The credit card industry in the United States

[Masquerouge]

It seems that the credit card industry is on the verge of what could potentially be a serious attack on its usual practices. Particular things that you might find interesting to read/listen to:

US Senate Committee on banking, housing and urban affairs:
http://banking.senate.gov/index.cfm?Fuseaction=Articles.Detail&Article_id=112
Excerpt:

The present level of credit card debt in the United States is at record heights. Total consumer debt in America is nearly $2.4 trillion. Out of that, $872 billion is revolving debt, which is essentially credit card debt. The average American household has over $9,300 worth of credit card debt. Let me repeat that. The average family living in the United States has over $9,300 of credit card debt. In comparison, the median household income was about $46,000 in 2005.

Additionally, Americans have never paid more in interest, paying nearly 15 percent of their disposable income on interest payments alone, despite the current historically low interest rate environment.

Another area which I believe deserves examination is the massive increase and targeting of credit card solicitations. According to the Federal Reserve, an estimated 6.05 billion direct mail solicitations were sent by credit card issuers in 2005 alone.

Many of the solicitations target students, persons currently on the economic edge, senior citizens on fixed incomes, and persons who have recently had their debts discharged in bankruptcy. I have long believed that we have an added responsibility to protect the most vulnerable in our society – and I believe that examining the targeting of these groups is critically important.

I also have concerns with the amount, type, and disclosure of certain fees imposed on consumers. Over the past 2 years alone, the amount of money generated by credit card fees has simply skyrocketed. In fact, the term ``skyrocketed'' may be something of an understatement.

Banks are expected to collect a record $17.1 billion from credit card penalty fees from 2006, a 15.5% rise from 2004 (according to R.K. Hammer, a bank-advisory firm, as cited in USA Today). This is a tenfold increase from 1996, when card companies raised $1.7 billion in revenues from fees.

Elizabeth Warren (http://en.wikipedia.org/wiki/Elizabeth_Warren) on NPR news:
http://www.npr.org/templates/story/story.php?storyId=9156929
She basically explains how credit cards companies are using every loophole to get your money, using barely and sometimes completely illegal schemes.

http://en.wikipedia.org/wiki/Credit_card#Controversy
Excerpt:

According to Larry Chiang of United College Marketing Services, an example of a credit card class action was where issuers were "rolling back" posting times to extract more late fees. The due dates were "rolled back" from 1pm to 10am because mail was delivered in the afternoon so due dates were actually rolled back to charge more late fees. The following banks are listed (with the amounts penalized) in this one particular class action.

• Providian: US$405 million
• Bank One: US$40 million
• Chase: US$22.2 million
• Citibank: US$15.5 million

So, do you think that the credit card industry is guilty of malpractice? Or do you think it's the consumer's responsibility to become better educated and learn how to properly use a credit card?

On the one hand, I've never seen so many people poorly manage their money than here in the United States. Saving is not encouraged, a lot of people just pay the minimal amount of credit each month instead of the full amount even when they could pay the full amount, and in general people here generally live above their salary (just look at the number of brand-new, expensive cars on the road). So there is clearly a lack of financial education that does not help people avoid late fees or maxing out credit cards.
On the other hand, the credit card industry is not exactly a paragon of virtue. Hidden fees, dubious and confusing terms, aggressive, borderline lying marketing, all of this does not help people really trying to figure it out and be responsible.

Globally, my feeling is that the credit card companies are exploiting people's general ignorance on the subject, and are reaping millions thanks to the average American's complete ignorance on the subject.

Listen to the Elizabeth Warren's interview. It's edifying.

 

[Bamspeedy]

They've been talking about 'cracking down' on credit card companies for years.

The real scam is the 'Payday Loans' type places.

 

[Azale]

Hence, why I plan to NEVER own a credit card. Horrible things.

I know all about the credit card companies little tactics, the walk the line of legal-illegal far to often. Bullying is a real popular one.

I say close 'em all down, that should help fiscal responsibility in this country

 

[CIVPhilzilla]

As long as you realize that at the end of the month you are going to have to pay for what you bought I see no problem. The ability to keep your money in a interest yielding bank account instead of your wallet, and being able to get a cash back reward from credit cards makes credit cards worth it if you can commit to paying on time.

 

[Masquerouge]

As long as you realize that at the end of the month you are going to have to pay for what you bought I see no problem. The ability to keep your money in a interest yielding bank account instead of your wallet, and being able to get a cash back reward from credit cards makes credit cards worth it if you can commit to paying on time.

That's assuming the credit card industry plays fair, though. It looks like it doesn't.

 

[Bamspeedy]

Hence, why I plan to NEVER own a credit card. Horrible things.

I know all about the credit card companies little tactics, the walk the line of legal-illegal far to often. Bullying is a real popular one.

I say close 'em all down, that should help fiscal responsibility in this country

I'd still get one, though. Get one that doesn't charge any annual fees (so if you never buy anything you don't have worry about sending any payments)and just keep it for REAL emergencies (like if your car breaks down while travelling far from home). Too many of my fellow Americans think getting the latest music CD or tickets to a concert is an 'emergency'.

 

[Urederra]

Masquerouge... you are pre-aproved.

I hate that junk.

That it reminds me that I have to tell my bank to send me another credit card, since mine has expired like 9 months ago.

 

[Valka D'Ur]

So, do you think that the credit card industry is guilty of malpractice? Or do you think it's the consumer's responsibility to become better educated and learn how to properly use a credit card?

Yes, and yes. Credit card companies use misleading advertising tactics to lure people into using their services, and make little effort to ensure that their fine print is understandable by anyone other than an accountant or lawyer.

But it is also the consumer's responsibility to learn how credit cards work. As someone who spent decades without one, I've come to the conclusion that I have to set aside my antipathy toward credit cards, because there are now some quasi-essential services that won't accept anything else as proof that you are an upstanding, legitimate consumer. Apparently cash in hand is no longer acceptable to some businesses.

 

[skadistic]

Being that I have 2 personal credit cards with $0 in debt when I pay it off each month I blame the user not the lender. Making sure you are living within your means is not the CC companies job.

 

[JollyRoger]

Credit card companies also got welfare legislation from the Bankruptcy Act of 2005. The law made it harder for consumers to declare bankruptcy and be free of unsecured debt, yet none of the credit card companies lowered their interest rates to reflect the reduced bankruptcy risk.

So in essence, the credit card companies signed contracts with consumers when bankruptcy risk was higher and the interest rates reflected this higher risk. The credit card companies lobbied Congress for legislation to reduce the bankruptcy risk. The bankruptcy risk component of the interest rates was not lowered for consumers - thus the credit card compoanies pocketed a windfall at the expense of American citizens.

Government for the corporations instead of for the people.

 

[CIVPhilzilla]

That's assuming the credit card industry plays fair, though. It looks like it doesn't.

My parents have paid their bills in full every month to multiple credit card companies no problem and have yet to pay a cent of interest to them. All it takes is some fiscal responsibility.

 

[Urederra]

But it is also the consumer's responsibility to learn how credit cards work.

I asked for a credit card in my bank just to use in "emergencies' and I thought the money I have to pay back was going to be taken automatically from my checking account, since that is the way it works in Spain, and, to my surprise, I received a phonecall from the credit card company telling me that I had an unpaid bill.

As someone who spent decades without one, I've come to the conclusion that I have to set aside my antipathy toward credit cards, because there are now some quasi-essential services that won't accept anything else as proof that you are an upstanding, legitimate consumer. Apparently cash in hand is no longer acceptable to some businesses.

Yeah, specially hotels, which are the only places I use my credit card, for the rest I use my debit card or cash. I still remember face of the cashier the day I came to the US and I gave them cash instead of plastic. I didn't have any account open in the US and for some reason they didn't accept my cards. Maybe because they were debit cards. I took me a while to figure out the difference between a credit and a debit card.

 

[Hygro]

Credit card companies also got welfare legislation from the Bankruptcy Act of 2005. The law made it harder for consumers to declare bankruptcy and be free of unsecured debt, yet none of the credit card companies lowered their interest rates to reflect the reduced bankruptcy risk.

So in essence, the credit card companies signed contracts with consumers when bankruptcy risk was higher and the interest rates reflected this higher risk. The credit card companies lobbied Congress for legislation to reduce the bankruptcy risk. The bankruptcy risk component of the interest rates was not lowered for consumers - thus the credit card compoanies pocketed a windfall at the expense of American citizens.

Government for the corporations instead of for the people.

Quoted so it doesn't get lost in the thread.

 

[El_Machinae]

Credit cards mostly irritate me because they're increasing the cost of all my purchased goods (because they get a cut which the customer then gets gouged for). We're collectively raising the price of my goods by something like 2%

 

[skadistic]

Credit cards mostly irritate me because they're increasing the cost of all my purchased goods (because they get a cut which the customer then gets gouged for). We're collectively raising the price of my goods by something like 2%

I hate that. So many places don't take my AMEX card because they get charged per transaction and a flat fee, its not worth for them to pay out to a bunch of different companies.

 

[El_Machinae]

I hate that. So many places don't take my AMEX card because they get charged per transaction and a flat fee, its not worth for them to pay out to a bunch of different companies.

Yeah, exactly. And I feel for the merchant, since he's trying to give competitive prices. This is why I use debit, because the transaction fee on debit is much, much lower. While I don't get the savings, at least I'm not shipping the 2% profit to some megabuilding in another city.

Still, I'd rather get a proper price for my goods.

 

[Gilder]

I'll just do what my grandfather did, use only for emergencies, and even then keep it buried behind mounds of nostalgic things from younger days in the glove compartment.

His only good idea really. The others... not so good at times. he though Bush was the best thing ever, and would of kissed the man's feet if he could bend over enough.

 

[Whomp]

I think people need to do their research on all financial decisions. If they're borrowing money on a credit card then they have no one to blame but themselves.

I, like El Mach, use a debit card however it's a delayed debit so it acts like a credit card with the rewards too.

 

[StarWorms]

I haven't read the OP but everything needs winners and losers for it to exist. Credit card companies can't dish stuff out without a way of making profit. Unfortunately, that means some will end up in debt.

Other services make profits from people who lose out. For example, my bus service is £1.50 single or £2.50 return (rip off) but you can get a 10 journey ticket for £11. Some win in that situation because they'll use all the journeys. Let's say they only make 6 journeys - in which case it would have been cheaper not to buy the ticket and they ended up paying more than they otherwise would do, and lose out.

It's up to the people to actually think about what they're doing and if it really is value for money. Personally I just use my debit card and I don't need a credit card.

Credit card companies deliberately put high interest charges to make profit. It's up to the consumer to avoid having to pay that and it's up to the consumer to manage their own finances.

 

[nihilistic]

Saving is not encouraged, a lot of people just pay the minimal amount of credit each month instead of the full amount even when they could pay the full amount, ...

See, that's stupidity. Unless these people are investing in something that has a higher rate of return than 30% APR compounded daily, they are just dumb.

Hence, why I plan to NEVER own a credit card. Horrible things.

Actrually, they are great as long as you make sure you know what they are. Extremely convenient and of course the cash back (where applicable). Just remember that credit line is not cash and to never spend any amount you do not plan to pay in full by the end of the month. Read their fine print before applying and again after you received the card. And never, ever, use a cash advance.