Another credit card rant

[germdoc]

Despite the Fed's lowering of interest rates, rates on credit cards will likely rise:

http://www.washingtonpost.com/wp-dyn...l?nav=hcmodule

Now, putting aside whether it's a good idea to overextend yourself on CC's (it isn't, I agree), the average American debt is almost $9000 (http://moneycentral.msn.com/content/...rts/P74808.asp), so there's a lot of money at stake here.

My question is, at what point does CC interest rate stop being a legitimate cost of business and become usurous? This is an ethical, philosphical and legal question. All major religions preach against usury. And, all states have laws limiting the amount of interest you can charge for lending. In NY, for example, the usury rate is 16% (http://www.lectlaw.com/files/ban02.htm).

However, in its infinite wisdom in 1980 Congress exempted national banks and various other institutions from state usury laws.

Now I believe in the free market, but it seems to me there isn't a level playing field here. The banks can charge whatever the heck they want and *change the rules* whenever they want. (It's only a matter of time until they start hiring thugs to go and break legs of deadbeats.) The only recourse of the consumer is to pay off all balances and stop using the cards. At all. Hard to do, since the simplest transaction nowadays (renting a car, Amazon.com, etc.) involves using one of the danged cards.

Even for those of us who pay more than minimum balance on time, like me, they could jack up the rates. That's what really ticks me off. IMO they need to be brought to heel, like an unruly Rottweiler. Without being partisan, I hope our next crop of politicians has the guts to do that.

OK, rant over.

[balzac.thegreat]

I rarely use credit cards. I tell everybody I know not to use them. It's OUTRAGEOUS what CC companies get away with and YOU ALL ARE WILLINGLY LETTING THEM GET AWAY WITH IT! 16%? 19%? 24.99%!? I've got 1 Sears CC that I use to get their discounts. When I put something on my card, I'll go home and set up the bill pay to send off the payment immediately (Like I did with my 42" plasma, my 21829, our new vaccuum cleaner). I've got a high limit Discover card that sits unused. Both are not in my wallet.

The only debt I have is the couple grand left on my car. I'll be paying that off 2 years earlier than the term of the loan.

As a general rule, I only ever spend the money that I have. I use a debit card for purchases requiring plastic. Resist the urge to put anything on credit. Once you're behind, it's a very tough hole to get yourself out of. I learned the hard way and can only hope to prevent others from doing the same.

[jonmulzer]

Take a look at the "Bankruptcy Reform Act". It is the single most expensive piece of legislation in history. The credit card companies and banking cartels spent in excess of a billion dollars to get it passed. And the reason they did so, according to this wonderful administration we have , is because the banking institutions were loosing so much money. The banking institutions have created their own form of indentured servitude and have captured nearly the entire populace in it.

A little background about myself. When I was 18 years old, I bought into everything that was said by the banking cartels. I went out, bought a car on credit, got a credit card and charged modest items onto it and immediately paid them off in order to "build up my credit score". Some months I would even carry a balance because I was told that is what the credit reporting agencies wanted you to do to "build up my credit". That is the only thing I ever heard from anyone was to do that. Pay all your bills on time, get a couple of credit cards, use them, pay off the balance, etc. Then, at 19 I injured my back. Two ruptured discs in my lumbar. I had a car loan, and about a grand on a credit card. In short order, because I was not able to work and had no insurance I was on the verge of repossession on my truck and could not answer my phone because of collectors. No one (with the exception of my father) had ever mentioned saving any money really. I had some in the bank, but it was eaten up in short order.

After that episode, which I would wish on no one, I began to rethink things. I have always had the philosophy that with great pain comes great lessons, you just have to look for them. So I began to rethink the whole "build up your credit" thing. I realized then that I was borrowing money and paying the banks interest, so that later I could borrow more money and pay the banks more interest. Seems like a great plan to make the banks rich, and keep me poor. So I paid it all off and never borrowed money again. Ever.

Now I have one simple rule, if I don't have the money I don't buy it. I save up the money and pay cash. I have money saved and when you use your own money instead of someone else's, you spend less on crap you don't need. I invest, which is something I would have never seen happening when I was 19. I actually have friends who have money in CDs earning 4% and paying 12% interest on a big screen TV and 6% on their cars and they try and convince me this is a good idea.

That epiphany early on in my life really made me look at things from a completely different angle. We are the most heavily marketed to population in all of history and we need to realize that all of it is BS.

Look at other developed nations in this world. Their savings rates typically hover between 10%-15%. The savings rate of these United States has been around -2% for a while now. The population as a whole has been spending more than it made for about a decade now. That is why our economy is in the shape it is now. You have banks giving $200,000+ ARMs to people with $50,000 incomes. You have people carrying balances on their credit cards greater than 50% of their annual income. That is why we are where we are now. And where did the banks get all the money they lent out to put people into indentured servitude? They made it all up! Grrrrr. I am not going to get into "fractional reserve banking" but feel free to explore the concept for yourself if you wish.

Ok, enough ranting. I could go on for hours. It is time that "We the People" finally said that enough is enough and break the bonds of slavery that they call credit applications.

[Russianwolf]

I got rid of my plastic about 10 years ago. Now the only debt we have is to the Mortgage.

We own both our cars outright.

If we need a rental, Enterprise blocks the funds on our Debit card. If we need a hotel, they do the same. The only thing that you need a credit card for, is a headache.

Edit: I loved reading an article recently that said that the CC companies can now raise your interest rate if you are late paying your telephone bill (gas bill, etc.). Why? Your credit score changed and we re-evaluated the risk (said with an absolutely straight face).

[BigguyZ]

I have about $1500 left of debt that I hope to have paid off by April. But in the meantime, I'm still month-to-month with my paychecks.

What I think is even more aggregious is the banking fees charged and how they calculate those charges. Payments already posted to my account can cause an overdraft fee if a pre-dated check comes in. Then it starts this nasty cycle of overdraft fees, then being THAT much closer to overdrafting just before my next paycheck.

I make a good living, and pretty soon things will be a lot easier, but right now it's frustrating and that's due a lot to the banks and the system they've been allowed to set up.

[jonmulzer]

I have about $1500 left of debt that I hope to have paid off by April. But in the meantime, I'm still month-to-month with my paychecks.

What I think is even more aggregious is the banking fees charged and how they calculate those charges. Payments already posted to my account can cause an overdraft fee if a pre-dated check comes in. Then it starts this nasty cycle of overdraft fees, then being THAT much closer to overdrafting just before my next paycheck.

I make a good living, and pretty soon things will be a lot easier, but right now it's frustrating and that's due a lot to the banks and the system they've been allowed to set up.

And many banking institutions and banking software companies have been found to order deposits and withdrawals to cause the most fees to their customers. Holding deposits for up to a week (even if made in cash or cashiers check/money order) while putting withdrawals through immediately. Also, when overdrafts do occur, the largest withdrawals are done first and then the smaller ones. That way they can charge their $29 for every tiny little overdraft but if they had ordered them to put the small ones first, only one overdraft would occur. That puts you in a cycle. Also, once you register several overdrafts you get a negative banking score, like a bad credit score, and then you are stuck with your current bank.

The odds are so far stacked against the common man it is ludicrous. Not to say that personal responsibility is not the majority of it, but I fully believe that there should be extensive financial education in all high schools as a mandatory course. And do not let it be bought and paid for by the banks or Fair Isaac.

[charliex]

?? My CC's give me gift cards., Over $1,600.00 in less than 3 years. I use them to supplement my tool stash. Ridgid planner, ROS, 10" miter saw, Table top joiner, saw blades, DC, Hitachi compressor & brad nailer, Grex pinner, etc. I just bought a Jet air filter and all the electrical to install it. Still have over $250.00 in HD cards. HD cards are no longer available but I see they now have Sears.
I can't complain; once many years ago I did pay 50 cents interest. Thought I had paid my bill in full but I was short by $1.00. I thought that 50 % interest was a bit steep but I didn't feel like arguing and it was my mistake.
My rule for CC use for the last 25 years: If I don't have the money I don't use them and Pay it off every month.

[MilDoc]

CC's were exempted from usuary laws in the 80's for a good reason - inflation was running in the double digits and rates had to rise accordingly.

That said, Congress should have tied rates to the real inflation rate, or to the Fed rate. They didn't. And they won't take on the banking industry now.

Isn't 25+ years enough?

LOML and I use 1 card only, pay it off every month, never pay interest, and earn "points" on Norwegian Cruise Line. This year's cruise will be free! But if we could not pay it off every month, we would live without it. (Took me a year to convince her it was all right - now she agrees).

[mschrank]

I once had a lot of CC debt. Finally got it paid off about 6 years ago (marrying rich helped ). Now, we don't have any credit cards. If we need one (ordering online, reservations, rental cars), we use our Visa debit card. We've only run into a problem once---a rental car company wouldn't accept a debit card, only cc. We simply called a couple other rental car companies and found another that was happy to take our debit card number and money.

[jonmulzer]

That was not the reason, it was the excuse for why they did it. They have been and always will be the most profitable industry on the face of this planet. They have profit margins that make the pharmaceutical industry green with envy. The rate of inflation does not effect the lenders in the same dynamic as it does the borrower due to the concept of fractional reserve banking. You have to look at where the credit card companies acquire the money they lend to people. For all intents and purposes, they make it up. For every dollar they have in asset, they can lend out up to 25 times more. They pay no interest on this money they have made up, it is just an accounting entry. If their fractional reserve rate is 15-1 (around the average) then if they are charging 12% while inflation is the same they are still earning 168% on their money. (12% x 15 = 180. 180% - 12% = 168) That is before they cover their operating expenses, but still they are not going broke.

The fractional reserve system is like putting a mint in every bankers accounting department.

[Ed62]

We use a CC when ordering online. It is paid off promptly. We don't have enough income to have to file taxes any more. If we had CCs we used regularly, we'd be in real trouble.

They were talking about the CC interest rates going up, on the news tonight. They showed one guy who had a card with Chase. He said he'd never been late with a payment. When he went online to access his account, he found out his interest rate jumped from 8% to a whopping 24%, without even being told about it.

I think that handling finances should be a top priority required course for high schoolers.

Ed

[jonmulzer]

They were talking about the CC interest rates going up, on the news tonight. They showed one guy who had a card with Chase. He said he'd never been late with a payment. When he went online to access his account, he found out his interest rate jumped from 8% to a whopping 24%, without even being told about it.
Ed

It is called "Universal Default" and it is a provision added to all credit card contracts and injected in such a way that everyone out there has it by now, mostly without their knowledge. It basically says that they can raise your rate, at any time, for any reason, real or imagined. It also says that once one raises your rate, they all raise your rate. Sucks doesn't it?

For those of you who think you are beating the credit card companies by getting gift cards and miles, just remember that you are playing with a snake that because of its lobbyists, has made up its own rules. Play with a snake long enough and you will be bit. There has never been a wealthy person who says they made it all by exploiting the CC companies. On the other hand there are tons of broke people who lost it all trying to chase the tail of the snake.

[gerti]

I remember times when this was called loan sharking, and was a criminal offense...

[jonmulzer]

With enough money, you can make anything legal. Our governement is bought and paid for by the lobbyists. I would love to see lobbying made illegal, but no chance of that ever seeing the voting floor.

As Mayer Rothschild once remarked, "Give me control of a nation's money and I care not who makes its laws."

[jackellis]

We have credit cards and we use them as a cash management tool. They get paid off every month.

We own shares in banks that issue credit cards. They help fund our retirement. Those same shares probably help fund your retirement, too.

I have before me the annual report of Citigroup for 2006. They have about 150 million credit card accounts. About two thirds of their revenues come from merchant fees, late fees and penalties. About one third comes from interest. 2006 was a good year for them because only about 10% of their revenues were paid out to cover loan losses (aka deadbeats). In 2004 it was 20%. About 40% of their revenues covered operating expenses like call centers, advertising and sales and marketing. They netted about 30 cents on the dollar. It's a very nicely profitable business. If Citigroup or JP Morgan or Bank of America is in your retirement account or your mutual fund account or your retirement plan's assets, you should be smiling.

I guess my philosophy is that no one is forced to use a credit card (several posts confirm that) and even if you have to use it to secure payment, you don't have to pay it off over time. You typically don't pay more for whatever you buy if you use a credit card in most cases, so paying cash rather than using a card means money that would otherwise go to the bank ends up in the hands of the merchant instead.

Of course, I'm a tiny bit upset with the management at some of these banks right now because they've been gambling (on subprime mortgages) with MY money. But I figured out long ago that I'd be further ahead buying a piece of businesses like this.

I have my bulletproof vest and helmet secured.