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Greetings, Kos world!

In the diaries recently and even in some on the rec list, I have noticed commenters promulgating myths about credit cards and credit card companies. While I am not a huge fan of credit card companies either, some of the information that has come out here has been just plain wrong, and I thought I would set the record straight by posting and demolishing some myths about credit cards.

Credit card companies want you to pay 30% interest

The 30% "default rate" interest rates are implemented by credit card companies in order to force one to pay a balance down as quickly as possible, either by paying it out of the borrower's own funds or balance transferring to another card. They do this because for whatever reason, the borrower is considered a default risk (something that their statistical models are pretty good at estimating), usually because of a missed or late payment, payments coming back NSF, or other elements that credit card companies consider dangerous.

For those who do not think this is true, consider this: if you have credit cards at 6%, 10%, and 30% interest, which one are you going to pay off first? A credit card company that wanted to keep you "on the hook" would be competitive with those other issuers, not make themselves grossly uncompetitive. No credit card company wants someone paying 30% interest on their balance sheet; they think you are a risk and want you to pay off your balance as quickly as possible.

For those who say "doesn't raising the interest rate to 30% just make it harder to pay?" Well, yes, it does, but it also motivates you a lot more to find a way, any way, to pay the balance off. Remember also that when one gets a credit card, they give the CC company blanket permission to do exactly this.

Credit card companies think that people who pay off their balance every month are "deadbeats"

This is a pernicious myth that never seems to die. Credit card companies and banks charge something called a "discount rate" to merchants who accept payment this way. This rate is something like 3-4%, often split between the actual payment vendor (Visa, etc) and the bank that the card is ultimately backed by (these organizations may, or may not, be the same entity, but usually are not).

If I'm a bank and I service a credit card customer who pays his balance off every month, I get 1.5% to 2% per month on that customer's purchases, giving me an 18% to 24% profit per year, having made zero interest from the customer. This profit is very safe and is comparatively secure from default, because the outstanding balance at any time is small. This is very desirable for banks and credit card companies. Customers who run balances may (and in this environment, probably) do not have the actual cash available to pay the balance off, a precarious situation that may result in default if the customer has any kind of other problem. This situation makes credit issuers very nervous!

Customers who pay their balances every month are more or less gold to credit issuers. The issuers can make moderate profits at low risk, and these customers also do not take up customer service time calling complaining about interest rates or fees, or legal services in the event they have to be sued.

How they calculate FICO scores is a complete mystery, and FICO scores are meaningless anyway

FICO scores are a predictor of one's likelihood to default on financial obligations based on one's past behavior and based on generic empirical studies of large groups of people based on broad statistics. Despite entire industries who are trying to convince you otherwise, having a good FICO score is simply not very difficult. Don't be late on or miss payments on credit cards, car loans, or mortgages. Don't be running large credit card balances or other debt. Don't have a foreclosure or file for bankruptcy.

While some activities like credit inquiries and closing credit cards will ding you slightly, it simply isn't that much. If you don't have a pattern of being delinquent on financial obligations, these issues will most likely not be a problem for you.

While it is not true in every case, in general, past performance is a good predictor of future performance. People who tend to have been bad credit risks in the past are probably bad credit risks in the present.

The government can pass a law restricting credit card interest rates or terms

The government can, of course, pass almost any law it wants. But if you think that your 30% credit card is going to magically become a 10% credit card, it won't and can't.

No one can be forced to lend money to anyone (see the recent TARP bill and accusations that the money wasn't being lent out). If credit issuers do not feel that their risk is being appropriately compensated, they will simply take their ball and go home. The result will be that tens of millions of people with marginal credit will be denied a credit card under any circumstances, and credit cards will only be available to people who are rich or who have the very highest of FICO scores. Again, let me reiterate: no one is forced to lend money to anyone.

The government passing laws restricting credit card terms will simply deny credit cards to marginal credit seekers. The more restrictive the terms are, the fewer people will ever get a credit card, the result being much less consumer credit in the economy. For those of you who have posted complaining that cutbacks in consumer credit have negatively affected businesses, consider carefully the result of this kind of policy.

I have to also comment here on some hypocrisy I see on lefty sites in this matter. People are very upset that credit card companies have been so profligate and irresponsible; they get so many offers in the mail, my college kid got a card with a $5000 limit, etc etc. However, when credit card companies finally, at long last, become more responsible, these same people complain bitterly because their own credit lines are cut back and interest rates raised, but this is a natural consequence of "more responsible" credit issuance.

Credit card companies are evil

Credit card companies are simply companies that provide a service in exchange for a fee, like all companies. They certainly aren't freedom-loving, patriotic institutions who are benevolent and all-wise, but they aren't pure evil either. Like all companies, they are out to make a buck and will do what they have to do in order to protect what they perceive to be their political interests. But (in my opinion), I've seen little evidence that they are out to "screw" consumers any more than other companies in other lines of business are.

Those who choose to do business with credit card companies also choose to accept their terms, which really are fairly standard between issuers. Credit is a tool that can be used or abused, and those who run credit balances should be aware of the terms of revolving credit.

Originally posted to Sparhawk on Wed Mar 11, 2009 at 11:23 AM PDT.

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Comment Preferences

    •  You're setting up some interesting strawmen here (12+ / 0-)

      I liked your diary.  I can't say how much of it is factual as I'm not in the credit business, but this one didn't ring true to me:

      I have to also comment here on some hypocrisy I see on lefty sites in this matter. People are very upset that credit card companies have been so profligate and irresponsible; they get so many offers in the mail, my college kid got a card with a $5000 limit, etc etc. However, when credit card companies finally, at long last, become more responsible, these same people complain bitterly because their own credit lines are cut back and interest rates raised, but this is a natural consequence of "more responsible" credit issuance.

      You may "have to comment" on this, but you're commenting on your own imaginings. I am upset about all the stupid credit offers I get, and -- surprisingly in this climate -- continue to get.  I also am angry at credit card companies for offering credit to my two sons in college who have no income and no basis to pay other than meager summer earnings.  

      I would not "complain bitterly" if consumer credit were reasonably tightened.  When I got out of college in 1980 and started working, building credit slowly over time was a well-known and widely understood process.  It taught me to budget and live well within my means; lessons I have valued (and profited from) over the past 30 years. It ticks me off that the sweet lure of easy credit will make it harder for me to instill similar lessons in my own children. And I shudder to think of young people whose parents don't even try to model appropriate financial behaviors...

      •  You still throwing rocks, I see...Ernest T (0+ / 0-)

        "Better a little late, than a little never"..Julian Winston

        by Johnny Rapture on Wed Mar 11, 2009 at 11:36:59 AM PDT

        [ Parent ]

      •  Thank you (3+ / 0-)
        Recommended by:
        doc2, Odysseus, theran

        Re: your comment, you aren't exactly the person I'm talking about. Perhaps "hypocrisy" is the wrong word here since perhaps the "CC companies are too profligate" people and the "my CC line has been cut" people aren't, generally, the same people.

        •  howabout the hypocrisy (22+ / 0-)

          of securing the 2005 bankruptcy protection act partially by lobbying that rates would go down, because debt would be more collectible?  and then raising interest rates.

          •  The 2005 bankruptcy act... (15+ / 0-)

            ...was total bullshit, it pissed me off. Bankruptcy protection is supposed to be there for consumers so credit issuers will be more selective about how much credit they issue since if they issue too much credit to a particular person, that person might declare bankruptcy, wiping out the loans.

            The 2005 bill changed all of that, making it more difficult to discharge credit card debt and changing the deal. Definitely a horrible bill and a horrible decision, enabled, I might add, by our very own Democrats in Congress.

            •  Instead of letting people out of their oblig (8+ / 0-)

              ations and rebuild, start all over, with all the punishment that implies, these folks are forever on the hook now and unlikely to become good consumers in the short term, maybe not even long term.

              Not sure why credit card companies felt the need to gild the lily.  They seemed to be doing okay, defaulters or no.

              I'm sick of GOP SOP!

              by xysea on Wed Mar 11, 2009 at 11:52:39 AM PDT

              [ Parent ]

              •  It probably made securitization easier (2+ / 0-)
                Recommended by:
                SecondComing, ManhattanMan

                Presumably a lot of the interest rate hikes related to a freeze in the secondary market for CC debt.

                "Dream for just a second and then do it!" -- Kolmogorov

                by theran on Wed Mar 11, 2009 at 11:53:50 AM PDT

                [ Parent ]

                •  Not sure if that's a good thing? (1+ / 0-)
                  Recommended by:
                  theran

                  Do you mean it made easy credit easier?

                  I'm sick of GOP SOP!

                  by xysea on Wed Mar 11, 2009 at 11:55:36 AM PDT

                  [ Parent ]

                  •  Yes, it made it easier to lend (5+ / 0-)

                    All the easy credit comes from it being very easy to fund the lending by selling bonds.  Bond investors like certainty, and changing the BK process to make CC debts survives gives more certainty.  (Similar comments apply to mortgages not being alterable.)

                    So all these changes were, essentially, a green light for lenders to make even more money available, at the expense of consumers and the overall stability of the system.

                    At this moment, investors aren't buying these bonds (the Fed has actually stepped in to help hedge funds do it), so it is harder for lenders to fund these credit lines.  (Which is why they are cutting them and raising rates to get people to pay them off.)

                    "Dream for just a second and then do it!" -- Kolmogorov

                    by theran on Wed Mar 11, 2009 at 11:59:32 AM PDT

                    [ Parent ]

              •  You are not on the hook forever.... (3+ / 0-)
                Recommended by:
                Sparhawk, theran, xysea

                ... it just feels like it.

                Due to some bad decisions on my part, an attempt to help some out-of-luck friends, an attempt to help a nonprofit I work with, and some bad personal luck (which I should have planned for - 'nuff said), I'm one of those people who have had out-of-control credit card bills... including judgements against me.

                The only way I have been able to successfully discharge the judgements is by allowing the courts to take money directly from my paycheck by court order, and working on a cash basis otherwise.

                Why?  Because, if I sign a voluntary repayment agreement with company A, company B can impose a judgment against me and take 25% from my paycheck, leaving me on the hook for both that 25% and any payments I have negotiated... which I cannot afford while paying my other obligations.  If I default on the repayment agreement, the amount that can be pulled from my check is not limited by law, and so I can end up paying 50% or more of each paycheck to pay down these debts, falling delinquent on my other debts instead.

                The situation I got into was my own fault, compounded by a medical condition that ended up with me losing 1/3 of my annual income.  However, I was still pushing too near the edge, and did not have the resources needed to cover my financial situation in case of a medical issue.

                sigh

                The current judgement should be paid off around November.  Then I should be able to finish off all of my other optional debts in short order, since adding that 25% back into each paycheck will allow for quick payoffs.  I learned a lot, and one of those things was to not use credit cards.  Two missed payments while between jobs, and I went from 6.9% interest to 21% interest.

                We are the music makers, and we are the dreamers of dreams
                -- Arthur O'Shaughnessy, 1844-1881

                by Laughing Vergil on Wed Mar 11, 2009 at 12:51:33 PM PDT

                [ Parent ]

                •  No, I've been down that road, too. (1+ / 0-)
                  Recommended by:
                  theran

                  And yes, it only feels like forever.

                  I cleaned up my credit, I even have one card now.  But the whole painful, long experience taught me the wisdom of living within my means, saving and not buying whatever I want whenever I want it - but rather planning for expenses big and small, being frugal and keeping to a budget.

                  I just don't like the idea that they can hound you forever, even after 7 years, like some of them do. :(  That seems unfair.  People should have an opportunity to put their mistakes behind them, like I have done.

                  I'm sick of GOP SOP!

                  by xysea on Wed Mar 11, 2009 at 01:02:57 PM PDT

                  [ Parent ]

      •  They tend not to be overlapping groups (1+ / 0-)
        Recommended by:
        Sparhawk

        But both are pretty prevalent.

        "Dream for just a second and then do it!" -- Kolmogorov

        by theran on Wed Mar 11, 2009 at 11:52:59 AM PDT

        [ Parent ]

      •  The "bitter complaints" (7+ / 0-)

        I have seen are not so much about credit lines being cut back but the trcikery involved in cutting back credit lines below your current balance without telling you, or in cutting credit lines you've never used that then negatively impact on your credit rating. If credit line amounts were completely severed from any impact on your credit rating, there would be few complaints here let alone "bitter" ones.

        Rob Portman: He sent your job to China.

        by anastasia p on Wed Mar 11, 2009 at 12:10:07 PM PDT

        [ Parent ]

        •  exactly. It's not the reduction of the (0+ / 0-)

          credit lines that bugged us--we never used much of it.  It's the negative hit on the almighty FICO score that was based on a ratio that was inflated due to the inflated available credit limits.  That's what pisses people off.  Cut the lines, go ahead. But at least allow a fair period for the customer's debt to available credit (through further reduction of debt) to adjust before dinging the score.

          I love my President! Who'da thought THAT was possible?

          by livjack on Wed Mar 11, 2009 at 01:43:10 PM PDT

          [ Parent ]

    •  I've long stopped trying... (9+ / 0-)

      ...to convince people around here that there's almost always an economic reason for any action a credit card company takes, as most people seem to find it easier to espouse moral indignation than to look at basic facts.

      To be fair, though, credit card companies do consider some people who pay off their balances every month to be "deadbeats," typically the people who make one or two small purchases each month. The people who charge several hundred or thousand dollars and pay it all off quickly are the customers they make a decent profit off of. The infrequent users end up costing them money due to account maintenance costs.

    •  Most of what you've said is hooey (7+ / 0-)

      Their tactics are for one thing alone: to make as much money as they can. They don't care to engage in tactics that would strengthen all parties. The idea that jacking up interest rates is going to make it MORE likely they get paid is offensive. The people most likely to pay it off are probably the responsible people who were making regular payments while those who default will default quicker bringing more people with them. It's twisted logic and I don't buy it.

      Rob Portman: He sent your job to China.

      by anastasia p on Wed Mar 11, 2009 at 12:08:24 PM PDT

      [ Parent ]

      •  Re (2+ / 0-)
        Recommended by:
        doc2, jethropalerobber

        The idea that jacking up interest rates is going to make it MORE likely they get paid is offensive.

        Like I said, you have a card at 10% and another at 30%. Which are you going to pay down?

        •  Dont' they share data? (4+ / 0-)
          Recommended by:
          Hedwig, bigchin, kaolin, Toon

          Like I said, you have a card at 10% and another at 30%. Which are you going to pay down?

          But what are the chances of that happening?  Isn't it common practice that when one company deems you a credit risk for some reason, they will all follow the same logic and then all raise your rates to 30%?

          So you can't find another credit card to unload your debt as you propose, as they share information and all will be charging the same usurious rates.

          •  Yeah (0+ / 0-)

            That's one disadvantage of the situation is the "prisoner's dilemma" that CC companies find themselves in; none of them want to be stuck with a default risk, so they all raise your rate, and none can lower it, because they'll be the one stuck with the risk.

            At least, from this point of view, it forces you to pay all your cards down, which is better from their perspective than having you continue to run up debt.

        •  If one goes up to 30% (2+ / 0-)
          Recommended by:
          Hedwig, kaolin

          the others do, too.  At least they do when a payment is messed up and interest goes up on one card.

          With a higher rate of interest, then the payment will go up, making it harder to pay even the same amount of the principal.

          More than likely, those with lower income will never get to pay the card off.  

          If you are doing them a favor, cutting off their credit may be the best favor you can do for them.

        •  Neither when you don't have a job (2+ / 0-)
          Recommended by:
          Sparhawk, kaolin

          Besides, when there is a minimum due on both cards, and the 30% eats up any "spare" money you have lying around, that 10% card may not get paid, which leads to the default rate of 30%, so now you have 30% on BOTH cards.

          The "indignation" comes from the fact that even when used responsibly, it is very easy to get into credit card debt that is almost impossible to get out of.  Fees, due date changes, one-day late payments....next thing you know, you've got all of your cards at the default rate and it is impossible to get out from under that and maintain any kind of dignity in the "credit world", effectively fuking up your life for 7-10 years.  

        •  this is true.. (0+ / 0-)

          but perhaps should be illegal..

          Like I said, you have a card at 10% and another at 30%. Which are you going to pay down?

          They could investigate the customer and if they determine the customer actually is a bad risk than close the account and require payment at the current terms. Instead is seems that the jump the rate up at the first sign of trouble. A single late payment does not mean a customer has suddenly become a bad risk. Instead of taking this as a warning sign and investigating the customer they are taking a short-cut and throwing all these customers into one pool.

          Further instead of looking for a way for the customer to discharge his debt, they are simply looking to get their debt repaid even if it damages the rest of the customers financial life. I realize it isn't their responsibility to solve customers problems but perhaps they should be limited in the actions that they are allowed to take to ones that are so damaging.

          •  Re (0+ / 0-)

            They could investigate the customer and if they determine the customer actually is a bad risk than close the account and require payment at the current terms.

            This is costly and expensive. To actually have a human being make phone calls and pore through paperwork? Humans cost like $20-$30/hour for total overhead. I mean, are you going to spend $100 investigating some guy to see if he can pay his $2000 credit card bill? Having broad policies that affect lots of people is very cost-effective, far more so than individually investigating each case.

            •  short cuts... (1+ / 0-)
              Recommended by:
              kaolin

              This is costly and expensive. To actually have a human being make phone calls and pore through paperwork? Humans cost like $20-$30/hour for total overhead. I mean, are you going to spend $100 investigating some guy to see if he can pay his $2000 credit card bill? Having broad policies that affect lots of people is very cost-effective, far more so than individually investigating each case.

              Many peoples balances are far more than $2000... Even with a $2000 balance,  the individual is paying $72 a month in interest (at 30%)! (not counting compounding)..  $100 is not that outlandish.... Remember that the 30% interest rate will lead some customers to simply stop payment all together and never repay! The banks would rather deal with that than make the effort to do the harder work that should be required of them...

              This is exactly why it needs to be illegal. We see this in so many aspects of our life right now... You hear about Mortgage holders attempting to pay their mortgage being treated the same as someone who isn't paying at all! Homeland security can't tell the difference between "Jane Smith" the terrorist and "Jane Smith" your elderly aunt because they didn't bother to include enough information in their database. Immigration can no longer discriminate between a minor paperwork snafu and a potential terrorist and tends to prison people by default.

              Correctly assessing risk is the banks job! We give them the privilege of loaning our money (and through fractional reserve banking creating money out of thin air) and they have the responsibility to loan it correctly. This sort of corner cutting needs to stop!

              Further I would argue that this is why community banking needs to make somewhat of a comeback! If people knew their customers they would have some idea of who the bad risks are and who are likely to repay.

      •  I do think that it makes it more likely (0+ / 0-)

        that they get paid, and they get to cover all costs, the principal, the maintenance  and collection, but most of the money gets counted as interest or fines.

        Blackwater is changing its name to Xe.

        by Toon on Wed Mar 11, 2009 at 01:11:09 PM PDT

        [ Parent ]

    •  I thought your comments were crap (0+ / 0-)

      in another diary and I think your diary is crap too.

  •  hello, credit card flack! I'm glad I don't have a (5+ / 0-)

    credit card!

  •  Your a CC lobbiest in sheeps CC bought clothing.. (3+ / 0-)

    "Better a little late, than a little never"..Julian Winston

    by Johnny Rapture on Wed Mar 11, 2009 at 11:29:14 AM PDT

  •  It's an amazing piece here. Like the Tale of (2+ / 0-)
    Recommended by:
    Johnny Rapture, chrome327

    Two cities.

    Experience is a hard teacher because she gives the test first, the lesson afterwards

    by publicv on Wed Mar 11, 2009 at 11:29:53 AM PDT

  •  Makes sense to me (3+ / 0-)
    Recommended by:
    Sparhawk, theran, Pennsylvanian

    I have a personal credit card that runs a zero balance. I only use it in the unlikely event that, were I to try to use a debit card number, a hold would be placed on funds in my checking account. Or where a debit card would not be acceptable as a means of making a reservation or confirming a reservation. In certain markets, rental car companies simply won't accept debit cards when you're taking a car out, though you can use a debit card (or even, god forbid, actual cash) to pay when you turn the car in.

    Because I regularly travel on government business I have a US government card (strangely enough, from Citibank). I only use it to charge things that I am going to be reimbursed for.

    I haven't had an actual credit card balance in over 20 years. Getting a car loan in 2001 proved to be an interesting experience. While some of my very old history showed up on my reports, there was nothing current, so I ended up with a slightly higher interest rate than I otherwise would have. It was worth it to me.

    While I sometimes will think and say that credit card companies are evil, I understand this isn't really so. As you said, they are simply businesses, and businesses exist to make as much money as possible with as little risk as possible.

  •  How bout (7+ / 0-)

    A credit card company that invested in credit default swaps and has toxic assets weighing it down so it needs to raise capital by charging 30% on credit card balances.
    Is that a possible scenario??

    •  Who would... (2+ / 0-)
      Recommended by:
      doc2, ManhattanMan

      ...take a credit card at 30% interest? Only the most desperate people who are obvious default risks. I do not believe that there is a possible business model in which you can sustainably charge 30% interest rates and make money on it.

      If a CC that is doing very badly can make it up by charging 30% interest, why can't a company that's doing well charge 30% interest?

      •  The business model is being supported by gov (4+ / 0-)
        Recommended by:
        PsychoSavannah, bigchin, kaolin, Toon

        The business model already failed that's why they need tax payer help.
        They also do not charge 30% to start off but rather lure in customers with low interest rates that they have now been raising to pad their capital before those stress tests.

      •  And your point is....? (0+ / 0-)

        "Better a little late, than a little never"..Julian Winston

        by Johnny Rapture on Wed Mar 11, 2009 at 11:45:53 AM PDT

        [ Parent ]

      •  Also... (0+ / 0-)

        ...as I point out, a CC company can make 20% or more just from having a consumer pay their balance off on a revolving basis. Why would they ever want someone to be holding a large balance at a large default risk just to make the extra 10%?

        •  Just another way to make EASY money. (1+ / 0-)
          Recommended by:
          Toon

          Why would they ever want someone to be holding a large balance at a large default risk just to make the extra 10%?

          Because they can.

          If someone's credit card balance suddenly goes to 30% interest, they will probably try to pay it off as quickly as possible.  Many times this may take a few months.  In the meantime, the CC company is raking in a 30% return, even if it is only for a few months.

          They repeat this process over and over hundreds of thousands of times.  Some people transfer their balances to other cards.  Some people transfer their balances to the offending card through a temporary teaser rate.  Then their rates get jacked up and the whole process repeats itself.

          See, it's not that hard.

          Bush repealed Godwin's Law with a Signing Statement.

          by Mad Kossack on Wed Mar 11, 2009 at 12:56:00 PM PDT

          [ Parent ]

          •  Re (0+ / 0-)

            They repeat this process over and over hundreds of thousands of times.  Some people transfer their balances to other cards.  Some people transfer their balances to the offending card through a temporary teaser rate.

            And some people (increasing numbers recently) default and take all or nearly all of the CC company's loaned money with them.

            Like I said, easy 20% or 30% with massive default risk. Which would you choose?

            •  well, like you said (1+ / 0-)
              Recommended by:
              kaolin

              maybe they charge the high rates to force people to pay up and close their accounts... but wait! I almost forgot, as soon as you start paying up or get close to paying off the account, they send you some checks and say here, have some more money! So, maybe they don't want you to close your accounts.

              Like I said, easy 20% or 30% with massive default risk. Which would you choose?

              Well, I don't own a bank, so I don't get to chose.  Seems like Citi and Chase have chosen to go with 30%. I have a Chase card, a good credit history and a high FICO score.  Recently my rate went to 30%.  Looks like Chase is going to push some people into default and make up the difference with TARP money.  Great deal for them:  We'll borrow money from China, give it to the banks, and they'll loan it back to us at a high interest rate.  YAY! We get to pay interest on the same money twice!

              Bush repealed Godwin's Law with a Signing Statement.

              by Mad Kossack on Wed Mar 11, 2009 at 01:22:29 PM PDT

              [ Parent ]

      •  How about 390% interest? (3+ / 0-)
        Recommended by:
        xysea, chrome327, Toon

        The payday loan businesses around here charge $15 per $100 borrowed on a 14 day loan.  And they seem to be thriving.  

        There are lots of desparate, undereducated people out there.

        •  Well (1+ / 0-)
          Recommended by:
          doc2

          I mean if you're a payday loan company, how else do you make money?

          You loan someone $500. At 30% APR, a two-week loan makes you about $5.76 profit. It's just not worth running a business for that kind of paltry profit, particularly for people that are major default risks. CC companies can do it by economy of scale and low default rates.

          •  my point is (4+ / 0-)
            Recommended by:
            PsychoSavannah, bigchin, chrome327, Toon

            if there are that many people who will pay 390% interest, there are many more who won't even blink at 30%.  The CC companies know that, and will happily jack the rates up, making more profit on top of the percentage they get from the merchants.  And they throw in annual fees, overlimit fees, etc. just to sweeten their balance sheets a little more.

            •  Payday loans... (1+ / 0-)
              Recommended by:
              soros

              ...are a completely different animal than credit cards.

              Payday loans are for when you need cash, now, for something like rent. They charge you a high comparative rate, but it's just for a week or whatever to get you through whatever your current crisis is. Normally, payday loans are for people who cannot get a credit card anyway and have exceedingly poor credit.

            •  You can't extrapolate payday loan fees into (1+ / 0-)
              Recommended by:
              Sparhawk

              an APR. The transaction amounts are so small, and since it's all in cash they need to have thousands of physical offices, which are expensive. The amount the borrower pays is more like a fee than an interest rate.

              •  Yes you can and should. (0+ / 0-)

                People get into the situation of taking out one payday loan to pay off the first and a third loan to pay off the second and so on.

                Blackwater is changing its name to Xe.

                by Toon on Wed Mar 11, 2009 at 01:35:59 PM PDT

                [ Parent ]

                •  Well, do so then. But just understand that the (1+ / 0-)
                  Recommended by:
                  Sparhawk

                  reason that your implied interest rate is exploding is because you have a borrower who physically is walking into a storefront and borrowing small amounts of money over and over again. If the profit margins were what you think they are, there would be even more payday lenders than there are.

    •  Wow, that would almost be criminal.. (0+ / 0-)

      "Better a little late, than a little never"..Julian Winston

      by Johnny Rapture on Wed Mar 11, 2009 at 11:46:56 AM PDT

      [ Parent ]

  •  Sen Dodd has been fighting for years (10+ / 0-)

    http://www.pbs.org/...

    Frontline: Secred history of the credit card.

    "Some experts say the profitability of credit cards really began twenty-five years ago, when the banking industry successfully eliminated a critical restriction: the limit on the interest rate a lender can charge a borrower.

    Deregulation, coupled with a revolution in technology that enables the almost real-time tracking of personal financial information and the emergence of nationwide banking, has facilitated the widening availability of credit cards across the economic spectrum".

    Citizens find days passing by quickly in a giddy lightheaded state ("Obamaraderie").

    by highlandco on Wed Mar 11, 2009 at 11:41:27 AM PDT

  •  I don't think all you say is true (9+ / 0-)

     As I appreciate the changes in the law recently - credit card companies have a unilateral right to change the terms of the agreement.  Say you are carrying a balance - you can get a letter from the issuer changing the terms - i.e. one late payment - your interest rate changes - and bingo - your payment goes from manageable to unaffordable in a month -

     It is true that all of this is penny wise and pound foolish - but from what I can glean credit card issuers are busy puffing up balance to make their balance sheets look good before the next wave of defaults comes.

     The problem with credit card companies is that we have limited the capacity of the consumer to sue the lliving daylights out of them for conduct a jury would find outrageous.  In the short run - that can look good - in the long run it leads to precisely the kind of meltdown we are seeing and which will get worse.

    •  What about (2+ / 0-)
      Recommended by:
      Odysseus, Boxer7

      not changing the rates on the current balance? I mean, if I go to my bank and get a personal loan, there are terms that make that fixed. Yes, the CC companies, under the law, can raise rates whenever, but unless the customer's status has changed (late payments, missed payments, etc...) then why would the rate increase be allowed to change at the discretion of the CC company at their whim? Maybe this should be changed in the law. Unless other mitigating circumstances allow it, existing balances are to be paid of at the current (and not increased) rate.

      •  I think this would be a good change (4+ / 0-)
        Recommended by:
        Odysseus, Sparhawk, dennisl, kaolin

        (Fixing the rate.)

        But it will kill the CC business model of extending large lines to basically anybody who asks.  (I'm not that worried about this either: people buy too much junk.)

        The reason CC agreements are the way they are is because the whole point is to just extend a lot of credit and see if it works out.  If not, the lenders can basically call it in by raising the rate.

        So the net effect would be that consumers would get more certainty and less convenience.  That might not be bad.

        "Dream for just a second and then do it!" -- Kolmogorov

        by theran on Wed Mar 11, 2009 at 12:09:14 PM PDT

        [ Parent ]

        •  Maybe that business model (3+ / 0-)
          Recommended by:
          theran, ManhattanMan, Toon

          should be killed....

          •  I'm not disagreeing (1+ / 0-)
            Recommended by:
            Hedwig

            Although it's going to be somewhat painful in the short-term.  A lot of consumer demand will go away, and CCs have been the main way small businesses float.

            "Dream for just a second and then do it!" -- Kolmogorov

            by theran on Wed Mar 11, 2009 at 12:23:28 PM PDT

            [ Parent ]

          •  Also, according to one analyst (3+ / 0-)
            Recommended by:
            PsychoSavannah, Hedwig, Toon

            It is already shrinking fast.

            (The author was the first analyst to go public with concerns over Citi, et. al., so she has a decent track record in the Great Tanking.)

            "Dream for just a second and then do it!" -- Kolmogorov

            by theran on Wed Mar 11, 2009 at 12:26:53 PM PDT

            [ Parent ]

            •  That link on Theran's post is worth reading. (4+ / 0-)
              Recommended by:
              Sparhawk, theran, Hedwig, Toon

              Consumer credit does help the economy.

              Some people don't have great credit, usually due to low wages, but that does not give any company the right to rip them on interest rates and late fees.

              Either don't charge to them or charge them a decent rate and stop the trickery.

              Look at the banks that didn't rip people off and are in good shape now.  My local bank refused Tarp.

              Greed justifies everything it does.

            •  Yes (2+ / 0-)
              Recommended by:
              theran, Toon

              but why should I care? I'm supposed to be amoral on what CC companies do right? :)

              Yeah, they're cutting their own throats, in terms of a long-term business enterprise, versus short term gains (or to prevent further losses).

              Saw some of Buffet's interview on CNBC and he really is convinced that there is a fundamental shift in the way people view commerce now where they are less likely to buy what they 'want' and only make purchases of what they 'need'. No clue if that will hold, short-term memory and all that, but what will that mean to the consumer society foundation we're all perched on?

              •  I don't think you should care (2+ / 0-)
                Recommended by:
                Sparhawk, Hedwig

                I was just pointing out that the process of this business going away is already happening.  That link did have a nice explanation of two things, though:

                1. Basically what this diary says about the dynamic leading to CC companies effectively reducing credit.
                1. A rapid reduction in CC lines does fight against the stimulus by reducing demand as people spend less.

                (I think 2 will happen anyway and should, but it would be dishonest not to describe the short-term effects.)

                "Dream for just a second and then do it!" -- Kolmogorov

                by theran on Wed Mar 11, 2009 at 12:47:44 PM PDT

                [ Parent ]

                •  Thanks (1+ / 0-)
                  Recommended by:
                  theran

                  for the explanation and the link. I wasn't referring to why I shouldn't care at you, but at the CC companies. I think I actually should care about the people I chose to do business with. I understand the business school concept that business is only to make money for it's owners/investors, but I would prefer to do business with those who don't follow that all that closely and not take into account customer loyalty.

                  If I was talking about a car company that made cars I liked and that were well-made, they could expect many would be return customers. CC companies that take that loyalty for granted are going the route of Detroit...

                  And I agree completely with the short-term, at least, effects. It's just another level where banks are restricting credit, if not directly.

                  •  I also tend to use businesses I like (2+ / 0-)
                    Recommended by:
                    Sparhawk, Hedwig

                    And avoid those I don't.

                    I guess in the business school language, I put a value on it being really painful to interact with a business or its products.

                    Personally, I don't find the CC companies all that horrible.  Certainly not as bad as the corn syrup people or the polluters.

                    "Dream for just a second and then do it!" -- Kolmogorov

                    by theran on Wed Mar 11, 2009 at 01:23:12 PM PDT

                    [ Parent ]

        •  but it is unsecured debt (2+ / 0-)
          Recommended by:
          theran, PsychoSavannah

           in the end - it will be difficult to collect - especially with balances suddenly ballooning into the statosphere - with new fees, charges, rates - new rates on rates -

           there are those out there writing that a new wave is coming - and it will hit with the force of the subprime mess - see here:

            http://www.time.com/...

      •  definitely should be changed at law (2+ / 0-)
        Recommended by:
        Hedwig, Toon

         it is not uncommon to get mail from the cc companies - announcing - new changes to the cardholder agreement - you are given x days to renounce the changes (and give up privileges) or the changes become binding.

         You or I make a deal - put it into writing - the law used to say we could not change without additional "consideration"  passing hands - but the cc companies - well - they got themselves some cheap judges and lawmakers (i.e. Republicans) and so - here we are

  •  deadbeats (5+ / 0-)
    Recommended by:
    slinkerwink, 0wn, kaolin, chrome327, Vega

    Then why, despite the fact that I do pay my card off every month, is my CC company raising my rate next Jan 10.6%? Or, is it just because they are doing so poorly that they hope that I'll start a balance?

    And, wouldn't a CC company want to 'appease' those who you describe as 'gold' by not raising their rates since they aren't going to make anything either way (since those would pay off every month) but instead piss of those customers so that they look for alternative credit cards?

    That's not a great business model...

    •  If you pay your balance every month... (3+ / 0-)
      Recommended by:
      Odysseus, ManhattanMan, soros

      ...why do you care what the interest rate is, and why would the CC company think you care what the rate is?

      The CC company probably raised your rates to deter you from running a balance, or at least a large balance (not you in particular, but everyone). In this environment, defaults are their worst enemy.

      •  Well, under most circumstances (3+ / 0-)
        Recommended by:
        kaolin, chrome327, Vega

        wouldn't credit card companies raise rates to, well, make more money? Even though the CC company is a business, there is actually some loyalty involved. Yes, I know that's not in vogue right now. You do your part, pay off every month, they do there's and not jack up your rates because you're not a credit risk. It's probably true that they've raised rates, or even canceled accounts, of those who have less than stellar credit, but you're looking at this from a business stand point and I'm looking at it from both a business and personal stand point.

        Let's say they changed it to not only raising the rate but also charging an annual fee? Just to make a little more money from everyone's account. Would that change the dynamic?

        Not sure how CC companies are 'rated', if at all, but wouldn't they want to show they had , as an example, a 89.38% rate of 'good' borrowers and only a .5% rate of defaults in fiscal year 2008 rather than 50% and 5%?

        The only deterrence I can think of is that they just deterred a customer from dealing with them.

        Now, if for some reason I thought that I might, possibly, need to run a balance for a short period of time (or longer) wouldn't it be more likely that I would transfer to a card with a lower rate now?

      •  You must be a soft ware program put together (0+ / 0-)

        by the credit card companies of the world...
        00011100110101110000110001111100000..

        "Better a little late, than a little never"..Julian Winston

        by Johnny Rapture on Wed Mar 11, 2009 at 11:54:39 AM PDT

        [ Parent ]

      •  unforseen circumstances (4+ / 0-)
        Recommended by:
        Wilberforce, Hedwig, chrome327, Toon

        loss of employment, medical emergency, lots of reasons why I might suddenly need to run a balance on a credit card that I normally pay off every month.  

      •  Why do I care? (1+ / 0-)
        Recommended by:
        Hedwig

        Because if my neighbor ends ups not spending money at my store because all of his money goes to a CC company then it puts my income at risk.

        Blackwater is changing its name to Xe.

        by Toon on Wed Mar 11, 2009 at 01:49:12 PM PDT

        [ Parent ]

    •  wow, it suddenly occured to me... (3+ / 0-)
      Recommended by:
      Sparhawk, theran, xysea

      that i have no idea what the interest rate is on my credit card.

      and i use it to buy everything, including gum from gumball machines.

      "I don't think they're going to be any more successful in 2010 or 2012."
      -Yes On 8 co-manager

      by jethropalerobber on Wed Mar 11, 2009 at 12:53:38 PM PDT

      [ Parent ]

  •  FICO scores are still bogus. (8+ / 0-)

    Because there are bullshit listings on one's credit report that can't be removed unless you hire a lawyer.

    Know any lawyers who work for free? I don't.

    And they are bogus because they are being used AGAINST people to keep them out of jobs and rental housing, which completely goes against what the damn things were started for in the first place.

    I am not trying to borrow money to get a job or a rental home.

    They should not be checking on financial history of anyone just because they can.

    If I want to buy a house or a car, fine. Check my credit. Otherwise, keep your damn nose out of my business that has nothing to do with yours.

    My personal credit report has been fucked up since the 1980s when the credit union I used didn't report on the two car loans I paid off. Ever. But they probably set land-speed records on posting any little ding for being late on a payment -- even when it was their own billing and reporting shenanigans that caused the payments to be late in the first place.

    No, you are never going to convince me that FICO is anything but a gigantic scam foisted on the middle class to keep them living in fear of the rich and powerful.

    It needs to be scrapped and a new -- non-proprietary, transparent -- process put in its place.

    "The difference between the right word and the almost-right word is like the difference between lightning and the lightning bug." -- Mark Twain

    by Brooke In Seattle on Wed Mar 11, 2009 at 11:50:22 AM PDT

    •  Actually... (2+ / 0-)
      Recommended by:
      PsychoSavannah, Toon

      ...the FICO is really to perpetuate the use of credit, as far as I can tell.  What are good things on your FICO score?  Long-time credit lines, recent use of credit, high availability of credit, etc., etc.  What are bad things?  New credit, no use of credit, low availability of credit.  

      People who use cash primarily or save up for things and therefore don't have singificant credit histories are penalized with lower scores and higher interest rates if they do seek credit.  

      The credit industry created FICO to sell information on people to make money for themselves, and to encourage the use of credit by basing the score on using credit (i.e. paying interest) being a good and desirable thing, while saving up and paying cash (no interest) being a bad thing.  It's a perpetual money maker.

      "When people show you who they really are, believe them." - Maya Angelou

      by Pennsylvanian on Wed Mar 11, 2009 at 12:00:29 PM PDT

      [ Parent ]

      •  that's why it's a good idea to use a credit card (1+ / 0-)
        Recommended by:
        Sparhawk

        the FICO is really to perpetuate the use of credit

        I would just suggest, that's not a bad thing. If you can avoid debt, go for it. Just avoid credit entirely.

        But our system has developed to accommodate people who cannot afford everything today. That's a good thing, so long as it's a choice for the borrower, not something the borrower is forced into. For example, some people go to the bank of mom and dad to get a car loan instead of a bank. If that works, go for it. But some people would much rather borrow from a bank than a relative, but the problem with somebody who doesn't know you is that they don't know you. They know you're asking for money, and what they want in return is a way of evaluating how likely it is you'll pay them back.

        Many people, for example, could not buy a house without credit. But a house is a huge expense, a huge risk. That's why it's a good thing to have a credit history. That renders borrowing costs less because financial companies have a history of how you deal with smaller amounts of debt; they have more information. And that's really all FICO is; it's one method of assembling information about how you deal with money.

        So if you ever intend on making big purchases financed by debt, credit cards are a great way to show you can handle small amounts of debt responsibly. You don't have to spend thousands of dollars. Just charge groceries and gas. It's faster than writing a check and more secure than carrying cash.

        •  Oh, I'm a regular, responsible user of credit. (0+ / 0-)

          I just wanted to point out that the FICO score is not really around for the reasons most people think.  It's there to make money for the credit bureaus and perpetuate the use of credit.  Being able to correlate people's financial activities with things like whether or not they are a safe driver just opened up new markets to sell the FICO and make more money.  Also, I infrequently evaluate people's credit as a part of my job and there is no need to see a FICO score to know whether someone is a good credit risk.  Simply reviewing their credit history, sans FICO score, is all that is needed.  Your FICO score is not your credit report - it is an add-on based on your payment history plus basically whether the FICO gods like you because you use credit (but not too much) or don't because you use cash.

          "When people show you who they really are, believe them." - Maya Angelou

          by Pennsylvanian on Wed Mar 11, 2009 at 02:03:48 PM PDT

          [ Parent ]

  •  Sorry I couldn't read past this: (8+ / 0-)
    Recommended by:
    sngmama, Hedwig, bigchin, 0wn, chrome327, Toon, Vega, Jon Says

    Credit card companies want you to pay 30% interest

    So this is a myth you want to bust?   If the credit card companies didn't want me to pay 30 % they would not oppose the usury laws that traditionally would never allow 30% interest rates.  

    It is incredible to see this argument here on KOS.   Of course the credit card companies would charge 60% if they could get away with it...

    You can take that to the bank.

    These 30% rates should be illegal. period. We give banks everything they need to operate profitably (and lots of breaks and cash infusions and more) and they still run/ruin our (yes is is a collectively owned system) financial system.  

    I think. Therefore I O'Bama.

    by MarkMarvin on Wed Mar 11, 2009 at 11:55:09 AM PDT

    •  Did you read the rest of my post? (2+ / 0-)
      Recommended by:
      soros, dennisl

      ...and the reasoning behind it?

      •  Well ok... (1+ / 0-)
        Recommended by:
        Toon

        Do I really have to? Because anyone who thinks anyone 30 percent is somehow ok is bordering on C R A Z Y in my opinion. Just because something is legal is no reason to claim it is good-it could be a law that needs changing.

        Remember also that when one gets a credit card, they give the CC company blanket permission to do exactly this.

        Poor uneducated people do all sorts of Title Loans in impoverished south georgia. Doesn't make it right even though it is legal.  

        I'm still appalled after I read the next three paragraphs.

        I think. Therefore I O'Bama.

        by MarkMarvin on Wed Mar 11, 2009 at 12:12:02 PM PDT

        [ Parent ]

        •  You can be appalled all you want (1+ / 0-)
          Recommended by:
          kaolin

          As long as you understand it is all I care about.

          •  Being legal doesn't make it morally right. (1+ / 0-)
            Recommended by:
            MarkMarvin

            They should ask themselves what, "Would Jesus do?". Aren't these the same moral people that was Bush's base?

            It says in the Bible to cancel debts because no debt should last over seven years.  And it says usuary (interest) is immoral.

            Our mortgages would last about seven years if it wasn't for the interest and closing costs.

            I repeat, greed justifies everything it does.

        •  There is a lot in the Bible against usury & debt (3+ / 0-)
          Recommended by:
          Hedwig, kaolin, MarkMarvin

          No one should feel bad, if they have to go bankrupt.

          Years ago our Congress named Chapter 7 bankruptcy after the seven-year debt forgiveness rule contained in the Old Testament of the Bible.

          The King James Version reads:
          At the end of every seven years, thou shalt make a release. And this is the manner of the release: Every creditor that lendeth ought unto his neighbor shall release it; the shall not exact it of this neighbor, or his brother, because it is called the Lord's release.
          Deuteronomy 15-1, 2

          This passage was written over 3000 years ago. This means the idea forgiving debt on a period basis has been around for a long time.

    •  Bankers Didn't Pay Their FDIC Premiums For 10 yrs (0+ / 0-)

      Now on Rec List Here

      I think. Therefore I O'Bama.

      by MarkMarvin on Wed Mar 11, 2009 at 06:01:51 PM PDT

      [ Parent ]

  •  I used to work for a CC company... (19+ / 0-)

    ...and I can say that most of this diary is true, especially the effect usury caps will have on poor people's access to credit.

    The exception is the assertion that CC companies are not "evil".  They do things that a reasonable person would describe as evil:

    - Intentionally misleading offers
    - Fine print
    - Hidden fees
    - Intentionally baffling grace periods and due dates
    - Altering the terms of a deal after the deal is made

    Now, all of these shenanigans are legal under our Capitalist System.  But they are also sleazy.

    This is an industry that has been under-regulated for far too long.  Angry people want to lash out at them with Usury Laws. But we should be smart -- instead go after the sleazy (but legal) practices that actually hurt people.

    This is a job for a scalpel, not battle-ax.

  •  Just about Totally wrong: (7+ / 0-)
    1. They do raise rates to 30% for the above reasons, but also because 30% looks like much more money on the bottom line then 15% does--they then are attempting to pass this new asset off to the government as toxic (which it is, no one can pay 30%)  and claim it's worth the new 'full value' --plus  fees.
    1. Credit card companies ARE evil. They change payment dates around to cause 'missed' payments, change terms, lie to customers on the phone,  hell, they even try to get relatives to pay for deceased family members cards.

    "The military industrial complex not only controls our government, lock, stock and barrel, but they control our culture." - Mike Gravel

    by Wilberforce on Wed Mar 11, 2009 at 11:57:57 AM PDT

    •  exactly - and in our stampede for "tort reform" (5+ / 0-)

       and pro-business courts and sycophantic judges - we have a legal regime that welcomes these kind of abuses as good for business.

       But eventually - it just melts down - you can't get blood from a stone - now - the assets will move to non-performing and then liabilities - and then poooof - another banking crisis - which could have been avoided had the piggies in the corner offices not thought they could get away with it.

  •  Sorry, but this flies against my experience: (9+ / 0-)

    "The 30% "default rate" interest rates are implemented by credit card companies in order to force one to pay a balance down as quickly as possible,"

    I had a $5000.00 balance @ 30% and after making an $1800.00 payment one month, got a letter saying,

    "We see that you recently made a large payment. We hope this doesn't indicate you'll be closing your account. Please use the enclosed checks to consolidate debts, blah... blah. "

    I'm close to paying the last of that card's balance off and believe me, they'll be sad to see me go. For years I was their ideal customer -- 30% interest, late fees, etc... Their computer giggled every time it printed one of my statements.

    •  That's exactly the point. (4+ / 0-)
      Recommended by:
      Sparhawk, theran, ManhattanMan, kaolin

      Their model originally determined that you were a high risk of default. When you demonstrated that you're not by making a large payment, they realized their model may not have been entirely correct and tried to keep you as a customer. You probably could have called up and negotiated a much lower rate.

      And, by "they," I likely mean "some computer program designed to track these things." I doubt an actual person was even involved.

      •  Re (2+ / 0-)
        Recommended by:
        theran, xysea

        And, by "they," I likely mean "some computer program designed to track these things." I doubt an actual person was even involved.

        A human being probably never even knew that any of this occurred :)

      •  My point is that they did (4+ / 0-)
        Recommended by:
        Mad Kossack, kaolin, xysea, Toon

        NOT want to see me pay down the debt as the diary suggested. They freaked out at the first sign I was paying it off and sent me a letter encouraging me to put more charges on and keep the balance high. They were perfectly happy bending me over for 30% every month on as large a balance as possible.

        Of course, that doesn't make them evil ...if you accept some twisted definition of the word.

        •  Did you read what he said? (2+ / 0-)
          Recommended by:
          theran, soros

          You making the $1800 payment was evidence to them that you aren't a risk, so they tried to keep you as a customer.

          •  More to the point, (2+ / 0-)
            Recommended by:
            kaolin, Toon

            did you read what YOU said?:

            "The 30% "default rate" interest rates are implemented by credit card companies in order to force one to pay a balance down as quickly as possible"

            Bullshit. When I started paying off the balance as quickly as possible, they tried to get me to sign their checks. They wanted me to maintain a high balance @ 30% ...NOT "pay it down as quickly as possible.

            And then, you went further:

            "A credit card company that wanted to keep you "on the hook" would be competitive with those other issuers"

            Bullshit again. The letter I got encouraged me to jack my balance back up and did NOT try to entice me to do it with a decreased rate.

            Their purpose is indeed to keep people "on the hook" for the largest amount and at the greatest rate possible.

            I have no idea where you're coming from in defending these usurious assholes, but at least your first point of their defense is simply inaccurate.

          •  I was making $1,000 (2+ / 0-)
            Recommended by:
            kaolin, Toon

            a month cc payments when they jacked up my rates to thirty one %.

  •  Good Grief, Charlie Brown. (6+ / 0-)

    A company that changes interest rates from writing a check on the account from 4.9% to 29.9% and notifies you this in nine-point type in buried somewhere in seven pages of legalese while continuing to send checks encouraging you to use them without upfront notice of the actual interest rate is just sleezy, scummy, and dishonest.

    I've even had companies send me a bill for a couple of thousand bucks transferred from another bank to their account that I never authorized.  For prove, they sent a copy of the authorization--supposed signed by me.  That one took six months and letters to federal oversight agencies before I got a notice to disregard the bill.  And company (in Delaware) got off scott-free.  "Maybe someone inside the company was doing this, but surely it isn't a policy of ours."

    •  That happened to me. (2+ / 0-)
      Recommended by:
      kaolin, Toon

      I have asked my husband several times, if he agreed to change from Discover to Capital one and he says no, but I always thought that maybe he couldn't hear exactly what they said, since he is losing his hearing.  He said he never talked to them but one time and told them they needed to talk to me, because I kept track of the card.

      So they did it all by their little selves.  They know they can walk all over the rest of us and get by with it.

      We need some serious *ss kicking done on Wall Street and the credit card companies. Legal fines would work for me.

  •  I tipped your jar (5+ / 0-)
    Recommended by:
    Sparhawk, theran, Debbie in ME, kaolin, Toon

    because discussion is important, and you presented your case in a straight-forward manner backed up by logic. Logic I believe is flawed, but logic nonetheless.

    The personal experience I have is with the FICO score. Mine is steadily dropping, despite the fact I have never missed a payment on anything, and since my divorce my balance has steadily decreased.

    I used to have a $12k credit limit on my American Express Blue card. It's down to $4,100 now. Every six months or so, they reduce my available credit to less than $500 more than what's on the card, in effect making me unable to use the card further.

    What is this other than trying to be rid of me as a customer? I have another card that never does this to me, and has a much lower interest rate. Obviously I'll be holding one account when this is over, and dumping the AmEx. Because they don't want me anyway.

    What the hell kind of default risk is a $30k/year guy who pays down his balance and has a low DTI ratio?

    Obama's campaign just transformed from "Yes, we can" to "You're fuckin'-A right we did!"

    by Eddie in ME on Wed Mar 11, 2009 at 12:12:37 PM PDT

  •  The credit card companies would charge you 300% (2+ / 0-)
    Recommended by:
    relentless, Toon

    interest if they could - once you have a balance with them. If you can't pay would kill you in your sleep and sell your organs for profit if it was legal.

    That's the ethos of Reagan capitalism for you.

    Adopt a Shelter Dog!
    Don't blame me, I voted for Lizard People!

    by psycho liberal on Wed Mar 11, 2009 at 12:21:08 PM PDT

  •  it's not credit, it's the business practices.... (6+ / 0-)

    What you describe is the ideal world. People don't complain about the business model of credit cards, they complain about the business practices of credit card companies.

    Credit card companies have every right to cancel or restrict your account and collect from you if you do not continue to make your payments without raising your interest rate to 30%, they choose not to.

    Credit card companies do not have to sell advertising space in their monthly statements for companies that over-charge for the services offered, defraud customers, provide services that are completely unnecessary, or offer services they do not actually allow their customers to use.  They chose to do this.

    Credit card companies do not have to charge 3-4% to small merchants for transactions that cost them a fraction of a penny to complete.  They chose to do this.

    Credit card companies have enough profits to hire and properly train more customer service representatives so that a human could answer your call without waiting on hold for 45 minutes, and still remain profitable.  They chose not to do this.

    Making a buck is not wrong.  Sinking to the lowest practices the public will put up with, and buying up competitors which provide better alternatives to customers to increase "profit" to such an extent that there are no "good citizens" left in the market is wrong.

    How many of the "average" customer would you say believes they are treated "well" or even "satisfactorily" by a credit card company?

    I can see defending the business itself (as the diarist has done a decent job of above). The business practices are what people want to see changed, not the business model.

    "We would never shoot nuclear weapons at Decepticons, ever." - Lt. Col. Jack Jacobs (Ret.)

    by jandrewmorrison on Wed Mar 11, 2009 at 12:24:06 PM PDT

  •  Maybe restricting/tighter credit is a good thing. (1+ / 0-)
    Recommended by:
    theran

    Credit card companies will figure away to make offers to "marginal credit" people. Besides maybe this industry should be made smaller.

    Credit card debt is evil.

    RebelCapitalist - Financial Information for the Rest of Us.

    by dennisk on Wed Mar 11, 2009 at 12:37:22 PM PDT

  •  I have one question--IF CC companies like it.. (1+ / 0-)
    Recommended by:
    Toon

    when you pay off the balance every month, why do so many arrange to have the "payment due" date on a Sunday, increasing the chance that you will pay late?

    More than meets the eye?

    If there is anyone out there who still doubts that America is a place where all things are possible...tonight is your answer.

    by Azdak on Wed Mar 11, 2009 at 12:42:22 PM PDT

    •  There are probably bad customer service... (0+ / 0-)

      ...issues, no doubt, but I highly doubt that this is an intentional method of making you pay late. These kinds of shenanigans are (just speculating, no data to back this up) probably far more trouble than they are worth. To make that $20 late fee, they have to deal with all kinds of bullshit and phone calls, etc.

      •  I got a $150 late fee (1+ / 0-)
        Recommended by:
        Toon

        They go up to 31% and then hit you with a late fee.

        What is worse,  cc companies won't pay taxes on the money they earn, because they will write off the interest that people owe and go bankrupt owing.

        Tricky little inhuman computers have it all figured out.  But there is a human hand that turns on that computer and inputs the info.

        Don't let them blame it on a computer. If they don't earn what they want, they change the setup on the computer.

  •  credit cards are valuable (2+ / 0-)
    Recommended by:
    Sparhawk, relentless

    You gloss over some of the real complaints, to an extent that it questions your credibility on the points you make that are good. The problem isn't the interest rate charged, but the ease with which companies can change interest rates at will. The problem isn't that credit card companies set onerous terms, but rather that they do so in purposefully dense, legalistic, tiny, fine print that makes it time consuming and difficult to compare various offerings. These are legitimate complaints and can be addressed through public policy.

    But in general, I agree. The problem in our economy is too much credit, not too little. Credit card debt is some of the riskiest private debt because it's unsecured. Credit card companies should be decreasing credit lines, and we should be celebrating that renewed focus on responsible risk management. That's what we've been asking financial companies to do for years, be more responsible about realistic assessments of affordability of debt levels.

    The real issue, after all, is people being able to afford a decent standard of living. Credit is merely transferring consumption from the future to the present. If we want to make people better off, we've got to address wage stagnation and the social safety net. It means living wages, support for unions, progressive income taxation, a sizable estate tax, single payer health insurance, universal unemployment insurance, expanded food stamps and TANF programs, etc.

  •  bad math (0+ / 0-)

    If I'm a bank and I service a credit card customer who pays his balance off every month, I get 1.5% to 2% per month on that customer's purchases, giving me an 18% to 24% profit per year...

    Sorry, wrong. 1.5% per month = 1.5% per year.

    For example, if I spend $1000 a month the credit card co gets $15. Over the year I spend $12000, the CC co gets $180, or 1.5%.

    This makes me kind of doubt the rest of your post.

  •  When my girls struck out on their own (2+ / 0-)
    Recommended by:
    Sparhawk, Toon

    I tried to tell them not to use credit cards and they wouldn't listen to me.

    I never helped them when they got into a mess with their cards, since they wouldn't listen.

    When I got hit with 31% interest, I decided to pay off their credit cards too with what I had left after paying off our debt.

    I talked to each one of them and none of them owed credit card debt.  They had all finally paid their cards off and aren't going back down that road.

    A lesson learned by my whole family.

    I do have one credit card that I am not closing.  I use it for car rental and traveling, but I don't take it shopping with me.  I pay it off within a month, sometimes before the bill comes. They are bad about not showing charges until the second month, so they can get a month's interest off of us.

    Not one more penny.

    •  I never minded paying interest (0+ / 0-)

      as long as it was reasonable.  The card I keep is 10%, which is still high since savers are getting 1% in the money market now.

      But they have infuriated me with their gouging, trickery, greed and deception.

      It is sad that the check I write to the IRS will go to them.  

      Not one more penny.

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