The Gathering Credit Card Storm
Our current financial crisis is a case study in ripple effects. A lot of bad mortgage loans, bad loans between organizations, bad evaluations by ratings agencies and bad oversight by government collectively toppled big Wall Street firms. This caused our credit markets to freeze, leading to business contraction, massive job losses, and deep economic pain on Main Street.
First came the crisis over bad paper, now the crisis could get worse because of bad plastic.
Consumer credit card defaults are a gathering storm. At the same time it's becoming harder to get new credit, Americans have almost $1 trillion of credit card debt outstanding. Defaults are rising. Delinquencies are at a six-year high.
And the credit card debt itself is only part of the problem. While consumers are struggling, credit card issuers haven't let up on some of their most questionable practices, including exorbitant penalties and rate hikes. To make matters worse, just recently several credit card issuers have announced plans to raise interest rates, even for people who've paid their bills on time.
We can't afford to watch consumers' finances dragged down by unfair credit card practices. It wouldn't be fair in any situation, but at a time of such national financial turmoil, it's an even bigger threat to our economy. Inappropriately high credit limits, high penalties, and high interest rates have nudged so many people toward bankruptcy in the first place.
I've introduced a bill, the Credit Card Reform Act, to give consumers even greater protection from deceptive lending practices. The bill will end the industry practice known as "universal default," so a company can't raise your interest rate if you have a perfect record with that credit card, but miss a payment with some other creditor. It will force fees to be reasonably tied to costs incurred by the company, protect young consumers from card solicitations they didn't ask for, and make sure that when a company offers you a set of terms, they can't change those terms once you've applied for a card.
Congress isn't the only body that can act. Following measures that I proposed in the legislation, the Federal Reserve has taken some steps to address this issue. Earlier this year it took action on retroactive rate increases and the amount of time customers have to make payments. It was the right move, but it was only a start. The Fed's rules apply to subprime lending, but don't address excessive fees on the vast majority of cards on the market. Now we're seeing the consequences of limited action.
Earlier this week Secretary Paulson announced that the Treasury Department is considering giving tens of billions of dollars to the Federal Reserve to purchase securities based on credit card debt. I'm not necessarily against some kind of direct action, but if the government is going to get involved, it should insist upon a high degree of fairness and protection for the consumer. The Fed should issue guidelines for any credit card company that wishes to participate, prohibiting arbitrary rate increases, unilateral changes to credit card agreements and universal default.
Now is the time to act, because, like the debt on our cards, if we keep putting this problem off month after month, it's only going to get worse.
Follow Sen. Robert Menendez on Twitter: www.twitter.com/SenatorMenendez
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Thanks for looking at this. These companies have no shame. I applied for a Bank of America card and they raised the interest drastically 2 months later. Don't give these people your money. Pay off the cards you can and check your statements for the interest you are being charged on the ones you can't. It might be more than it was last month.
I love that movie...um Fight Club, was that the name? :-)
Until some laws are passed citizens must treat Banks, Corporations and Advertisers as Mortal Enemies
I'm doing some of my own credit card reform. I now have a job, and I will live very frugally and pay off ALL of my credit cards. I think this is the message Americans need to learn now, is to not live in debt. I learned the hard way (a few times), but this time it will stick.
Maybe I'm just getting old, but my parents were kids during the Great Depression. We were raised with the idea that you never buy something you can't pay for. The only loans my parents took were to buy a home and cars. I am trying to raise my kids with the same values. We use credit cards, but pay them in full every month. We still live in the first house we bought (18 years now) and pay extra principal each month (almost paid off!). We own 2 cars, but never have more than one car loan. Granted our stuff isn't the biggest, newest or shiniest, but most of it belongs to us and not the bank.
Another interesting ripple is since new legislation is being proposed, the large card issuers are launching their own version of a preemptive attack. They are currently jacking up rates on existing customers with excellent payment histories and credit scores. If legislation passes that disallows rate increases on existing balances, they want very high rates to already be in effect. I have received notification of a large rate increase on one of my cards. I laughed, because the card in question never carries a balance outside of the grace period. I suppose they'll shorten the grace period next.
Yeah, I'm in the process of paying off my card and I'm never gonna have one again.
Whatever attempts are made to force ethics on the credit-card companies will be resisted by Republicans (and some Democrats as well). With campaign contributions (bribes) they protect the sleazy practices of the credit-card companies. Like they did earlier this year. After years of stealing from the American people they were finally called before Congress. When it came time for some ripped-off consumers to give their testimony they were blocked from testifying. Even when these "special" interests sit before Congress they are still able to manipulate Congress from where they sit.
Banks have become Enemies of The People
It's not that they're evil, it's that they're desperate, and 'the people' are the only source of salvation they have.
"As through this world I've wandered
I've seen lots of funny men;
Some rob you with a six-gun
and some with a fountain pen."
Woody Guthrie, 1939
Citi might provide the opportunity for a national bank if the government goes in and takes decisive action. The credit cards as they exist have no real competition. The laws have been skewed to the benefit of lenders, but consumers have not been using them for consumer spending anymore. They are used to pay other loans. The idea is not to increase credit at this stage but to establish a floor on asset valuation so there is some relationship between credit worthiness and credit extended. A conservative principle for sure. But making Citi a Fed bank will provide a new component within the overall credit system. Not towards socialism but toward competitiveness and accountability.
Dear Senator, I have not read your new bill. HOWEVER, it is clearly the time that citizens get equal footing with businesses in the USA.
Citizens have been royally screwed over for years by the financial institutions, lobbyists, the court systems and congress for years.
Anyone that has a credit card that can should pay them off. They are financially dangerous.
They are looking for reasons to raise the interest rates to 31%. If you only make minimum payments, they decide that you must not have enough money so they raise your rates for that.
If you have had a zero interest card for more than 2 years, they will raise your rates for that.
There is a reason they flood your mail box with extra mailings, it is so you won't know the bill is in one of them.
I have excellent credit and had a new zero interest card. The bill didn't come, since I have bill pay I decided to put in an early payment. I looked up my online account and found the payment was due the day before. I called and talked to them about moving the payment date up a week starting with the first one. They agreed to do that and said I would not be charged a late fee. Then I made a large payment online.
When I got my 2nd bill a few days ago, they were charging me 31% interest. I called and they told me that was because I was late two days. I then paid the whole thing off since I had the money.
Congress needs to redo the bankruptcy bill, making it easier for people to go bankrupt and harder for businesses to break union, pension and insurance contracts by going bankrupt.
One of my cards is with Citi , but I don't use it often. Always paid the total due. And to make sure I never get late fees while I travel I sometimes overpaid. Worked fine for years.
Now they mailed back the overpayment by check. I missed it with all the junk mail I get from them and they started charging a minimum monthly "purchase" of $0.50 (although I didn't use it) and accumulating late fees. I keep telling them to apply the check that I never cashed. To no avail.
I've been with Citi for 24 years. Tomorrow I'm moving all my accounts to a small regional bank around the corner.
How ironic: at a time they beg folks for deposits, they chase them away.
Good move.
In California right now, people who want to rescind Proposition 8, the one that removes rights for gay people to marry, is rallying tremendous support, tremendous protest.
It is wonderful to see people of many demographics coming together to protest an injustice.
I hope we can find ways to gather momentum like that in opposition to the insane usury, dishonesty, trickery of the credit card card companies (and the banks and financial systems) behind them, and some some real and sensible regulation.
I do see smug posts about how people should not rack up debt they cannot pay.
Let's just ignore you.
The rest of us have profoundly legitimate beefs.
I got an e-mail from a place called:
CreditCardReform.org
A project of Consumers Union of the U.S.
Unfortunately the e-mail and the web site are in as much shambles as many of us are.
I can write, call, and am committed to dedicating time to such a cause, but I just do not have the experience or ways of thinking to run it.
Does anybody here?
I volunteer to do much, I just do not know what to do. I wrote Senator Menendez in support of him addressing the issue, but I know that is not nearly enough.
Anybody have ideas, more links?
At any given time between one third and one half of consumer credit rating reports are bogus i.e. contain significant false or inaccurate information. Credit rating bureaus dismiss this saying that these mistakes are just that - "honest mistakes", but if they were "honest" mistakes than half the time they would be in the consumers favor. The fact that not a single credit report containing an error in the consumers favor has ever been reported tends to dismiss the "honest mistake" theory. In fact there is a reason why consumer credit rating bureaus do not make "mistakes" in favor of consumers and that is that they now make more money selling consumers protection from their "honest mistakes" than they do selling their reports
And you may think you are "entitled" to a free copy of your credit report but all credit report companies charge for copies and in fact this is a very lucrative business for these companies. However if you do purchase copies of reports on your credit from the three companies that have a monopoly on this service, you most likely not find that any two of these reports are the same! So much for the accurate, objective value of credit reports. Of course since your FICO score, a private monopoly, is based on reports from the three credit rating companies, it is no more reliable that the least reliable report they receive.
"While consumers are struggling, credit card issuers haven't let up on some of their most questionable practices, including exorbitant penalties and rate hikes. To make matters worse, just recently several credit card issuers have announced plans to raise interest rates, even for people who've paid their bills on time." -- It is WAY PAST time to get control of these vicious companies.
I grew up in a time when usury laws were still common. I suspect that many HuffPo readers have never heard of usury. They were typically state laws that established a maximum interest rate that could be charged by any lender in that state. In the most basic sense such laws were the result of government doing what it is supposed to do. Protect the common man from the cunning, the powerful, the ruthless, the heartless and those without shame. While it is easy to think of the past as "the good old days" we actually did have a pretty good life back then. The government seemed, at least, to care about the people. How did we loose the usury laws that protected us? How did we come to this? It is oh so simple. We elected Republicans.
Yeah. Some things must move forward and change and evolve but it would be nice to go back to some things as well, like when a persons labor was enough to buy a house and start a family. Hasn't been that way since the 60's. Since then government and corporations and banks have been busy finding ways to nickle and dime and dollar the average citizen into slavery. Debt equals slavery.
I remember seeing some old b&w movie where characters were talking about how offensive it was that gangsters charged 15% interest on their loans. If that is loan sharking what is 30%? Loan Tyrannosaurus Rex-ing?
I wonder if anyone in congress has considered restoring the tax deductibility of mortgage and possibly other interest? It could still be implemented for the 2008 tax year and would provide fast, fast help to the American people.
That sounds good. CREDIT CARD companies have been RIPPING OFF the public withy
their FINE PRINT and CORRUPT, UNREGULATED practices!
It's past time to REGULATE the credit card corruption.
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