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Credit Cards In The World of Taxpayer-Owned Banks
Credit Cards in the world of taxpayer-owned banks
"meet the new boss. Same as the old boss." -The Who
The American people ponied up $700 billion to supposedly bail out some big banks on Wall Street. So far, we have not seen the banks what banks are supposed to do, lend people money. Instead they are doing the thing that Wall Street raiders do, take over other companies. PNC and Fifth Third were the first banks to make deals, backed by taxpayer dollars.
Bush and Paulsen encouraged bad behavior in their bailout bill. They gave big banks money and tax incentives to gobble up small banks. They made sure that their buddies on Wall Street were taken care of.
Most big banks didn't need bad behavior encouragement. They've been able to do harmful things long before the government started subsiding them.
Some of the biggest abuses come in the way that banks have handed out credit cards. Now that I, like every other American taxpayer, indirectly owns part of the Wall Street banks, I want to talk to them about how they have been acting.
I want to do is to throw credit card companies off every college campus. Is it any wonder that the banks needed a $700 billion bailout? What kind of business gives huge lines of credit to students who don't have jobs?
I always thought that you had to have a job to get credit. Not anymore. I have a college student in my household. He has minimal income, no assets and big student loans. However, the credit card companies love him. He gets ten times more mail than I do. All of them "pre approved" credit cards. All go straight in the trash.
Its bad for the college students to run up debt before they have jobs. Its bad for the nation to have a generation of college graduates paying off high interest credit cards instead of saving money to buy houses and cars.
Giving cards to college students couldn't have been that great of a business or the banks wouldn't have needed a bailout.
I saw an article in the New York Times that said that credit cards were the next problem area for the banks.
DUH!
We've had years of students, people coming out of bankruptcy and people with no income getting tons of credit cards. Usually with interest rates and fees that would make a loan shark blush.
Since they are getting multi million dollars bonuses, executives at Wall Street banks should have figured out what most of us know. Broke people don't pay loans back.
You can charge them all the interest and fees that you want. If they don't have any money, they are not going to give any to you. Especially if you are an unsecured debtor like a credit card.
People will make an extra effort to hang on to secured debts, like their houses and cars. The credit cards will be last in line.
We are now in an economy where a lot of people who were barely hanging on will get closer to the edge. You see people losing their jobs or going from high paying jobs to minimum wages. You see people who counted on the value of their house or 401k plan being suddenly disappointed.
We see a lot of people worried about feeding their families and keeping a roof over their heads.
When it comes to feeding your family or paying your credit card, the family is going to win every time.
I hope the banks factored that reality in before the came up with the $700 billion figure. They might want to hang on to some of that taxpayer cash instead of using it to buy other banks.
As bad as people are projecting, it will get worse. Recent events will change how people feel about debt.
People who got stuck with high interest credit cards aren't going to be in a hurry to pay them off.
Even if they can.
Banks had two things going for them in collecting credit card debts. They could shame people by embarrassing them in front of their neighbors and they could threaten to hurt their credit scores.
Its going to be hard for a bank that was bailed out by taxpayers to shame anyone into anything. Since people with good credit can't get loans, there is no incentive for someone with bad credit to even bother. They can default on their debt and make the banks come after them.
I've tried to collect from someone who was determined not to pay me. It was expensive, time consuming and I never did get all my money. Try multiplying that by a few million people. That is what the big banks are going to be dealing with.
From a moral standpoint, I want banks to clean up their act in the credit card department. Since many of the bankers work for me, and the rest of the American taxpayers, I'd like to protect my investment by making sure the credit card issuers get out of the stupidity game.
I can't afford to give them another $700 billion.
Don McNay is the founder of McNay Settlement Group and the author of the book Son of a Son of A Gambler: Winners, Losers and What to Do When You Win the Lottery. You can write to him at don@donmcnay.com or read other things he has written at www.donmcnay.com He is Treasurer of the National Society of Newspaper Columnists.
Follow Don McNay on Twitter: www.twitter.com/Donmcnay
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Frank Nitti's dream came true with the Bush regime. I guess it was "payback time"
1 888 5optout to stop credit card offers.
CALL YOUR CREDIT CARD COMPANY ASK THEM HOW MANY DAYS IN YOUR BILLING CYCLE.
MANY CARDS HAVE ONLY 22 DAYS IN A BILLING CYCLE EVEN THOUGH YOU ONLY GET 1 BILL EVERY 30 DAYS.
SO YOU ACTUALLY PAYING THE LIKE THERE WERE 16 MONTHS A YEAR INSTEAD OF 12 MONTH.
AND THAT COMPOUNDS THE COMPOUNDED INTEREST.
How about those high interest rates on credit card balances?
Maybe I should write my Congressman...
With the Democrats very likely to make a clean sweep of things in the elections on Tuesday, we will soon see if they are any more consumer-friendly than the Republicans. Somehow I doubt that aggressive marketing of credit cards to college students will stop anytime soon unless the economy turns really ugly and credit card issuers lose too much money on student cards. Under normal conditions, there is too much money to be made in credit cards and credit card issuers are big contributors to politicians' re-election campaigns.
Most salesmen I know, in whatever line of work, get paid a commission on what they sell. Those who pay the commission believe they can make enough profit on what is sold to justify the salesman's take.
Don't blame the salesman, unless he is defrauding the customer. In the case of credit cards, I am not aware of any charges of fraud. Instead, the banking industry forced through a bankruptcy revision and then turned their salesmen loose. The new legislation was written for bankers who won't take responsibility until it is stuffed down their throats. It fits with an ethos that believes money is the be-all and end-all of living. So long as enough consumers agree, that is the way our system runs.
For instance, writing mortgages where borrowers can pay whatever they feel they can afford (Golden State in California) cannot under any circumstances be considered fiscally responsible. Under deregulation "fiscal responsiblity" became a laughable notion. And we elected Bush to a second term with full disclosure of his administration's defalcation. The consequences of political insanity are national nuttiness. What else?
The sad reality, Don is that the banks aren't going to give up those student credit card portfolios until someone makes them.
Why? Because the other sad reality is that despite the fact that those credit cards unfairly saddle young adults with a lifetime of unnecessary debt, they among the best-performing portfolios the banks have. Yes, it's incredible. But it is true.
Students will take out other credit card debts to pay off the first debt. They'll borrow from Peter to pay Paul over and over again during the course of their education. And since the banks keep sending them more cards, they think they're doing the smart thing - establishing a credit history.
Folks who aren't in college - and are living in the real world of budgeting and trying to live within their means - simply don't have that option. At least they don't now that they can't go to the HELOC ATM anymore.
So much as I agree with you, Don, that these student accounts are a big problem for the future of our young people, I don't think the fact that Hank has thrown all of our hard-earned money at them will make a hill's beans worth of difference.
Until Congress actually enacts some legislation to require banks to withhold credit from folks with no ability to repay, things will stay the same.
So save your breath in talking to the banks. They're not listening.
The college kids buy into the cards full tilt because that are optimistic of their future and assume they will make more than enough to cover thier bills with their first job.
The banks created their own credit card mess by extending credit to people unable to pay, of course. The more insidious thing that they have done is to arbitrarily increase interest rates on the holders of credit card debt. They have done this to even to those that have done an exceptional job of paying their debt on time.
For example, they increase rates based on other debt incurred and they pull fast tricks such as raising rates if a borrower does not respond to a simple mailing.
I have spoken to the office of Attorney General in our state about this problem and it is agreed that this practice is immoral, but not illegal. I was told that I should lobby my representatives hard to change these practices.
This problem can be solved through regulation and the sooner the better.
I think what happened in the credit card industry is what happened in the mortgage industry.
The debt originator (Bank) had only to originate the debt then sale it on wall street as some debt security, where the investor gets a portion of the interest paid on the debt and a portion of the risk of default.
The insurance companies created exotic investments guaranteeing the investment against default, thus very little risk by the investor, so they thought.
That insurance aspect is probably the most questionable of these transactions.
Congress did this, blur the lines between insurance and investment.
Scandalous.
They're called "bad loans," Don. Worthless securities. Fraud. Swindles.
And what did the swindlers do? They passed a "hear no evil, see no evil" law, masquerading as a bailout bill, that supposedly gave the Secretary of the Treasury the exclusive right to cut any deal he wanted and to redact every detail of it ... supposedly (albeit quite unconstitutionally) immune from both Congressional and Judicial oversight.
Yes, the swindles go all the way to the top, and encompass hundreds of "civil officers" along the way, all of which (thus saith the Supreme Law of the Land) "shall be impeached." Unfortunately for us, that august document expected the foxes to guard the hen-house.
What will finally happen? I think it's obvious: the bitter medicine will come from other nations, never from our own.
LONE RANGER: "Tonto! We're surrounded by injuns!"
TONTO: "Whaddaya mean 'we,' paleface?"
It's called "The Euro," and it works.
I too decided to pay off all credit cards and use only a debit card, check, or cash from now on. I've lived free of credit cards for five years and free of all debt (including a mortgage that I aggressively paid off early) for two years. This has enabled me to not only weather the current economic downturn because my expenses are minimal, but I've even been able to save money for the first time in my adult life.
Meanwhile, living debt-free and mortgage-free has been of major benefit to my life. I have more disposable income, more free time, and less anxiety over how to pay for basics, even in this recession. I recommend it highly.
I literally do not give a single crap about what my credit rating is, because I intend to never borrow large sums of money again if I can avoid it. (Private health insurance becomes much more affordable if you don't have a mortgage and unsecured credit card debts, so I finally got covered there, again for the first time in my adult life.) To be sure there are some people in some positions who will need a decent credit rating for various purposes in their lives, but I honestly think that a large number of people could live without borrowing much money at confiscatory rates from credit cards. More should learn how to do it. Once you learn, you'll really appreciate feeling financially stable.
I am one of those people who has been through bankruptcy because of health care costs but back in the day when all of the credit card and health care cost could be discharged. I am still in debt, of course; and I expect that will be my plight when I die unless some miracle occurs and I win the lottery without entering it.
I graduated from college in the early 1970's, though; and I was not offered a single credit card while I was in school. Since I declared bankruptcy, though, hardly a week goes by when I don't get a half dozen offers for cards! Fortunately I have chosen not to even apply for any of them; and I have discovered that it is much preferable to live WITHOUT a credit card. Whenever I would otherwise have used a credit card I plunk down my debit card. I have to have the money to use it, of course; but if I can't afford it I don't buy it. Sometimes I even get a discount by using a debit card instead of a credit card.
I hope those banks we own start acting right so we won't have to put too many CEOs in jail to get the message across that they shouldn't prey on poor people.
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