Credit Cards or Credit Crash? The Assault on Consumers Continues
The most recent move by the Obama Administration against the predatory and abusive practices of the credit card issuers does not seem to have changed their behavior, despite the fact that two of them, Bank of America and Citi, have received abundant and cheap funds from the authorities. This makes those banks' most recent actions even more shocking and unacceptable.
Credit cards happen to be the only form of credit available to most consumers. They are an essential part of their financial stability. They are therefore a key to the economic recovery and the amounts available as well as the interest rates they charge have become a burning issue for most households.
Three aspects of their recent bad behavior need to be addressed:
1. Credit Limits: In September, Bank of America launched two rounds of reductions of the credit lines on credit cards. I found this outrageous and went to the Comptroller of the Currency, the regulator of the banks regarding the matter. They sent the file to the Bank of America, whose justification was hilarious: "We consider that you have sufficient available credit"...and the second time "because you currently owe sufficient amounts on your revolving lines of credit with other creditors". Does that mean that Bank of America has the necessary information to pass that judgment for each of its millions of card holders? Can credit card issuers unilaterally continue to reduce their exposure on a whim? Isn't the consumer entitled to use credit lines he or she has been granted? If the credit limit is too high, shouldn't the bank bear some responsibility for issuing it to begin with?
2. Interest rates: This week, I received a standard letter from Citi. Rather than applying the outrageous 19.99% standard rate, they indicate that the rate is now increased to 29.99%. However, if the cardholder makes every payment on time, that rate will be reduced by 10% (back to 19.99%). They clearly state that if a single payment is late, the cardholder will lose the 10% "discount". Is that what the new legislation was aiming for? Could one payment made one day late prompt a 10% increase of interest rate without notice? 19.99% is now a "discounted" rate?
3. The system is corrupt: The "ghosts" in the system are the underwriters who have become lazy and inefficient. Late credit card payments are sufficient to make the consumer effectively ineligible for any other form of financing, including mortgages, car financing or home equity loans. By lowering credit lines and raising interest rates, the credit card issuers have put consumers in a hopeless situation.
The real consequence of these behaviors is that they kill consumer confidence better than any decrease in the Dow Jones. The banks have returned to their same old practices. What is even worse is that there is no escape. Even if one repays the entire outstanding credit card balance in one shot, you will not qualify for lower rates for at least a year.
This week I also received in my letter box an offer from the same Bank of America inviting me to borrow at 4%; the same bank makes the same offer to you through ubiquitous TV ads. The credit card issuing banks have gone back to their predatory tricks and usurious rates. They lure consumers in with low teaser rates and instantly start looking for excuses to raise them to 29.99%.
This behavior demonstrates that the banks' refusal to act responsibly is endless and that they certainly have not learned their lesson. We need a consumer finance agency to protect credit card holders from these abuses. The banks will complain that they are losing hundreds of millions of dollars on credit card loans. However, it is their own fault. Their irresponsible underwriting and predatory practices led to those losses. They continue to mislead the consumer who believes that if he gets a credit line, he can count on it at decent terms. It's no accident that the banks domicile their credit card operations in South Dakota, where they have no laws against usury. It isn't just bonuses that are back in force but the same fundamental lack of ethical behavior on all fronts.
My best advice: if you can afford it, use only your debit card. Once again, don't count on an umbrella from a bank when it rains -- only when the sun is shining.
Arianna Huffington: Remember That Whole Thing About Fixing Our Financial System?
"Everybody understands," Geithner said on This Week, "that we cannot have our financial system go back to the practices that brought this economy to the brink of collapse." The problem is, it already has.
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Why is it that we take building codes and zoning ordinances for granted, in order to protect the common good, but any hint of financial regulation is dismissed with the accusation that it is "socialist?" In my whole life, I've never seen anything as insane as what the financial services industry has gotten away with over the last 2 years. Is the word "terrorism" hyperbole? I don't think so.
I've read a few articles which posit that this is just a mechanism for increasing their assets (on paper). There will be outstanding assets for them (debts for us) as soon as they're charged, not collected, and this serves to help with their off the books toxic mortgage problems, not their credit-card delinquencies. In other words, they look like they're in good financial shape and can keep rewarding themselves with hugh salaries and bonuses until the whole house comes crashing down again. I wish someone on Huffington would explain what they think is actually going on. There has to be some method in their seeming madness - there always is and the consumer always ends up being screwed both ways.
Dmned if I can figure them out. I have a Citi card with a $12,500.00 limit. Balance was zero. They sent me a letter raising my card interest to 24,9 %. About two weeks later I got a letter with some courtesy checks that I could use up to my limit at 0.00 % for six months. I wrote myself a check for $12,000.00 against the card and put it in a six month CD at 2.5 %. Paid the card in full in six months. Go figure.
The reason lenders are being stingy now is because they were too generous before. The idea that we can keep our economy going by handing everyone a credit card has imploded like it must and this is just the aftereffect.
What we are seeing is simply a return to historical standard of lending, you know lending only to people with a good chance of paying it back, not everyone with a pulse. The simple fact is that Americans are up to their necks in debt already and going deeper in the hole isn't going to solve our problems.
If credit cards are really "essential part of their financial stability" then I would respectfully submit that they are anything but financially stable , and in fact are mismanaging their finances.
Read about Chuck Schumer railing against the banking industry, but have yet to see him DO anything definitive. WHY can't the Post Office get into banking like Goldman Sachs did?
PO General Potter seems scared to FIGHT the banking industry, http://www.federaltimes.com/index.php?S=4034396 but with a good PR firm the PEOPLE would get past those anitiquated post office jokes and REALIZE that the banks are out to SCREW them!
The Fed is GIVING them money with ZERO % interest and i've heard that there's one card charging OVER 80% APR...tighten up the usury laws and let the Post Office do some banking!
Stop paying the bastards. It's unsecured. If you "own" your home, what do you need credit for. Nobody is making loans anyway. Everything is cash deal only now. So what does it matter what your credit score is. Let Suze orman rant and rave about being responsible while the banks are screwing everyone. She's in their hip pocket like the rest of the geniuses who had neither an inlking of this collapse nor a scintilla of desire to tell anyone even if they had (which they did). Now whan I get a call from a bill collector I personally threaten them if they ever call me again. FIGHT PEOPLE. Respect for what. These goobers. I don;t think so. Respect is something you earn, not something you pay for.
Is Citi trying to destroy America? Most people are not going to shop for stuff with an interest rate of 30%.
The idea thqt a consumer economy can be maintained on indefinite credit growth, not wage growth is completely unsustainable we are living in the result of it's implosion.
How do get back to wage growth? Well that's a whole 'nother argument.....
When we failed to Nationalize these corrupt banks we blew it...
Now rather then being able to use them to stimulate the Economy they are Constricting it by Constricting Consumer Spending which is 2/3rds of our Economy or more according to some...
We enriched them and they are strangling us....!
When Obama decided to listen too and hand us back over the Summers and Geithner we lost the best change we'd ever have to get back our country and create a more level playing filed...one that worked well for everyone and still turned a profit...
These banks are parasitic upon our real economy which is the General Prosperity...!
Here, here.
(annual take home pay) - (annual expenses + taxes owed) = Savings
Savings * .1 = Available Credit
Plug your own numbers in.
How it is that for almost every good we buy and also many of the services we buy (such as haircuts, taxi drivers etc..) we have the sense to have experts watch-dogging, protecting the regular, working consumer against dangers and abuse that he/she does not have the time, expertise, coordinated roganization or power to deal with as individuals but we do not have the sense to have such consumer protections for financial/banking products??
We gave the FED!?! (a cartel of banks, not a government agency) the responsibiltiy to enforce to protect mortgage consumers from predatory lenders. When states tried to intervene on their own, the Federal govt agencies resisted them. That's equivalent to the FBI shutting down a local police investigation of an elderly woman's rape. I trust we would freak about that and demand justice for the abuse of the woman. But what about the trusting old lady that lost her house to an explodign HELOC she took out to make her house wheelchair accessible, which was affordable the way they described it to her.
but libertarians would say we need less rules, less "economic" police.
To police, first we must have laws against obviously bad behavior. Start with what harms others, jsut we do with criminal law. The have an agency like the CFPA to act as our financial justice watchdog. Rather than each of us getting our own PhD in financial products or hiring private counselors individaully, we must have a agency of smart, education people tracking the latest "innovations" in fraud, and tricks to protect the consumer. We don't want to each have to test our own beef, eggs or spinach for E Coli, that's what a government agency can do well and efficiently for us. We don't all want to have to read up on eletrical circuits and take apart appliances to make sure they are safe. Nor do we want to be experts on safe HVAC methods so we don't die from faulty furnace installation, so we have building codes and local officials that enforce them. Same goes for cars, toys etc...
They are doing what businesses are tasked to do, maiximize profits, and they are doing what they are incentivized to do, maximize their bonsuses and their salaries.
Why are we surprised? why do expect any different behavior when IT IS LEGAL.
We are fools if we expect all, or even most, businesses to behave in a moral or long-term thinking mode.
Repeat after me, THEY ARE BUSINESSES, they are designed to produce profit. If it was legal, some of them would literally enslave people if was profitable, if it was allowed and didn't hurt the short-term bottom line, many of them would murder.
The only way they can be stopped is to POLICE them, the profit motive will go as far as we allow it.
Completely unchecked, un-policed "free" markets will devolve to monopolies, cartels, financial gangs where concentrated wealth and power is used manipulate markets, abuse and drain the majority, til the whole economy is mortally wounded.
I think all these shennigans by the banks is just proof they're still in trouble.
IF NOT NOW... then when the American people realize what has been going on while they "needed more time" to get on board with the new regulations... they will be...
The letter can be seen here:
http://cache.gawker.com/assets/images/consumerist/2009/10/102109-002-citibank-letter.jpg
It's a refund of 10% of the interest paid *NOT* a reduction in your
interest rate back to 19.99%
Example you have a $1000 balance and a rate of 29.99% (About 0.02492% per Month)
or ~ $24.90 a month. 19.99% would have been about $16.66. They offer to refund
10% of $24.90 or $2.90. This still leaves your APR at over 26%.
Folks, they don't want good customers. They want to trap the less financially savvy and desperate customers. This is their time to strike. They claim losses, but their long term goal is to keep their customers in debt to them.
You are also in national debt from saving them. So they could save the economy. High interest rates hurt an economy. Everybody in Washington and Wall Street knows this simple Econ 101 fact. Yet, it is going on, unrestrained.
You should be very wary of something this obvious.
Oligarchs don't need, or suffer by credit cards.They have no reason to stop it, and they can buy stock in the card companies to make money off of the obscenity of this.
Add our unemployment, and future jobs will not garner what they paid before, as we re-employ.
Healthcare legislation is turning into a joke, except for the pharmaceutical and insurance industries.
Continuing income inequality, rising poverty levels, and worsening health conditions are the economic signs of a Banana Republic. The rich/powerful and peasants. Two classes.
Is anybody else feeling like we are being surrounded?
Soon we will be past the reasonable solutions which come before "have to burn down the village to save it."
As a warning, we should cut up all credit cards, save, and use cash. Everybody who can do it, should do it.
Two quarters of that, and the politicians will do anything to save their precious GDP.
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