Abusive Credit Card Companies

By: Dale Rogers

"Some" of the Credit Card Companies offer a good product and decent service providing Americans with the convenience and back up of a credit card when not carrying a lot of cash on person. Much of the online business and other travel and such have to be conducted by some sort of plastic. Credit card possession and usage is a cornerstone of conducting business in the U.S. It creates fluidity to economic commerce. Now, however, many abusive credit card companies have ratcheted up the "gouge game" to a new level. Per a recent Senate Hearing on March 7, 2007, all prompted by U.S. Government Accountability Office (GAO) report, the abusive credit card companies have increased fees and interest rates. So when an abusive credit card company applies "the butchers thumb" on the scale, they have crossed the line as far as regulators are concerned. What seems to have been lost on these abusive credit card companies is the right to do business in the U.S. economy is a privilege, not a birthright. Their ticket to do business can be pulled through Federal Law and "new legislation", just for good measure.

"Jaw Boning" in the past has given various businesses cause to pause while considering their actions less new restrictive legislation is laid over their operations and bringing another degree of complication to what seems like an already profitable enterprise. Baring that, legislation may follow. If nothing else, it brings unwanted negative attention to their methods and abuses. The abusive credit card company names will be bandied about creating negative press that may effect their future bottom line. It gives a broad-brush swipe at the industry, which is never a good thing.

The Government Accountability Office (GAO) reports there were about 690 million credit cards in circulation meaning credit card toting consumers have more than one card. The GAO is always measuring the past and in 2005 there was about $1.8 trillion on charge cards. Other agencies report that the average credit card debt is a little over $5,000 per household. The report shows that a little over 50% of the credit card holders pay off credit card balances every month. So on the whole, it looks like the majority of American families are not overburdened by credit card debt. Those families who are appear to be relegated to higher rates with some pretty outrageous terms. Things such as penalties and late fees range from $40 and up for making a late payment and other charges. In some cases this will trigger a higher interest rate if not paid on time. These interest rates can be more than 30% or more figured on an annual basis. Much of the government figures come from GAO and the banking industry.

A couple other hand grenades are known as the concept of "universal default". If you are late on one card, the "universal default" provision will kick in and all the other cards will be accelerated to a higher rate. Another little time bomb is the practice upon a consumer being late there is invoked a "double-cycle" billing period where instead of having the 30-day grace period the interest goes back to the date of the previous bill and interest is popped on the former grace period. If this is combined with say a $40 late charge plus "double cycle billing" and perhaps the "universal default" provision suddenly a consumer is going under the gun. When the Bankruptcy Law was changed recently pushing more debtors into Chapter 13 Repayment Plan pretty much set up the stage for a quasi-indentured servant status. Working basically for the company store a consumer can not get readily ahead. It's almost like waving temptation in front of a credit-addicted consumer who looks at easy credit as being never ending. When the rubber finally hits the road and the final straw breaks the camel's back and not one extra dollar is available to make even the minimum payments, then its "Houston We Have A Problem". Prior legislation accelerated the payback minimum payment. Formerly, a $5,000 credit card balance might have had a $120.86/month minimum payment at 29% would be paid off in 30 years. That's assuming no additional purchases were made. Now that the term has been reduced in the 60-month range so that minimum payment would have to be $158.71/month to give the consumer a chance to pay it off. However, if charges are added back by constant purchases there will never be a dent made in the debt.

From Carl Levin's statement at the Hearing of Permanent Subcommittee on Investigations conducted on March 7, 2007 consumers shared the horror stories in dealing with the credit card companies. The committee focused on three aspects of the credit card industry. The hearing discussion included grace periods, interest rates and fees. In regard to grace periods, it was brought out that many consumers operate under the assumption that they have a grace period before interest is charged. As it turns out there is no grace period on purchases IF there is a balance on the card. Their discussions that the majority of U.S. credit cardholders carry unpaid charges. In those instances, there is no grace period. The money meter starts running at the point of sale.

Interest rates were the next topic with regard to carry over balances was put up for discussion. The example used showed a consumer who had a zero balance one month and makes a major purchase for say $5,020 the during next billing cycle period and pays $5,000 payment. The example then goes on to show even though a $5,000 payment was made and there was a $20 remainder balance the interest was charged on the whole amount of $5,200. Not too many consumers have a handle on this little "money niche" practiced by the credit card issuers. The next month would be additional monies owed called "trailing interest".

Credit card fees very difficult to get a total handle on its application. The Government Accountability Office (GAO) "identified a host of fees imposed by the credit card industry." GAO found that late fees averaged $34/month with over the limit fees were average $31/month. Some credit card company policies allow them to repeatedly pile on over-limit fees. One consumer example testifying before the committed shared their experience where the purchases exceeded the limit three times for a total of $200 he was charged over-limit fees 47 times and paid $1,500 for this "infraction". Other fees range from a $10 to $15 fee to pay a bill over the phone. All of these fees are lumped to the base balance for calculating the running interest charges. It was found that some of these fees and charges pushed the balance past the over-limit amount thereby triggering even more consumer pain. In this case, it had nothing to do with new purchases. Some late fees are caused by late posting on received mail.

Credit card issuers like to tout the high risk of lending in the plastic arena, however the numbers show that 95% to 97% of consumers pay their bills as agreed. The conclusions of the hearing showed the credit card issuers maintaining a profitable lending position and have realized better margins than commercial banks. The proof in the pudding of this high profit enterprise indicates more than 8,000,000,000 (billion) pieces of mail were sent out soliciting more credit card business.

The hearings will continue. The major players include Bank of America, Chase and Citigroup with over 200 million credit card accounts among them will be brought before the committee to discuss credit card practices. Chase preempting the new hearings has indicated they will stop collecting the added "double-cycle" billing. "Jaw Boning" is at work. Senator Carl Levin is on the case and credit card companies are running for the hills. The light is being shown in the dark corners and consumers are cheering him on.
Go Carl! Go Carl! Go Carl!

Dale Rogers
http://www.brokencredit.com

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