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The coming credit wars

By
March 15, 2008

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.

10 Responses to The coming credit wars

  1. keith

    March 15, 2008 at 7:26 pm

    At the risk of sounding like an elitist, let me just say at the outset that I don’t have a lot of sympathy for those people who now find themselves at the mercy of the credit card companies.

    As far as I know, nobody has forced anyone into signing a credit card contract. And nobody has forced anyone to use a credit card once it is issued, or to carry a balance on it.

    These are entirely personal choices.

    I carry but three credit cards in my wallet, one for each of the major credit card companies now doing business in the United States (two are worldwide). My wife does likewise. And we use them regularly for most all of our family purchases.

    However, both I and my wife (who are average, middle income people with a home and a family) make it a point to consistently pay off our credit card balances each month as they come due.

    That is, if we can’t afford something beyond the necessities, we simply don’t buy it. Or, we wait until we have accumulated enough discretionary funds over a series of months after all the “must pay” bills are covered to make the purchase. In NO case do we buy a discretionary item knowing we won’t have money in that month’s budget to pay for the item when the credit card billing for it arrives.

    Unfortunately, I believe FAR too many people use their credit cards as if they won’t ever have to pay for any of the things they are buying. They buy “wants” vs. “needs”…and often on impulse…and then wonder why they are always broke and paying high credit card interest fees. Simple common sense tells us that you either live within your means or you go without.

    One of these days, I’m going to total up all the interest payments I and my wife have saved over the years by paying off our credit card bills in full each month. I know for a fact that I’ve actually made THOUSANDS of dollars over the years from at least one credit card company that “pays me back” for using their card. I’m certain they hate me for it, but that’s their promotion, not mine. I’m simply taking advantage of their generosity (no doubt paid for with someone else’s high interest credit card payments).

    Folks, if you REALLY want to get back at the credit card companies, the best way to do that is to simply stop using their credit cards. Or, if you still choose to use them, pay off your balances each month without fail. That way, the only money they are making off of your purchases are the minuscule per-transaction processing fees they charge merchants for accepting their credit cards as payment.

    Another way to get back at them is to cut up ALL of your credit cards and start paying for everything with cash for awhile. That way, you can pay down the debts you’ve run up on those cards for past indiscretions without incurring any more.

    Then, take the money you’re freeing up by NOT paying that 20% (or more) in interest payments and use it to pay down the others. Eventually, you’ll get to the point that those high interest rates the banks charge on their credit card balances won’t even be on your radar. They haven’t been on ours for decades.

    By paying for things in cash, you’ll also get a much better idea where your money is going, for what, and how much is left after all the bills are paid. Keep track of everything you buy….EVERYTHING! Include such things as the pack of gum and the can of pop you bought at the convenience store down the street. At the end of the month, you’ll be absolutely amazed (or shocked!) at where (and for what) your money is being spent.

    And if, after doing this exercise for a month or two you find there still isn’t anything left after the “must pay” debts are covered, then you are simply living beyond your means and it’s time to seriously think about cutting back on your lifestyle. Shifting those debts to yet another high-interest credit card so you can continue living beyond your means will do ABSOLUTELY NOTHING but postpone the problem…and make the financial “hole” you are digging for yourself that much worse.

    And if you don’t know how to build a family budget and stick to it, then get some help to learn how. It takes commitment and a lot of personal discipline, but it isn’t rocket science. What’s more, there are thousands of people ready willing and able to assist via any number of charitable organizations who have helped millions over the years to do just that.

    But, it’s still your job to go find them. They won’t come to you.

    The bottom line here is that it’s nobody’s fault but your own if you can’t manage your money. It’s time to stop blaming the banks for the fact that YOU are choosing to pay high interest rates for what amount to unsecured loans (which always demand a higher rate of interest because they are the most risky) by carrying a balance on your credit cards.

    Folks, you ALWAYS have a choice of whether (or not) you use a credit card to make a purchase or pay cash.

    And the last time I checked, cash was still legal tender in our country.

  2. ekaton

    March 16, 2008 at 12:24 pm

    “Simple common sense tells us that you either live within your means or you go without.”

    If only we could convince the U.S. Government.

    — Kent Shaw

  3. CheckerboardStrangler

    March 16, 2008 at 1:02 pm

    “The last time I checked, cash was still legal tender in this country.”

    I’m debt free because I don’t use credit at all.
    I carry one credit card, and I’ve only used it to lay down deposits for equipment rentals and car rentals. That’s it.

    Having said that, cash is only legal tender if the merchant or seller agrees that it is. There is no law saying that a seller has to accept cash.

    A CompUSA store called the police on someone in NH who tried to use cash for a large purchase.

    Getting pulled over with a large amount of cash on your person is a sure bet that the cash will be confiscated by the police.

    Cash is legal tender, but the meaning of legal tender is becoming so diluted these days that I no longer scoff at the predictions of a cashless society any longer.

    Cash IS legal tender…for now.

    JeffH in Occupied TX

  4. SEAL

    March 16, 2008 at 3:57 am

    An excellent sermon, Keith. But don’t you feel a little silly talking to the general public like a parent? Do you really think you told them anything they don’t already know?

    The problem exists because people don’t want to take responsibility for their lives. They want to be the children of a parent government corporation. All gas stations became convience stores because children can’t wait ’til they get home to get a drink. Or, it is so much easier to just stick the card in the machine for gas rather than walk ALL the way to the counter and wait in line. They don’t consider the gas costs them 20% more at the pump. Using the card, they didn’t really have to pay.

    As long as this dependent child syndrome exists, these people will continue to fill the coffers of the credit card issuers and live under the gun of debt. And their stupidity causes a negative impact upon the responsible people through higher rates and pricing of goods. The 2 liter bottle of soda is 60-70 cents more for the child too lazy to go next door to the market, park, walk, and wait in line.

    Children think only of NOW, instant gratification, I want. I have no sympathy or respect for these people. I don’t believe it is our governments duty to bail them out, either. The only thing our legislators can do is create laws requiring the corporations to be honest and above board in their contracts. They can establish the rate limits companies may charge. Beyond that, they have no responsibility to protect the consumer.

    For us to sit here and type out how dumb these people are is a waste of time. They already know it. What we cannot allow is their coming crying about how dumb they are. That’s what children do. As long as we allow them to be children they will keep right on avoiding any responsibility.

    I don’t own a credit card, never have, never will. I have a Visa debit card. I pay cash for everything. I buy used cars instead of going into debt for a new one that is worth only half what you pay for it when you drive it off the lot. My autos look good, drive perfect, and are just as dependable as any new one. For a couple of thousand to buy and another grand to fix, you can have a 20-30 thousand dollar car or truck with no payments.

    I don’t owe anyone anything. I saved and waited to get the things I need or want. But my family never went without what they needed because I had the money to get it instead of having to pay on high interest bills. It took me 22 years to save the money to buy this property. But I have no mortgage. I invested 32 years in the military to get this nice sized government income for the rest of my and my wife’s lives. The point is that I took the responsibility, thought ahead, worked, and planned for my retirement. Let the economy crash. We will be just fine.

  5. ekaton

    March 16, 2008 at 12:48 pm

    “Let the economy crash. We will be just fine.”

    Until the government declares that it can no longer afford to pay your pension. And don’t forget inflation which is going to eat us all alive, inflation either being allowed to happen or is being engineered because thats the only way the national debt can be paid off. Use or non-use of credit cards will make little difference in the end. I’m not advocating use of credit cards.

    — Kent Shaw

  6. Critical Thinker

    March 16, 2008 at 9:46 am

    Great post Keith. I am in the process of getting out of the debt that I ran up using credit cards. Should hit that magic place of being debt free in about 16 months.

    Seal, the “sermon” should sound like a parent talking to kids because, from experience, running up large debts and buying all the latest toys is immature and irresponsible behavior. I really wonder at times if the people “don’t already know this”. Like other “addictions”, instant gratification cannot be solved until one gets to the point of “I have had enough and am tired of this”. Only then change will start. I agree with and respect your efforts and actions regarding personal finances and hope to be there myself soon.

    Thanks for an excellent post and information Rob. Hopefully, more and more Americans in this quandry will do what it takes to get out of it.

    Critical Thinker

  7. keith

    March 16, 2008 at 1:02 pm

    SEAL wrote:

    An excellent sermon, Keith. But don’t you feel a little silly talking to the general public like a parent? Do you really think you told them anything they don’t already know?

    Maybe…but, then again…maybe not.

    Now, I must confess that, as a part of a previous job, I did a LOT of personal financial counseling. I recall being absolutely appalled at the number of otherwise “educated” ADULT people who wandered into my office that didn’t have the faintest clue how to handle money. I was flabbergasted at the number of people who seriously couldn’t fathom why they were all but fiscally bankrupt by the time they came to see me.

    For example, I recall counseling one middle-aged, professional woman who absolutely could not understand why her checking account was overdrawn because she still had “lots of checks left in my checkbook”.

    I had another young man (who at the time had run up about $26,000 in revolving and credit card debt) who was also spending upwards of $200 per week (he was taking home about $500 per week at the time) buying cans of soda pop out of the vending machines where he worked.

    When I learned he had access to a refrigerator there, and when I told him he could buy four cases of the same stuff at the supermarket for about $25 that he was pulling out of the vending machines for $200, he was absolutely shocked!

    No, my own personal experiences have shown that the level of personal financial management ignorance in our general population is nothing short of astronomical. And while impulse buying is certainly part of the problem, the lack of even the most rudimentary personal financial skills…such as how to comparison shop, manage a checkbook and/or how to build and stick to a family budget …among large segments of our population remains a HUGE gaping hole.

    I find it absolutely ironic that our secondary schools now mandate any number of “standards” for a plethora of “knowledges and skills” such as history, math, science, (and even driver and sex education). But nowhere have I seen ANY call for “special education” on how to use and balance a checkbook or how to build and stick to a family budget.

  8. DejaVuAllOver

    March 16, 2008 at 2:18 pm

    This is but a skirmish in the coming (maybe here) war between the financial class and the working class. The people who have had an easy ride, the MBA’s, bankers, speculators, market manipulators and con artists, who prosper on the backs of those of us who perform a useful function, are finding it increasingly difficult to keep their multitudinous scams afloat.
    If there’s any justice in the world, it’s that when the shooting starts, these people won’t last long.

  9. Rob Kezelis

    March 16, 2008 at 5:39 pm

    in the late 1800s, a similar confluence occurred. the powers that were, actually factully and emotionally feared the uprising of the little people (translation almost everyone in the country who was not ultra-rich) While Marx was researching and writing in the British Library, his ideas were precisely what the ruling class feared. In fact, workers compensation, worker safety, limitations on child labor, and even one day off a week, – all of these ideas came about because of that fear.

    in two ways, they were lucky. First, the bolshies hijacked the labor and socialist movement, turning what became the USSR into a nightmare, and Second, so many new rights were granted to the worker that they removed the pressure cooker’s lid.

    With the new bankruptcy act passed by congress and signed into law by Bush, and with ever more corporate friendly laws on the books, the lid is back one, the pressure is rising, and politicians still prefer big donations from corporations over doing their real jobs.

  10. SEAL

    March 16, 2008 at 9:58 pm

    Keith, you are absolutely right that if the economy crashes I will suffer from my money being worth less, etc. But I will have no fear of reposesion or being homeless like the masses will. Besides, I have a few coffee cans buried in the yard and lotsa ammo.