Senator Levin Attacks "Trailing Interest" Practices
Here's another story about yesterday's Senate hearing on credit card practices. With the spotlight again on Senator Levin (and rightfully so), it can be seen from the article that the industry is starting to give ground on some of their practices. Granted, these are certainly baby steps, but every movement needs to start somewhere, and those of us who finally have an ear in Congress are just beginning the fight.
I realize from the comments on my post yesterday that small successes are often greeted with cynicism when they follow such lengthy periods of negative experience. This is the first time in many years, however, that consumers have had any voice at all; let's take that as encouragement and rachet up our efforts. We can't conquer the industry overnight, or perhaps at all, but let's take a lesson from the lenders -- when a vulnerability is exposed, attack it that much harder.
With that in mind, I turn attention to the Consumer Affairs article, which includes Sen. Levin's statements regarding the practice of "trailing interest." This is the practice of charging interest on an entire balance -- both the paid an unpaid portions -- so long as even a small fraction of the balance is not paid in full during the initial billing period. Carrying over a balance of even a few dollars can lead to finance charges being assessed on thousands of dollars of charges that were paid off immediately. It's yet another example of the credit industry unfairly squeezing money out of customers who think they are using their cards in a harmless manner.
Your news of movement by Congress is encouraging, but like you said, is an opportunity to ratchet up efforts. If somebody is listening, it is time to start doing more talking. Stories need to be told, and the reality of the situation needs to be made visible, before the politics on the Hill overshadow the real issues.
All to often politicians placate voters by throwing them a bone, and then consider the job done. A little legislation seems to do the trick, but turns out not to make much difference.
Jim Anderson
The Truth About Credit
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March 9, 2007 9:16 AM | Reply | Permalink
Your news of movement by Congress is encouraging...
Is this really encouraging? In my mind, because "trailing balance" is such a "big penalty," you'd think everyone would pay their bills on time, etc...
In defense of my credit card company, they have a "no questions asked grace period" as long as it isn't abused. Over the years, I've used it a few times to avoid interest and late fees.
In my mind, we need to launch a "stop smoking" (stop overspending) campaign instead of trying to design a safe cigerette.
Based on my experiences, I believe that the credit industry's policies are reasonable for "pay-as-you-goers."
For those who really want an installment plan, they should be looking at other options... such as "secured loans."
March 11, 2007 8:55 AM | Reply | Permalink
It's ironic that our own government has the nerve to tackle our credit card problems when their own credit addiction problems are out of control...
March 11, 2007 8:59 AM | Reply | Permalink
You'd think "pay as you goers" are safe. But what people don't realize is what is in the credit card agreement. What is in the credit card agreement is open ended and at the discretion of the credit card company. You have no contractual protection. Everything is fine, until the spring a trap on you, while you are unaware. It isn't just the credit card balance -it is the contractual terms which you are bound to as a card holder.
Jim Anderson
The Truth About Credit
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March 11, 2007 2:49 PM | Reply | Permalink
I fully agree that the agreement isn't fair, that's why I pay off my charges every month on time-- so I'm not a victim.
and, a few weeks ago, I didn't have enough cash on hand and decided to take out a secured loan to pay off my credit card balance on time. a few weeks later, when one of my long term CD's matured, I paid off the loan.
what I don't understand is, "why don't more people do the right thing instead of digging their own graves?"
I know that some people fall behind on bills and use credit cards to stay afloat but that either points to poor money management, an unfair wage or bad health coverage-- if the money issues were caused by healthcare, not a bad credit card agreement.
In general, I think that credit card agreements are red herrings that we shouldn't waste our time on. instead, we need to find the root causes, like a mismatch between income and spending.
March 12, 2007 11:23 PM | Reply | Permalink
Plastic sucks, especially interest-bearing plastic. Nevermind the bank fees you pay on an ATM card, the balance-transfer artists, the 90-days same as cash people, and the rest of it, credit's a game, and the only way to win, really, is not to play. It sucks, you have to learn to do without initially, but when your current spending finally reaches parity with your current paycheck, sans interest payments, you can breathe a little easier. I learned this one the hard way, signed up for too much of it, paid someone elses' mortgage no doubt, but finally got wise after I saw the special on PBS, talking about card companies based in North Dakota or someplace that have virtually no regulation over issuance of credit. Nevermind the senate and the house on this one, go get yourself a notebook, the kind you write in with a pencil, to make a monthly ledger with, and a good pair of scissors with a nice sharp edge to em, and render your cards unusable, and pay the accounts off, on doing so, call in and get a confirmation letter from each and every financial institution you held a card with, and I think they're talking about making it so you can 'freeze' your credit, so as to make frivolous borrowing more prohibitive, as well as give you a little more protection from stuff like ID theft. Every little bit helps...
March 13, 2007 3:21 PM | Reply | Permalink
Do you work in the credit industry?? It suuuure sounds like it.
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March 14, 2007 5:01 PM | Reply | Permalink
Both the credit card agreements and the income/spending issues are important. The problem is how the advertising of these financial services has changed our behavior. Even if you pay off your credit card, however, you still have significant legal risk. Credit card companies can charge your account without your knowledge or authorization if they deem it necessary, even causing your account to go overlimit. If you dispute, they deny it. If they deny it, they'll win in court. There are legal loopholes in the consumer protection laws that leave the wolf guarding the chicken coup.
We think a credit card can dig us out of a medical bill, when in fact it makes the situation immesurably worse, and sets up the person for bankruptcy almost right away. If you can't pay your medical bills because of some serious medical issue, credit cards are no solution - even temporary. The problem is heath coverage, in a system where a very expensive problem like chronic cancer problems can bankrupt just about anyone. That is another issue.
The fact is credit card agreements are far beyond unreasonable, and should be criminal IMHO. It is how loan sharking has been made legal, through the manipulation of laws that protect consumers, to actually build contracts that are predatory. And contract law is supreme. Even attorneys have a difficult time decifering the agreements. How can you hold a layman accountable for what they cannot even understand? It is just wrong.
Jim Anderson
The Truth About Credit
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March 14, 2007 8:39 PM | Reply | Permalink
Re: Credit card companies can charge your account without your knowledge or authorization if they deem it necessary, even causing your account to go overlimit.
You are only responsible, by federal law, for $50 in unauthorized charges to your account. And any time I have ever had a dispute it has ended in my favor. On one occasion my credit card# (just the number, not the physical card) was used to charge over $2500 at various service stations. The credit card company itself caught this teh same day and notified me (to see if in fcat I was doing the charging). The card was immediately cancelled, the charges were reversed (I never even saw them on a statement) and the perpetrator was caught and prosecuted.
Re: We think a credit card can dig us out of a medical bill, when in fact it makes the situation immesurably worse, and sets up the person for bankruptcy almost right away.
Agreed. You are far better off owing money directly to healthcare providers. Not only do they charge less interest (in fact they may change none at all) but they are more likely to settle for a fraction of the debt without recourse to formal bankruptcy proceedings. Unfortunately too many for-profit providers are wise to this and will refuse to "loan" services to unisured and underinsured patients in this way, but will require a credit card guarantee. And at that point there may be no other choice since all in all a bankruptcy court is still a much more pleasant place than a funeral home.
March 15, 2007 9:42 AM | Reply | Permalink
On your first point. You are correct, IF the credit card company agrees that the charge was fradulent. There are times that they disagree. When they do, you are liable. In cases of identity theft, this could be drawn out for an extended period of time. In my case, it was a hidden policy that turned my corporate debt into personally guaranteed debt because the credit card company got involved without my knowledge. In those cases, you are liable for all of it. Read about my experience on my blog at the link in my signature. You think you're protected. Don't be so sure.
On your second point. Any creditor can write off a bad debt after 6 months. If they do, they are likely to sell it to a third party collector. If they do that, settlement gets more complicated, due to the added risks to the debtor at settlement. Once the creditor has written it off, they are less likely to settle for a small fraction of the debt. Before they write it off, you have the best chances of settling for a small fraction, at least for the amount a third party would pay for it. If a for-profit service asks for a credit card, give them a debit card. If they are clever enough to tell the difference, then let them pull your credit report. If they deny you medical treatment because you don't have a credit card, and you have medical insurance, I would consult an attorney. No one should he required to sign a credit card contract or die. That is unreasonable.
Jim Anderson
The Truth About Credit
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March 15, 2007 8:18 PM | Reply | Permalink