whole lot harder to discharge credit card debt in consumer bankruptcies, thus guaranteeing that you will pay for that Friday night dinner for the rest of your life at current interest rates if you only pay the minimum each month.
When you stop and think for a moment, the credit card companies are loaning out money, via your plastic, which, one way or the other, they are borrowing at practically no cost, either by BailOut Bucks from you and me, the taxpayers, or, at the current cost of money with the Prime basically at zero in an effort to stimulate and revive the virtually dead credit markets. Charging 20-30%, or more, in interest is quite a healthy markup on basically free funds, would you not say?
Even if credit card issuers are suffering increased defaults in this current horror show of an economic crisis, they are still making a very substantial profit under current circumstances. Further, a lot of credit card debt is rolled up into those charming and inscrutable collateralized debt obligations, in tranches, sold across the globe, and is now subject to all of the valuation problems those have engendered, although recent accounting changes that fostered all those banks suddenly realizing profits of late, have certainly helped at least the appearance of issuers’ balance sheets.
The President, in his sound bites Thursday, urged “some core principles” for the credit card industry, soundly based upon clear language and online access to contract terms – less hide-the-ball with consumers and more transparency.
The House Financial Services committee the day before, by a vote of 48 to 19, adopted a bill, sponsored by Representative Barney Frank, Democrat of Massachusetts, and Representative Carolyn B. Maloney, Democrat of New York, that reduces a lot of the many fees that have sprung up of late and limiting credit card companies’ ability to charge penalties, like those ‘over-limit’ penalties and so many other clever tricks. The bill was adopted 48 to 19.
As "Joe" Scarborough, host of “Morning Joe” on MSNBC and former Congressman, ends each early morning show (for you early risers) – ‘What Have We Learned?’ Pay those credit card bills monthly and do not let the balances pile up, no matter whether this bill is passed or not; if you have balances you can’t pay, do not fool yourself into thinking that paying only the minimum monthly payment is of any help at all. Do the math. At 20-30% or more, you will live your life as an indentured servant of the credit card companies if you pay the minimum. And, for God’s sake, don’t charge those fancy dinners – pay for them in today’s dollars or stay home and order a pizza!