The coming credit wars

This week, several credit card issuers testified before an unamused and largely uninformed collection of congresscritters. Mark Udall, Barney Frank, and others questioned Bank of America reps and other credit card issuers about outrageous fees, late fees, and unaccounted for increases in credit rates.

Everyone here can sympathize with those who have been hit with phantom charges, or who have seen their rates increase for no reason whatsoever.

What took some congresscritters by surprise was the complexity of the contracts, some 20 pages long, with incredibly tiny print, and combined with unreadable legalese. One of the surprises was that many companies now penalize you if you pay off your entire balance.

As cheap, easy credit became the watchword of both the Clinton and Bush administrations, combined with no federal regulation or oversight, credit card offerings became an epidemic of junk mailings. For a time, it was even easy to switch your balance to a “cheaper” card and increase your available credit, especially if you checked the two magic boxes – “employed” & “homeowner.”

But all good things come to a pass, and financial institutions were beginning to get squeezed on their mortgage side. To bolster their incomes, they began increasing fees, interest rates and penalties. They even changed contracts, often without clear notice to the card holder, always to their benefit, and in the process, they screwed the consumer even more.

The last real money estimate (mid 2007) suggested that the average home’s credit card debt exceeded $8,000. When you multiply 8K by 80,000,000, it gives you an idea of how in love financial institutions are with your owing them money. Given the reality of stagnant incomes, and a HIGHER use of cards, that number is probably closer to $10,000.

The Congresscritters also planned to hear from several families who have been screwed by the credit card companies. Foolishly, the credit card companies put their “Muscle” into play, as Udall put it, and kept the family representatives from telling their tales of woe.

In doing so, methinks that the credit card companies stepped into a pile of shit so warm and high that they should be on the look out for hungry man-eating dinosaurs.

The middle class has been under attack for seven years. Home equity is gone. Eenergy prices are huge. Credit card bills are rising, and many have taken to using the cards for normal purchases, like food and gas. (which are still excluded from the inflation rate – in what is one of the most brain-dead measurements I have yet seen)

At the same time, profits for the companies have been huge, at least until 2005. Given their exposure to hedge fund losses, the recent mortgage meltdown, and growing credit crunches, the companies see rocky seas on the horizon.

For decades, this has been a one-sided battle. The credit card company always won. They had the contract. They had the lawyers. They had the court clout. They had the laws written to their benefit by greedy, donation hungry congresscritters and legislators.

The thing about one-sided battles is they do not stay that way. Think Pendulum. Think Pit. Think of someone like Edgar Alan Poe attacking the financial industry due to their ever growing attacks on the middle class. Imagine putting the entire boards of directors into their own, personal House of Usher.

Imagine the panic if the public revolted. Imagine the financial upheaval if people organized, cooperated, and refused to pay their credit bills and mortgages for one month. Imagine if people stepped on the financial institutions, instead of the other way around.

I do not advocate taking down the American financial system, which is what one month refusal to pay those bills would result in. But it seems that a loud, organized voice is the only way to get theses companies to reform and put clarity, reasonableness, equity, and integrity back into the credit card industry.

If only 1% of credit card holders signed on, and made a threat to the industry, I suspect that we would see a strong reaction. Actually, three. First, they would threaten legal action, perhaps violence, second, the companies would collectively shit their pants and worry about their futures, and lastly, they would sit down and negotiate.