Credit Card Confetti: Priceless
What, oh what, to do about the continued financial rape of America? I have a modest suggestion, but first a little background:
From The Austrailian - Business with The Wall Street Journal by David Enrich and Marshall Eckblad | April 13, 2009
"Since the Troubled Asset Relief Program was launched in October, banks bolstered by capital infusions have boosted charges on a wide range of routine transactions, hiked rates on credit cards and continued making loans criticised as predatory by consumer advocates.
The TARP funds are intended to open lending spigots and make it easier for people to borrow money.
Last week, for example, Bank of America told some customers that interest rates on their credit cards will nearly double to about 14 per cent. The bank, which got $US45 billion ($62.6 billion) in capital from the US Government, also is imposing fees of least $US10 on a wide range of credit-card transactions."
Full text: http://www.theaustralian.news.com.au/business/story/0,28124,25326845-36375,00.html
Remember: "The TARP funds are intended to open lending spigots and make it easier for people to borrow money."
But then there's this:
Worker Uprising Against Wells Fargo Spreads After Major Victory to Keep Factories Open, by Mike Elk, AlterNet. Posted July 2, 2009:
"Last January, Hartmarx, the maker of men's apparel and an employer of nearly 4,000 people, filed for bankruptcy after Wells Fargo refused to extend them a line of credit. Wells Fargo then pushed for the company to be liquidated in order to increase their short term profits. They favored liquidating the factory and laying off the 4,000 workers despite the fact that there were proposals by several groups to purchase the company and keep it running.
The workers, members of SEIU, refused to accept the bank's ruling and decided to do something about it..."
[Sigh] I'd read various articles since last October warning of the impending bludgeoning consumers and small businesses were in for, en masse, at the hands of our credit card companies. At that point, we had discussed a contingency plan.
However, we were hopeful that President Obama's signing of the Credit Card Accountability, Responsibility, and Disclosure Act on May 22, 2009 would put a stop to the further pillage of consumers by their trusted banking institutions.
From www.whitehouse.gov
"Key Elements of the Credit CARD Act of 2009
- Bans Unfair Rate Increases: Financial institutions will no longer raise rates unfairly, and consumers will have confidence that the interest rates on their existing balances will not be hiked.
- Bans Retroactive Rate Increases: Bans rate increases on existing balances due to "any time, any reason" or "universal default" and severely restricts retroactive rate increases due to late payment.
- First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months. "
From MSN Money
Posted May 22 2009, 10:57 AM by Karen Datko
"Limited interest rate increases. Interest rate increases on existing balances would be allowed only under certain conditions, such as when a promotional rate ends (think balance transfer), there is a variable rate or if the cardholder makes a late payment. Interest rates on new transactions can increase only after the first year. Cardholders must be given 45 days' notice before significant terms are changed."
So interest rate increases on existing balances would only be allowed when there is a variable rate, for example? Oh really? So how does a fixed interest rate magically turn into a variable rate? Like this:
We recently received a letter from Household Bank (HSBC) informing us of an "IMPORTANT NOTICE OF CHANGE IN TERMS" signed sincerely by Patrick Burke, President of HSBC Card Services, Inc.
The change in terms to which Mr. Burke refers:
"IMPORTANT INFORMATION: The following new terms will apply to all new and existing balances on your account unless you notify us that you are exercising your right to reject these changes."
"Effective on 11/24/09, your agreement is amended as set forth below. These amendments apply to new transactions and existing balances on your Account."
"In addition, if your Account currently has a fixed Purchase APR, your fixed Purchase APR will change to the variable Purchase APR as described below: ..."
Right before your eyes, the amazing transformation of fixed rate to variable - Wallah!
Well, Burke, here's an IMPORTANT NOTICE OF CHANGE IN TERMS for you: UP YOURS.
Contingency plan takes effect immediately - the account is terminated effective October 22, 2009. We had agreed that if our credit card company decided to raise our rates for no particular reason other than pure, unadulterated greed, we wouldn't respond by sitting around with our thumbs in our mouths. Instead, we agreed we'd cancel the card and close the account - credit rating be damned. Once paid, we'll apply for a credit card with a fixed rate through our credit union. Meanwhile, if we can't purchase something outright with our debit card, then we'll do without.
So here's the fun part - Mikey likes it:
"Get rid of all your credit cards but one -- the kind where you have to pay up at the end of the month or you lose your card."
Teabag Parties? Aww, c'mon, let's really get all haired-out crazy! How about a credit card confetti party in celebration of the holidays? A public display of joyful mutiny anyone? Close the accounts, but save the credit cards for the coming festivities. Declare a moratorium on holiday credit card purchases. Start stashing away our pennies and buy only what the little ones will let us get away with. And while we're rockin 'round the Christmas tree, lighting the Menorah candles, sharing a feast, spreading goodwill on, well, the Day of Goodwill, or airing grievances 'round the Festivus pole, we will cheerfully remind ourselves that we're in this sinking boat together. Fortunately, there's no reason that we can't bail ourselves out. Whatever our religious or non-religious preferences for celebrating this holiday season we can take this opportunity to send a clear message to the greedy hum-buggers who brought us to financial ruin and have since profited daily from the ensuing misery they've created for the rest of us. Rather than partaking of the usual holiday buying frenzy, let the shredding commence and let's do it with gusto! Ahhh, credit card confetti - Let it snow! Let it snow! Let it snow!
Personally, I've already boxed up the credit card (along with a pair of scissors), wrapped it in shiny Christmas paper, and tied it neatly with a bow. It will be the one and only gift under our Christmas tree this year for us big kids... and I'm feeling positively jolly.
P.S. In his recent reader post, Saladin was asking where was the populist outrage. Apparently its in Chicago:
http://www.huffingtonpost.com/tag/showdown-in-chicago
More: http://michaelmoore.com/
October 28, 2009 4:51 AM | Reply | Permalink
I cannot believe that there are not already, on the books, laws against this activity. They would be shaded with normal legal terms like:
Knew or should have known
Reckless indifference
A whole slew of legal terms in hundreds of statutes applicable to this kind of predatory behavior.
Form contracts can just be ignored totally when against public policy, after all.
I am getting the sense that Barney Frank and others are becoming incensed.
SOMETHING IS GOING TO HAPPEN TO CHANGE ALL THIS.
The issue is, will it be enough?
October 28, 2009 5:12 AM | Reply | Permalink
They knew alright (none of the activities leading to the financial crisis were an "oops"). There are certainly laws on the books against predatory lending, bank fraud, mortgage fraud, appraisal fraud, naked short selling, and so on - all practices, an then some, put into play to reap gargantuan profits. Upholding those laws would be a step in the right direction and you'd think they'd be getting on it already instead of handing the criminals the key to the treasury.
October 28, 2009 5:42 AM | Reply | Permalink
South Dakota and Delaware have no usury laws any more; those are the homes to the big credit card companies. Don't think Dodd, et.al., don't know what's going on. Watch Frontline's The Secret History of the Credit Card. It'll piss ya; purple. And this was made a few years ago!
http://www.pbs.org/wgbh/pages/frontline/shows/credit/
October 28, 2009 10:26 PM | Reply | Permalink
Thanks for the link Wendy. I'll check it out.
October 28, 2009 11:02 PM | Reply | Permalink
Need to add the link to the Worker Uprising story above (a happy ending shouldn't be missed):
http://www.alternet.org/story/141064/worker_uprising_against_wells_fargo_spreads_after_major_victory_to_keep_factories_open/
October 28, 2009 5:56 AM | Reply | Permalink
Bank One did the same to me on my oldest card. In order to keep my credit rating, I've tied one fixed household bill to the card, set up an automatic payment for the same amount, and have put the card away (I should destroy it but I want to buy a house in the near future.).
If I knew that my rating wouldn't be hurt, I'd get rid of it. Besides that one, I really encourage what you've done, sticking to the local bank or credit union and saying F-you to the 'too big to fail but not too big to screw you' banks.
October 28, 2009 2:32 PM | Reply | Permalink
matyra, unfortunately, If you pay the balance down to zero each month, as you describe, that will cause your credit rating to slip. That's because your credit rating isn't a measure of credit risk, it's a measure of how profitable you are as a borrower. When you zero your balance, you're not helping the lender turn a profit.
The credit rating is actually one of the great evils of consumer lending, because everyone (except you) benefits when your credit rating is just high enough to justify giving you a loan, but not so high that they have to give it to you on their best terms.
Credit ratings themselves should be outlawed.
October 28, 2009 2:50 PM | Reply | Permalink
heh, I was hoping that the available-balance-to-amount-used would circumvent the paying-it-off-every-month factor. Of course the amount each of these actually costs us is lost in the obscured print of rating criteria. Meaning, that they aren't transparent.
So what would replace credit ratings? Equal terms for all?
October 28, 2009 2:56 PM | Reply | Permalink
What would replace it would be something called judgement. Alas, that would mean that a human being who understood judgement and knew how to exercise it would have to look at your actual credit history and...make a judgement call about whether you were a good risk.
From the lenders point of view, the problem with judgement isn't so much that it could be wrong, it's that it involves human beings, who have to be paid and then you have to give them benefits and they have babies and demand raises so they can support their families and all that other messy crap.
Credit ratings are a stroke of genius. More profit for lenders, less work for the middle class. And there's no one to appeal to if you don't like the score they give you.
October 28, 2009 5:05 PM | Reply | Permalink
I'm not sure you're right on that, RP. I never carry a balance, and I have no outstanding debts, and my credit rating (FICO) was at 800 the last time I checked. I use my credit cards for everything I possibly can, and pay them off every month, on time, without fail. I get offers frequently from other credit card companies, although somewhat less recently.
from wiki:
http://en.wikipedia.org/wiki/Credit_score
October 28, 2009 6:01 PM | Reply | Permalink
CVille,
The phenomenon I'm reporting is not something the credit scoring firms publish. They do publish good tips on how to improve your score and the tips are all good common sense. Here's how I learned about the deleterious effect of paying your balances to zero.
I recently purchased a very small liability policy on my boat and trailer. Total premium about $100. When the insurance company sent notice of approval, they informed me that I did not qualify for the preferred premium rate because my credit score wasn't high enough. I couldn't imagine why, so I dug in.
I got the free credit report, which included one ding, a late telephone payment of $45 that happened during a cross-country move 5 years ago. Okay, I accept that as my responsibility. Other than that there was page after page of never late, pays as agreed and paid off accounts. I think I have about 3 open cards which I use rarely, plus AmEx which I use regularly and pay to zero each month. Also a mortgage. I have no recent history of carrying credit card balances month-to-month.
The report didn't look too bad so I called the firm that contracts with a my insurance company to provide credit scores and had a heart-to-heart talk with the woman there who handles this particular service. She looked over my credit report and explained how it worked. Other than the late payment, she explained to me that there were two things that dragged down my score. The first was that I rarely used my Visa cards and the second was that I never carry balances month-to-month.
That's anecdotal, I know. But I trust it more than I trust what the industry publishes. Color me cynical.
October 29, 2009 1:21 PM | Reply | Permalink
Re: "...your credit rating isn't a measure of credit risk, it's a measure of how profitable you are as a borrower." Bingo! The problem is that the credit rating agencies were meant to measure risk, but that has since changed. The financial industry has taken to referring to people who pay off their balances every month as "deadbeats." So what's wrong with this picture? Which is why I say to hell with them. Your credit rating won't suffer overly much for closing an account. Its yet another tool they use to frighten you into submission.
October 28, 2009 11:08 PM | Reply | Permalink
I think that cutting up your credit cards and waiting to have the money to pay for something before you buy it is a good idea, and I agree that the banks are evil and greedy and will screw you over in a millisecond for a penny. I understand your anger, but most Americans have been living on credit for so long that they forgot something basic to justify their actions: 2 + 2 = 4. That doesn't change, ever. Consuming on credit is a bad idea now, for the reasons you stated above, but it was a bad idea even before the downturn. I feel bad for people who have lost their jobs, homes and savings because the banks took something they rightfully earned by working hard, saving and living within their means, but I don't feel bad for people who wanted to live in big houses, drive big cars, buy the latest of everything, and pay $1000/year for their iPhone service on credit.
That behavior has not only put the hurt on themselves, it has also put the hurt on folks who didn't live that lifestyle.
In the end, we're all screwed because the system is rigged against us, and I don't mean to attack you for your post, but I am very tired of people who went out and spent beyond their means and got screwed telling me that I should beware, when I always have.
October 28, 2009 4:10 PM | Reply | Permalink
I agree that people's decisions--what card they decide to use to buy things, what credit card terms they accept, what payment habits that they employ--have played a huge role in this.
But that's half the story. When companies have free reign to change the terms ad-hoc, then the companies themselves can screw people pretty badly. Are there cards with fixed terms? I don't believe that I've seen them, but if there are, then that would help keep one side of the equation stable. Then, it's up to individual card owners to be responsible. Has anyone seen them? I Googled "fixed term credit card" and came up with squat.
October 28, 2009 6:29 PM | Reply | Permalink
Not only that, but credit card companies prey on people who aren't financially savvy. If you have a bill of as much as $3,000 your "minimum payment" could be as low as $70 a month! People who don't know any better don't realize they are barely covering the interest at that rate, and they will NEVER pay off the debt.
Minimum payments should be 25% so that people will realize that credit cards aren't there to help you live beyond your means; they are there to simplify purchases and reduce the amount of cash you have to carry around.
Well, actually credit cards have BECOME a way to live beyond your means, but they should not. Sometimes you need a credit card to finance a big expense that you want to carry over a longer period of time. That is fine as long as it is thought-out and planned. It has become a bottomless pit for too many, and it costs all of us; even those who have not succumbed to the credit companies' lures.
October 28, 2009 8:23 PM | Reply | Permalink
Re: "Are there cards with fixed terms?" Yes, that's what this post is about. We've had a fixed rate of 9% on our card with HSBC for many years. We don't run the card up to the limit (but then we keep it at about 50%), we never pay late, and always send a sizable payment each month (way over the minimum payment).
The point is that HSBC just decided to change our fixed rate to a variable one and incleased it to 14.99% plus the index. And for no reason. They cited "bank practice" as the reason.
Besides, we have the money to pay it off right now, but we'd like to keep our savings for the proverbial rainy day, so we'll take a few months to pay it off. It won't hurt to do without the credit card - we don't really need it.
October 28, 2009 11:19 PM | Reply | Permalink
I didn't consider your comment an attack. In fact, I appreciate it.
I tend to agree that if we are going to use credit cards then we must do so responsibly or suffer the consequences.
However, the credit card companies should also behave responsibly and raising rates on responsible card holders or, say, changing a fixed rate to a variable one out of the blue is just not acceptable; particularly as the banks have just raked in tons of cash courtesy of the American tax-payer precisely because they have not been responsible stewards and have abused the trust placed in them, costing working people their pensions, jobs, and homes.
This is a matter of principle, not about an inability to pay what's owed.
October 29, 2009 12:56 AM | Reply | Permalink
Though this post has already meandered off the recent reader blog roll, I'd like to add the following from Huff Post(by Eileen AJ Connelly | 10/28/09 04:59 PM) for the sake of posterity:
"NEW YORK — Not only have credit card companies continued to use practices that will be outlawed under a strict law due to take effect in February, in many cases their policies have gotten harsher since the law passed.
A review of nearly 400 cards offered by the largest 12 card issuers in the U.S. found nearly all contracts still allow banks to raise interest rates on outstanding balances. Most also still have penalty interest rates that can be triggered with just one or two late payments or overlimit transactions. And most still allow banks to apply payments to the lowest interest portion of balances first.
All of these policies are prohibited under the legislation, the Credit Card Accountability, Responsibility and Disclosure (or CARD) Act, which was signed by President Obama in May. Congress phased in the provisions to give credit card companies time to adjust their policies, but is now considering moving the effective date up to Dec. 1, because of continued complaints from consumers."
Full text: http://www.huffingtonpost.com/2009/10/28/credit-card-companies-con_n_337577.html
October 29, 2009 3:35 AM | Reply | Permalink
I appreciate the concern which is been rose. The things need to be sorted out because it is about the individual but it can be with everyone.
http://www.financehelpdirect.com
February 18, 2010 1:26 PM | Reply | Permalink
This is a wonderful opinion. The things mentioned are unanimous and needs to be appreciated by everyone.
***************************
Jack Brosnan
http://www.financehelpdirect.com
February 18, 2010 1:29 PM | Reply | Permalink