I thought Credit cards were not a neccessity...

[Abreutime]

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Originally Posted by donheff So I run up several thousand dollars in debt on a credit card from the Bank of Evil Practices which advertises a low interest rate. I always pay at least the amount due and a little more as I make a good faith effort to pay my debt. The mailman drops off a bill from a different card at the wrong house and I am late on a payment for that other card. Suddenly, Bank of Evil Practices raises the rate on my entire debt (not just new charges) to 29%. That's legal so they can go ahead and do it to me. Fat cats get rich that way. Good for them - its the American way.

1) You wouldn't get the low initial interest rate if credit card companies couldn't raise rates later on.
2) If someone stops paying credit card x, the risk to credit card y goes up. It's a reality. And as long as it's legal to do so, CC companies will price that risk accordingly.
3) You're still responsible for bills, rain or shine, mailman error or not.
4) You may think that the credit industry should be run more like a charity, but it's a business. Your "good faith" efforts don't offer extra protections from the contractual obligations. You don't get extra consideration for trying hard, and when you earned your money, it probably had nothing to do with "good faith effort" and everything to do with output.

[clifp]

Quote:

Originally Posted by FinanceDude I think most are. However, the folks on this board represent what, maybe 2-3% of the US citizenry? I say crush those that misuse the system, but raising rates from 9% to 29% on folks who pay regularly like clockwork just because a company feels like it is taking it a bit far..........

As I person who's dividend income has been crushed because the bank stocks he owns are losing money because of deadbeat borrowers, I say raise those fees, jack up those interest rates, there is still blood in a few turnips, squeeze harder.

Wearing my, US Taxpayer and major creditor of many banks, hat, I have similar feelings. I do want to get paid back the money we have loaned the banks and banks do need to be profitable for the economy to recover and our collective debt to be reduced.

Wearing my compassionate conservative hat (a pity Bush 43 trashed the brand), I think the government has a legitimate role in acting as referee between consumers and banks, so I really hope that Congress stands up to the bank lobbyist and passes a good bill.

When the Supreme Court, ruled that banks/credit card companies could
set up shop in whatever state prostituted themselves the worst. It did several things, it enriched South Dakota, made a mockery of the 10th amendment, and destroyed the centuries (dating back to English laws) long tradition of allowing local communities to set usury laws.

The balance of power shifted even further in favor of banks. Credit card have gone out of the way to make there product impossible to understand. When I was playing the balance transfer game a few years ago, I actually sat down and would spend an hour reading the credit card agreements. IIRC, the size of these agreement has increased 500% in the last decade or so. I think it is virtually impossible for the average (and I consider myself well above average in financial sophistication) to comprehend these agreements. What is even worse is they are constantly updating these, and of course they never highlight what was changed between the agreement 6 months ago. I had to pay several hundred dollars in interest, because, despite what the credit card company rep said, my balance transfer had to be paid back in July, not June like both of us thought.

The News Hour had a good discussion last night about the issue. I agree with commentaries that it is important to distinguish from banks tightening credit requirement, which I think is important for them to do, and there desire to squeeze even more bucks out their most profitable and most desperate customers by jacking up interest rates and fees.

[clifp]

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Originally Posted by armor99 Obama to meet with credit card execs, make his case - Yahoo! Finance= This sort of thing really makes my blood boil.... So now the govt is going to step in and tell a private business what they are allowed to charge for their services? Last time I checked, no one has forced anyone to get a credit card, and if you do have a credit card and pay it off in full every month, then the interest rates become irrelavent anyway. Why does the govt get to tell any business what they get to charge for their products or services? This is yet another example of how the so called "Nanny state" gets created. It takes the premise that left to their own thoughts, most people will screw up their lives. And you know what... even if that is true... is this the way to make it any better? Rather than mandate limits on the fees a credit card company can charge, would it not be a better use of tax payer money to create school education programs on the subject? Why not educate our children about the problems of credit card debt etc? Would this not be a better way to stop the problem at it's source? Just my thoughts... some may agree... others... not so much...

I think 90% of Americans understand at basic level that running a large credit card balance is a bad idea. The credit card companies spent billions of dollars, and employed the best marketing minds in developing advertising campaigns to convince the consumer that; "our card is different it is ok to run a balance on out card because we have really low (even 0%) interest.
As I mentioned in my previous post, there is simply no amount of education we could provide to counter act the deceptive advertising the CC companies use.

Armor I urge you to read your credit card agreements (you save them for future reference right?) and then develop a lesson plan for a high school kid about understanding credit cards. Good luck

I think conservatives (and I generally consider myself one) put too much faith in a Laissez fair system.

There is good piece in the WSJ by two prominent economist Robert Shiller and an admittedly liberal Nobel Laureate economist George Akerlof, on the need for the government to play a role as referee in a free market economy.

[alvarezg]

I see credit cards as another consumer product, maybe not an absolute necessity, but still righly subject to consumer protection. Just like a can of beans, nobody forces it on you, but you expect the government you pay for to regulate the product so it's not toxic.

[HFWR]

Quote:

Originally Posted by alvarezg I see credit cards as another consumer product, maybe not an absolute necessity, but still righly subject to consumer protection. Just like a can of beans, nobody forces it on you, but you expect the government you pay for to regulate the product so it's not toxic.

We should add beans to the "cap-and-trade" list, to help offset the greenhouse gas emissions.

[mickeyd]

Once the camel's nose (read:federal government) gets under the tent, there is no stopping them.

Once TARP $ and Stimulus $ and any other named US federal $ gets factored into the process, you can be sure of only one thing: There will be a bunch of regulating going on and it will be extremely difficult to get that damn camel out of the tent.

To paraphrase a line in one of my alltime favorite flicks~ "I'm shocked! Shocked! That there's federal intervention in this industry."

[JOHNNIE36]

I think the convenience of the credit card makes it a worthwhile item. I carry three. One is my bank debit card which I use 80% of the time for purchases. DW used Master Card for her major purchases as she doesn't like the hassle she gets with the AMEX card (lot of stores do not honor it). I use AMEX for the remaining 20% of my purchases, and I carry a Master Card to supplement where places don't take AMEX. Why these cards? Because I hate to carry a lot of cash. Easier to lose, get wrong changed and makes your wallet too fat. Never carry more than $50 in cash. I like the extra warranty that some cards provide on purchases and the 5% cash back on gas purchases thru AMEX is good. Always pay in full at end of month.
However, just signed a contract for some ceramic tile installation and in jockeying for a better price, agreed to pay cash to get a 10% discount. Three percent (3%) of this was the savings to the tile store for not using a credit card. And, they wouldn't accept AMEX regardless. However, I can see the abuse in credit cards. I see people in McDonald's get a burger and fries and run it through on a credit card. Just my thoughts.

[Gone4Good]

Quote:

Originally Posted by armor99 So now the govt is going to step in and tell a private business what they are allowed to charge for their services?

Well according to Wikipedia . . .

Quote:

The First Council of Nicaea in 325, forbade clergy from engaging in usury

So it looks like the government has been telling lenders what they can charge borrowers for going on 1,700 years now.

With respect to credit cards, it seems to me that there are some abuses that should be rectified. As a starting point, consumer financial products should have pretty straight forward terms and conditions. It shouldn't take a law degree to figure out what the interest rate is, how it is calculated and what fees are applied. I've heard that CC companies made $15B in various fees last year (not including interested). Now I'm all for companies earning an honest buck, but $15B in fees on credit cards doesn't sound honest to me. It sounds more like a business practice of enticing folks to a card with promotional features listed in big print on the front and a host of restrictions and fees buried deep in the fine print. That cr@p should stop.

[W2R]

I neither have nor want a credit card, so this discussion is mostly irrelevant to me.

I do recall my father explaining interest rates to me when I was a little girl, back in the early 1950's. That included an explanation of what usury was and that usury is illegal. Maybe that was a state regulation of some sort, but complying with usury laws distinguished the criminal loan sharks from reputable loan companies.

[FinanceDude]

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Originally Posted by . . . Yrs to Go With respect to credit cards, it seems to me that there are some abuses that should be rectified. As a starting point, consumer financial products should have pretty straight forward terms and conditions. It shouldn't take a law degree to figure out what the interest rate is, how it is calculated and what fees are applied. I've heard that CC companies made $15B in various fees last year (not including interested). Now I'm all for companies earning an honest buck, but $15B in fees on credit cards doesn't sound honest to me. It sounds more like a business practice of enticing folks to a card with promotional features listed in big print on the front and a host of restrictions and fees buried deep in the fine print. That cr@p should stop.

Transparency should not be seen as an enemy. Remember when the Surgeon General got the LARGE letters saying how bad smoking was for you? Until the punitive cigarette taxes, people still smoked. Same as credit card companies, they could put their fine print in large print and it wouldn't have that big of an effect.

I don't like using credit at all, but I do from time to time. However, I pay it off in a matter of months. I had one company raise me from 7.9% to 29% with no reasons given. So, I dropped the card, and they seemed amazed and continue to placate me to "come back".........

[donheff]

Quote:

Originally Posted by Abreutime 1) You wouldn't get the low initial interest rate if credit card companies couldn't raise rates later on.

I don't care since I don't ever pay interest on CCs but those that do would probably forgo a point if the CC companies would act in an honest manner.

Quote:

2) If someone stops paying credit card x, the risk to credit card y goes up. It's a reality. And as long as it's legal to do so, CC companies will price that risk accordingly.

Precisely, although I disagree completely with your use of the word accordingly. The idiots killed the goose because it WAS legal. But their victims will now make it illegal.

Quote:

4) You may think that the credit industry should be run more like a charity, but it's a business. Your "good faith" efforts don't offer extra protections from the contractual obligations. You don't get extra consideration for trying hard, and when you earned your money, it probably had nothing to do with "good faith effort" and everything to do with output.

The CC companies are run like a lot of charities -- abusive admin fees and huge executive salaries.

If I lose my job, my rates (on existing debt) should not rise as long as I pay the minimum due on time, period, amen!

[FinanceDude]

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Originally Posted by donheff IThe CC companies are run like a lot of charities -- abusive admin fees and huge executive salaries. If I lose my job, my rates (on existing debt) should not rise as long as I pay the minimum due on time, period, amen!

I agree with you 100%

[armor99]

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Originally Posted by clifp As I mentioned in my previous post, there is simply no amount of education we could provide to counter act the deceptive advertising the CC companies use. Armor I urge you to read your credit card agreements (you save them for future reference right?) and then develop a lesson plan for a high school kid about understanding credit cards. Good luck I think conservatives (and I generally consider myself one) put too much faith in a Laissez fair system.

So you believe that big businesses are so much smarter than everyone else? So much so that they have an unfair advantage over "the rest of us". Ok... let me do the unexpected here, and conceed the argument to you.

Let us assume that you are correct. It is not possible to educate people on credit cards, how to use them, how to stay out of debt etc. So the solution is to have the govt forcibly stop these busninesses from advertising, rather than the vain attempt to educate people how to take care of themselves?

I would think that would just make the problem even worse in the long run. The more people that do not have to think for themselves, because the govt is busy removing all sources of risk from their lives, it just will make people that much more depandant on the govt. for their needs. Is that really the direction that would be good to go? Where the govt needs to tell us what to do, and forbids us from doing certain things because we might not be smart enough to handle the responsibility? Would you be in favor of an intelligence test for getting a loan for example? I like risk in my life... it makes my life have meaning for me....

[armor99]

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Originally Posted by FinanceDude I don't like using credit at all, but I do from time to time. However, I pay it off in a matter of months. I had one company raise me from 7.9% to 29% with no reasons given. So, I dropped the card, and they seemed amazed and continue to placate me to "come back".........

What, you mean capitalism actually WORKED? As in they had a product or service that you were unhappy with, so you stopped using them? This is unheard of! Everyone knows we are not smart enought to DO things like that. Did the govt help you? Come on... confess... a govt guy called you up and told you to drop their service for your own good... (ok... could not help the sarcasm here....)

[donheff]

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Originally Posted by armor99 So you believe that big businesses are so much smarter than everyone else? So much so that they have an unfair advantage over "the rest of us". Ok... let me do the unexpected here, and conceed the argument to you. Let us assume that you are correct. It is not possible to educate people on credit cards, how to use them, how to stay out of debt etc. So the solution is to have the govt forcibly stop these busninesses from advertising, rather than the vain attempt to educate people how to take care of themselves?

I don't think this is an accurate description of the situation. As Monty Python used to say, "No one expects the Spanish Inquisition." And no one (until recently, with all of the negative publicity) thought that it could be legal for a CC company to raise your interest rate on existing debt if you have never missed a payment. It just doesn't make sense. Once we understand the situation we are outraged and begin looking at everything these companies do with a skeptical eye. It makes more sense to me for the Government to intervene with rational regulations than to simply educate people that CC companies can legally abuse them. Credit is too important to the American way of life. If we go a little too far on the constraints - so be it. The market will point out our errors and we will swing back the other way a bit.

[donheff]

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Originally Posted by armor99 What, you mean capitalism actually WORKED? As in they had a product or service that you were unhappy with, so you stopped using them? This is unheard of! Everyone knows we are not smart enought to DO things like that. Did the govt help you? Come on... confess... a govt guy called you up and told you to drop their service for your own good... (ok... could not help the sarcasm here....)

Yeah, but the Dude was only able to dump them because he is one of us frugal types 90% of the population would be trapped with the higher rate because they couldn't afford to pay off the debt. Capitalism didn't really work here - or only partially worked. The CC company was just shocked that FD didn't fit their statistical model.

[FUEGO]

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Originally Posted by donheff Yeah, but the Dude was only able to dump them because he is one of us frugal types 90% of the population would be trapped with the higher rate because they couldn't afford to pay off the debt. Capitalism didn't really work here - or only partially worked. The CC company was just shocked that FD didn't fit their statistical model.

You got that half right. FD is a responsible debtor that doesn't fit their statistical model. So he pays off the credit card using his funds on hand or a cheaper source of credit. Those with no other means of getting cheaper funds (ie those who are broke and can't get cheap credit elsewhere) are stuck paying a higher rate because they are more risky. So the system does work. People are smart - they seek the least costly method based on their individual abilities.

[donheff]

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Originally Posted by FUEGO You got that half right. FD is a responsible debtor that doesn't fit their statistical model. So he pays off the credit card using his funds on hand or a cheaper source of credit. Those with no other means of getting cheaper funds (ie those who are broke and can't get cheap credit elsewhere) are stuck paying a higher rate because they are more risky. So the system does work. People are smart - they seek the least costly method based on their individual abilities.

Your premise is that the CC companies are really all about risk. I think they are all about rip-off. They didn't raise the rate on FD because he really presented a risk of non-payment (witness the fact that they are asking him back and probably offering to restore his original rate). They raised his rate because a technicality allowed them to do so and they assumed that not only would he continue to pay, but that he would pay MORE because he would have no other choice.

[clifp]

Quote:

Originally Posted by armor99 So you believe that big businesses are so much smarter than everyone else? So much so that they have an unfair advantage over "the rest of us". Ok... let me do the unexpected here, and conceed the argument to you. Let us assume that you are correct. It is not possible to educate people on credit cards, how to use them, how to stay out of debt etc. So the solution is to have the govt forcibly stop these busninesses from advertising, rather than the vain attempt to educate people how to take care of themselves? I would think that would just make the problem even worse in the long run. The more people that do not have to think for themselves, because the govt is busy removing all sources of risk from their lives, it just will make people that much more depandant on the govt. for their needs. Is that really the direction that would be good to go? Where the govt needs to tell us what to do, and forbids us from doing certain things because we might not be smart enough to handle the responsibility? Would you be in favor of an intelligence test for getting a loan for example? I like risk in my life... it makes my life have meaning for me....

I am quite sure that credit card come are able to hire smart lawyers who can write credit contracts which are best incomprehensible and at worst misleading implying X but actually mean Y when interpreted in a court of law. If you don't believe me read a CC agreement.

Call me a commie pinko, but I do believe that Government has a role in regulating the advertising business do. I am not particularly risk adverse, But I like to know that doctor or lawyer who claims he graduated from Harvard Medical/Law School risks government imposed penalties (Jail or fines) if in fact he never went there. The medicine I take actually has chance of curing my disease and doesn't just contain opium or alcohol to make me feel better. The used car that the salesman tells me has 30,000 actually was only driven 30,000 miles And oh yes the Card Credit with 12% interest actually charges 12%. If this reliance on Government serving as a referee makes as a weaker, stupider nation so be it.

[armor99]

Quote:

Originally Posted by donheff I don't think this is an accurate description of the situation. As Monty Python used to say, "No one expects the Spanish Inquisition." And no one (until recently, with all of the negative publicity) thought that it could be legal for a CC company to raise your interest rate on existing debt if you have never missed a payment. It just doesn't make sense. Once we understand the situation we are outraged and begin looking at everything these companies do with a skeptical eye. It makes more sense to me for the Government to intervene with rational regulations than to simply educate people that CC companies can legally abuse them. Credit is too important to the American way of life. If we go a little too far on the constraints - so be it. The market will point out our errors and we will swing back the other way a bit.

The way I look at it... a company out of control makes huge profits, because that is what companies WANT to do. An out of control govt. gets HUGE control over the population, because by and large, that is what govts do. I do not put my complete faith in either of them, but I would much rather a company get richer, that a govt to have more power over me than it should. A company cannot FORCE me to buy something from them, but a govt sure can....