Tuesday, July 31, 2007

American Credit Card Industry: Making the Sopranos look like the Cleavers

I sometimes wish I had an extra 6 hours a day. I would love to begin a new blog on the thoroughly disgusting way our representatives in Washington have failed to protect us from the thieves running America's credit card industry. That's right, I said "thieves." What else should we call the callous cohort that clearly, intentionally looks for new ways to plunge hardworking Americans into what amounts to financial indentured servitude?

As you might guess, I, like many Americans, have had a few surprises when reviewing my credit card statements. Recently one bank jacked up the rate on a card to over 23%. When I called to complain, they explained that in a document they had sent months ago (you know, one of those microprinted, 30-page documents with legalese even most lawyers can't make out) they had alerted me to the fact that if I actually use my card (i.e., keep what they consider a "high" balance), they have the right to reassess the risk I pose and jack up the rate. Mind you, I never went over the limit, and I always paid on time. There were no mistakes made in any other of my financial arrangements. Simply because I decided to let the purchases on one card sit a few months, they decided they should rob me.

I called and cancelled the card immediately and gave the two representatives unlucky enough to take the call a piece of my mind (I had to be triaged up to a supervisor, so unsuccessful was the first representative in explaining to me why their actions were not criminal).

Again, I know I'm not the only American experiencing such extortion. And it's unquestionably out of control. From Today's
New York Times:

The federal agencies that are supposed to regulate the banking and credit card industries have failed utterly to keep pace with deceptive and unfair practices that have become shamefully standard in the business. As a consequence many hard-working Americans who pay their bills are mired in debt — and in danger of losing whatever savings they have, and perhaps their homes. Congress, which sat on its hands while the problem got worse and worse, needs to rein in this sometimes predatory industry.

The scope of the problem was laid out in Congressional hearings this spring held by Senator Carl Levin, the Democrat from Michigan. According to testimony, one witness exceeded his charge card’s $3,000 limit by $200 — triggering what eventually amounted to $7,500 in penalties and interest. After paying an average of $1,000 a year for six years, the man still owed $4,400.

That experience has become all too common as the credit card industry has stealthily adopted methods designed to maximize burdensome penalties and fees, while ratcheting up interest rates as high as 30 percent. Companies bombard unwary consumers with teaser packages that promise very low interest rates to start, while reserving for themselves the right to raise rates whenever they choose. The details are buried in deliberately arcane contracts that run 30 pages long and that even lawyers have trouble understanding.

Congressional investigations and studies by consumer advocates have exposed other unsavory practices. Some card companies apply penalty rates retroactively — to purchases that were made before the penalty was incurred or in some cases to debts that were even paid off. As one Congressional witness pointed out, the credit card industry is the only one allowed to increase the price of a product after it has been sold.

Under a provision known as “universal default,” a cardholder who pays a credit card company faithfully can still be hit with a high penalty interest rate for missing payments with another creditor. In another despicable tactic known as “double cycle billing,” a cardholder who pays $450 of a $500 balance is charged interest on the entire amount as opposed to the unpaid balance.

State usury laws would once have precluded many of these practices, but those have been preempted by federal regulations that are increasingly designed to make banks and credit card companies happy — rather than protect consumers.
But what has this got to do with art, you ask? Not much, actually. Although I did find this incredibly cynical ploy by a credit card company on (Notes on) Politics, Theory & Photography:

Some time ago my friend Susan Orr pointed out a really troubling advertisement on Alternet for a new gimic from Visa - the "Enlightenment Card." Touted as "a socially conscious credit card" the new gimmic panders to the narcisscistic demographic that somehow has convincced themselves that consuming itself is a political act. Hence, the purveyors announce:

"The Enlightenment Visa Reward Card was founded on the idea that money is energy and if used with positive and integrative intention, can have the power to affect change in our lives and the world. Everyone uses a credit card, so why not have one where people can earn points towards positive products and services that enhances their overall conscious life?"
Everyone uses a credit card. (Well, that's a slight exaggeration, but continually becoming less of one.) And therefore, it behooves our representatives in Congress to ensure that everyone is protected from the utterly faithless industry flogging credit cards.

Again from the
Times:

A bill introduced by Senator Levin would limit “penalty” interest rates to an additional 7 percent above the previous rate. It would also prohibit retroactive penalties and double cycle billing, and it would limit the amount of fees companies could charge customers who exceed their credit limit.

Passing the Levin bill would be a good start. But Congress needs a comprehensive approach to this problem. Lawmakers need to ban deceptive card offers outright, strengthen federal oversight and toughen truth-in-lending laws.
Remember, I didn't even exceed the credit limit or miss a payment. The "penalty" thrust upon me was due to simply using the card the way I always believed I could (and not understanding the new, virtually incomprehensible, conditions sent long after I had started using the card).

In addition to the steps Levin's bill would take, I have an additional suggestion for our legislators to work on enacting:

The essence of any changes in the rules and regulations for any credit card must be presented to the customers in large, easy to understand print. The central idea of any change, which the bank's representatives manage to convey in one sentence if you're screaming down the phoneline at them, should be printed extra large at the top of the legalese gobblygook. "NOTE: Your rate will skyrocket if your balance remains over X% of your limit for X months, even if you pay on time and never exceed your limit."
At least give the busy businessman or parent or whomever the courtesy of not having to rush out and get a law degree to understand how you intend to rob them. At least give them the chance to cancel the card before you do what you know the changes were meant to do: screw them. At least Tony Soprano and his crew explained the terms of the loans they offered in clear English...the credit card industry should endeavor to operate at least with that much integrity.

Labels:

17 Comments:

Blogger Henry said...

Ease of use is good, and lack of deception is good, but be careful if the ultimate effect would be to allow more people to borrow more money more easily. That's called a bubble, and we already had at least two big ones last century.

If you don't mind my asking, and please don't take insult, but why do you spend more every month than you can afford to pay in full? And if you can't afford to pay for something in full, why don't you arrange with the vendor for a 6- or 12-month interest-free payment plan? Big-ticket vendors make those kinds of offers all the time.

I could buy a lot of gallery-quality art with my credit card statements, and I can't remember in 15 years ever paying a penny of interest. When you're making a deal with the devil, I don't think the best approach is to negotiate for better terms. It's still the devil.

Not to make light of a bad situation, but yesterday ML commented yesterday about having great difficulty getting a millionaire collector to pay a gallery bill on time. But I'll bet the same collector pays credit card bills on time. Maybe galleries need to start calling up credit-reporting agencies and hiring bill collectors when their buyers miss a payment too.

7/31/2007 10:02:00 AM  
Anonymous Anonymous said...

I hope no one is expecting Democrats to change any of this, they are just as beholden to these crooks as the Republicans.

The new bankruptcy laws favor corporations over people and will turn ordinary Americans into indentured servants when a catastrophe arrives in their lives.

7/31/2007 10:13:00 AM  
Blogger Edward_ said...

If you don't mind my asking, and please don't take insult, but why do you spend more every month than you can afford to pay in full?

Let's just say: it cost a good deal more than we expected to move the gallery to Chelsea, and although there are other options (which we've since instituted) than using credit cards to do so, back then it seemed like a fine idea. I know plenty of young galleries who are in the same situation, believe me.

Ease of use is good, and lack of deception is good, but be careful if the ultimate effect would be to allow more people to borrow more money more easily.

That can be read to suggest that deceptive practices serve to punish those who overspend in order to teach them to know better. There might be some truth to that, but it's contradicted by the sales pitch credit cards use to get you to sign up. Any of the "Rewards" credit cards, for example, which "reward you for your purchases" might technically be able to claim they're not encouraging you to overspend, but that's what we call splitting hairs where I come from.

Bottom line for me is the credit card companies are clearly in business to make as much money as they can. It's one thing to accept a deal with the devil and have the devil keep his end of the bargain. It's another altogether to have the devil restate the terms once you're knee deep in the mess. Our lawmakers are supposed to keep devilish industries from taking advantage. That's all I'm calling for here.

Maybe galleries need to start calling up credit-reporting agencies and hiring bill collectors when their buyers miss a payment too.

That makes me want to take a shower. :-)

7/31/2007 10:17:00 AM  
Blogger Oly said...

I also love how they give you the default rate of 29-30% now at one missed payment.

The worst is I recently found out I had a card REOPENED that I had closed down a year ago.

Apparently they felt me paying the card off completely and writing the letter requesting to "close the account" was not enough.

They graciously re-extended my credit offer, raising my limit, and charged me the annual fee.

How nice of them.

It got straightened out, but you know, nothing surprises me.

I think the credit agencies are much worse than the card companies, though-- in selling personal information trigger marketing lists each time your credit is pulled.

Lovely.

7/31/2007 10:42:00 AM  
Anonymous Anonymous said...

It is very important to realize that the credit-card industry got out of control because both parties agreed on it.

Just as an example, Democratic presidential candidate Biden is often referred to as "Biden, D-MBNA". See, for example,
http://www.opensecrets.org/politicians/contrib.asp?CID=N00001669&cycle=2004

- Joerg

7/31/2007 11:03:00 AM  
Blogger Joanne Mattera said...

I'd like to add something here about the use of credit card points to translate into airlines miles. It's not quite a scam, but there are some flaming hoops that you need to fly through backwards and blindfolded when the moon is waning and the tide is at low ebb.

I need to fly to Montreal in October, so I spent two hours yesterday afternoon setting up an Aeroplan account at Air Canada to be able to transfer 15000 Amex miles into that account--because that's what the "helpful" Air Canada person from India told me I needed--only to find, after logging in, off, out and backwards, that the 15000 miles were fine for flights at 6:30 am, but that for the later-morning time I wanted to go, i.e. when I was actually awake, I needed 22500 miles, which would have meant going through that whole log in/log out routine again. By the time I learned all this, I'd exceeded my reservation time on the Air Canada website and was told to log back on. Bottom line: there are no free trips because you spend that much in time trying to secure one.

7/31/2007 12:31:00 PM  
Blogger prettylady said...

What does this have to do with art? It has everything to do with art.

My baseline living expenses, including rent, food, utilities, and insurance, are roughly $2300 per month, and that's if I don't eat out or buy anything. July being a slow month for a self-employed bodyworker in NYC, my income this month came to $1100. With all this time on my hands, I used up all my available art supplies.

Due to the magic of Visa, a hefty load of linen and stretcher bars is winging its way toward me at this very moment. If I were to wait until the mythic Art Grant came through to pay for all this stuff, no art would ever be made.

And despite the occasional slip-up, my credit rating is still good enough that I can continue slinging debt back and forth between cards at an interest rate between 0 and 2%. Denial (and Visa) is the Artist's Friend!

7/31/2007 12:50:00 PM  
Blogger Sunil said...

Until the lobbyist-politician nexus is curbed, we will see this and a further selling out of the values system that served America so well for such a long time. In fact the constant drone of the phrase that Government does more harm than good starting from the Reagan years has now solidified into a sort of a philosophy for some of our current leaders. I am too sure how we will achieve the needed cleansing, but the widening gap between the rich and poor could be a potential trigger for a wider scale understanding to the fact that most if not all of our systems will be controlled, managed and manipulated by big business…
But then again, you get the government that the majority votes for and if this is the system that the majority has voted in, then there is little hope for sunlight but to live with the system… warts and all.

7/31/2007 12:53:00 PM  
Blogger Joanne Mattera said...

I think prettylady's creative juggling of the credit cards is masterful. This is one way to make a bad system work in your favor.

7/31/2007 01:16:00 PM  
Blogger Mark said...

Sleazie Dealers and credit card demons, in two days! This could be a reality show.

7/31/2007 01:28:00 PM  
Blogger Edward_ said...

Sleazie Dealers and credit card demons, in two days!

Let's just call it the summer of scandals.

7/31/2007 01:42:00 PM  
Blogger Henry said...

That can be read to suggest that deceptive practices serve to punish those who overspend in order to teach them to know better.

Aw, no fair. I didn't mean that. "Credit cards are bad, mkay?" I was taught to keep cards at arm's length, so I'm just trying to reinforce that point. Sen Levin might be better off to create a public service campaign to tell people to keep it in their pants.

there are other options (which we've since instituted) than using credit cards

Is there any advice you can share?

7/31/2007 02:53:00 PM  
Blogger Edward_ said...

sorry if I hadn't phrased that to convey I didn't mean to suggest you meant that Henry. I meant literally only that it "can" be read that way (lazy transition...my apologies).

Is there any advice you can share?

OPM.

7/31/2007 02:59:00 PM  
Anonymous Ginike said...

Contrary to what some (or one) previous poster(s) would have you believe, the bill that was passed that emboldened the credit card industry was pushed through by the Republican Congress and signed by the Republican President. This was one of the first priorities of his and their first term early this decade.

I remember reading about it in the NY Times and thinking, here we go. I'm not too young to remember the savings and loan crisis. If these credit card companies are allowed to continue with no oversight, they will push consumers until they rack up so much debt, they default, and then the credit card companies will be looking for someone to bail them out. And who will that be? Ah yes, the Federal Government, and by extension, us.

7/31/2007 03:11:00 PM  
Anonymous Anonymous said...

You can watch a full length movie on this subject that I strongly recommend:

http://www.maxedoutmovie.com/

7/31/2007 03:29:00 PM  
Anonymous Anonymous said...

As far as Ginike's comment is concerned, here's an example:

U.S. Senate Roll Call Votes 109th Congress - 1st Session
Vote Date: March 3, 2005

Statement of Purpose: To limit the amount of interest that can be charged on any extension of credit to 30 percent.

YEAs 24, NAYs 74

voting *AGAINST* the limit were Durbin (D-IL), Nelson (D-FL), Baucus (D-MT), Nelson (D-NE), Obama (D-IL), Biden (D-DE), Reed (D-RI), Bingaman (D-NM), Reid (D-NV), Sarbanes (D-MD), Cantwell (D-WA), Carper (D-DE), Johnson (D-SD), Kerry (D-MA), Kohl (D-WI), Landrieu (D-LA), Leahy (D-VT), Lincoln (D-AR)

http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00020

Please explain why all these Democrats voted against this measure. And don't say it didn't make a difference - Biden and Obama now want to be President. To make it sound as if this is only a problem with Republicans is simply not true.

7/31/2007 04:20:00 PM  
Anonymous David said...

Please explain why all these Democrats voted against this measure.

I can't say anything about this particular bill, but I do know that few of them are ever clean. More often than not, a bill that has an originally good purpose ends up with so many offensive unrelated things tagged onto it by the time it gets to a vote, that it's rarely as simple as voting for or against the supposed main bill.

7/31/2007 07:16:00 PM  

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