Another credit card rant

[Anna]

I treat credit cards like I do cash. If I don't have the cash to cover the purchase, I don't buy it. I prefer to use credit cards because it allows me to keep track of my expenses and there are buyer protections built-in to them. But what I do charge I pay off in full every month.

I also think that the development of the banking industry in this country contributed a lot to the rise of the middle class. It allowed capital that would otherwise be unavailable to entrepreneurs be used in business startups and expansions. We took out a big business loan from the local bank for a business expansion a few years ago which we paid off in about 5 years. That money would not have been available to us otherwise without the banks, and it certainly would not have been available to us, small businessmen, if we lived in Europe or anywhere else.

In any case, if you are interested in doing something about the credit card situation, there are bills currently pending in Congress, the most recent of which was introduced last week. This is the time to write or call your Congressional representatives and senators and do your bit of lobbying for what you think is right.

The latest bill is HR 5244, introduced on February 7 this year by Representative Maloney of NY. The contact numbers and email addresses for the 110th Congress can be found here. I say we stop whining and do something. It's also an election year, and this is the best time to let our Congress critters know that if they don't do right by us, we have the power to kick them out of their cushy DC jobs.

[RayintheUK]

The latest trend in the UK is to withdraw, or severely reduce the available credit limit, on cards used by people who habitually settle in full every month, in favor of those who pay monthly payments and interest on their card purchases.

One example was of a guy who's credit limit went from £5,000 to £500 overnight. His complaint was met with a "if you don't like it ....." type of reply. The two companies involved so far are Goldfish (owned by Morgan Stanley) and Egg Finance.

Ray.

[jonmulzer]

We have credit cards and we use them as a cash management tool.

No offense meant Jack and I do not mean to pick on you, but this shows how deeply bank marketing has permeated our culture. Does it not strike you as odd to use credit to manage cash? Banks want you to think this is the "smart" way to do things, because it is best for THEIR bottom line. And though you may be a stockholder in Citigroup, when they refer to people such as yourself at their board meetings (who pay off their balance in full every month) they call YOU a "loser".

http://www.bankrate.com/brm/news/bank/19990122.asp

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

You are right. Funds I invest in include banks in them. I never bought into "values based investing".

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.

This is where I draw issue with them. They can artificially create revenue at a whim. Remember the Providian scandal? They had people believing they needed credit to succeed, and these were the people they targeted, the ones who could not get a credit card by other means. And then to artificially create inflated revenue they had a secret department that did nothing but filter off payments and either delay posting to accounts or even shred the checks so they could charge late fees, interest and overlimit fees.

The amount of corruption in the international banking cartels is simply staggering. It is usurious. It is indentured servitude. They create the rules, their advertising has created the perception and their lobbyists create the laws and fractional reserve banking basically lets them print their own money so I choose not to play their games. If I cannot do it with a debit card or cash, I don't need to do it.

You typically don't pay more for whatever you buy if you use a credit card in most cases,

Not true. Even if you pay off your balance in full every month the credit card companies still charge 1.5% to the merchant for every dollar in addition to the fees required for a POS device. This results in higher prices for the consumer. It is also a direct money funnel to the banking cartels.

You are familiar with compound interest since you are an investor right? Let us have a scenario. You are Wile E. Coyote. You use your money to buy a super powered rocket from Adme Industries for $5,000. You put that item on your Visa and Acme gets charged 1.5% on that transaction because you do so. So 1.5% of $5,000 goes to Visa equalling $75 leaving them with $4,925 to pay for production of the super powered rocket you need to catch the Roadrunner. Part of their costs are payroll of course so the money they pay for said production is payroll on their employees who in turn use that money to also purchase things with their Visa cards, registering another 1.5% for every dollar spent to Visa. How long could this scenario work its way through every company on card based transactions before ALL the money is in Visa's hands and none of it in ours? Most people think "It is only 1.5%" but those who understand compound interest and the cyclical flow of money through our economy realize just how much money is being funneled to the top.

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.

You should be more upset with our government. Up until 5-6 years ago subprime mortgages on the level we have had would have been illegal. De-regulation seems like a great idea until the lack of regulation ends in a debacle like we have now. And your money invested at Citigroup is a drop in the bucket compared to the 8.5% of Citigroup that is owned by foreign interests in the Middle East. #1 on the list is a firm from Abu Dhabi and #2 is from Saudi Arabia. I have issue with that.

[jonmulzer]

I treat credit cards like I do cash. If I don't have the cash to cover the purchase, I don't buy it. I prefer to use credit cards because it allows me to keep track of my expenses and there are buyer protections built-in to them. But what I do charge I pay off in full every month.

Those exact same protections are built into debit cards also. Zero liability covers debit cards, the same as it does credit cards.

I also think that the development of the banking industry in this country contributed a lot to the rise of the middle class. It allowed capital that would otherwise be unavailable to entrepreneurs be used in business startups and expansions.

And the #1 cause of small business failure in America is cashflow issues. If credit had not been so easy to get, perhaps those people would have learned how to manage cash better? Those people might have learned to manage cash instead of credit and would not have been caught up in its cyclical nature and succeeded and not failed? They might have saved for the rainy day instead of thinking their RLOC would bail them out?

We took out a big business loan from the local bank for a business expansion a few years ago which we paid off in about 5 years.

You are the exception instead of the rule. Most small businesses never break the credit cycle when they take out these loans and end up with cashflow issues that leads to the end of their small business.

That money would not have been available to us otherwise without the banks, and it certainly would not have been available to us, small businessmen, if we lived in Europe or anywhere else.

Don't be so sure about that. The difference is that in Europe and other places the savings rate for individuals is about 15% of their income. Being the Old World as it were they still have an old set of values and therefore as a whole, save their money instead of spending all they have and then some. Therefore they do not "need" the credit lines like we think we do here. Small business is the lifeblood of their economy there the same as it is here it is just that there is less credit in the process, more cash, and more success.

The latest trend in the UK is to withdraw, or severely reduce the available credit limit, on cards used by people who habitually settle in full every month, in favor of those who pay monthly payments and interest on their card purchases.

Check out the link I posted above. Sickening eh?

[jackellis]

I know some people are pretty passionate about this and we all have different opinions. Everyone's entitled to theirs and I've made mine known a time or two. Let's just not get too carried away or they'll send the mods after us.

Credit is a good thing if it's used carefully and it can cripple if it's used carelessly. I have my credit card stories, too, but without them, I couldn't travel, most of us would have difficulty buying homes, businesses would have difficulty expanding, etc. I sw how it can be misused and learned to manage debt at a very young age. Today we have a mortgage and that's it.

If the banks want to cancel the cards of those who pay on time, well let 'em. They depend on those merchant fees, which will largely dry up if folks like me stop using cards to manage cash flow and avoid having to carry it around.

Right now there's a lot of competition in the card business. At least four major "brands (Visa, Mastercard, American Express, Discover) and hundreds of issuing banks. That's better than for many things we use on a daily basis. Without the competition, we might be worse off.

In my opinion, part of the answer is to limit some of the bank practices but the most important thing people can do is to vote with their pocketbooks. Don't run up giant balances and if you do, make darned sure you pay on time. If everyone had the discipline to do that, the bank rules wouldn't matter quite so much.

[Rand]

I've read some stories in the financial news that says that people defaulting on credit card debt will be the next crisis in the banking industry. It's not hard to believe with 22% interest rates. I know congress made credit card debt immune to bankruptcy but you can't get blood out of a turnip.

After the subprime dust settles I'll be interested to see what happens.

[Russianwolf]

I've read some stories in the financial news that says that people defaulting on credit card debt will be the next crisis in the banking industry. It's not hard to believe with 22% interest rates. I know congress made credit card debt immune to bankruptcy but you can't get blood out of a turnip.

After the subprime dust settles I'll be interested to see what happens.

I don't think they made it immune from bankruptcy, but if you have income and can afford to pay a payment then you are required to file chapter 13 instead of chapter 7.

Many people who didn't own homes were using chapter 7 as a get out of jail free card. Then running up debt again only to file all over.

Now, they do an income test and that determines if you can file chapter 7. If you make too much, then you can only file chapter 13 and make payments.

[jonmulzer]

I know some people are pretty passionate about this and we all have different opinions. Everyone's entitled to theirs and I've made mine known a time or two. Let's just not get too carried away or they'll send the mods after us.

Fair enough, but I am new here and am doing my best not to ruffle feathers. What did you think about the link I posted earlier? No need to send the mods. So far I believe this is going very amiably.

Credit is a good thing if it's used carefully and it can cripple if it's used carelessly.

I contend that it is ALWAYS crippling. For the christians amongst us (don't turn this religious, just one note), Proverbs 22:7 says, "The rich rule over the poor and the borrower is slave to the lender." I am atheist and I still see the wisdom in these particular words. It does not say, "unless you...." or "except for.....". There is not one case that you can show where you would not be better off paying cash, when adjusted for risk. The only case where I could ever justify it would be a home mortgage, and only for 15 years as a reasonable amount of my income.

I have my credit card stories, too, but without them, I couldn't travel, most of us would have difficulty buying homes, businesses would have difficulty expanding, etc.

I travel without credit cards, all the time. Debit cards work the exact same way as credit cards in this respect. I have not borrowed money for a LONG time and I qualify for a prime rate mortgage. If I went to my local Citibank, they would tell me I would not qualify for anything but subprime. If I go to a mortgage broker that does manual underwriting, instead of FICO score lending I qualify for prime rates. I have checked. A chimp could do FICO score lending, it requires actual work to do manual underwriting. And my way does not require carrying a snake (credit card) in my pocket while hoping it does not bite me.

If the banks want to cancel the cards of those who pay on time, well let 'em. They depend on those merchant fees, which will largely dry up if folks like me stop using cards to manage cash flow and avoid having to carry it around.

The sad fact is, the folks in the boardrooms, making the big decisions and earnign the big salaries, care less about you. The merchant fees are a drop in the bucket compared to the late fees, overlimit fees and other charges they get from the subprime market. Read the link I posted earlier, they call people like you "losers". I certainly don't see it that way, but they do. And every day they are looking for ways to burn you.

Right now there's a lot of competition in the card business. At least four major "brands (Visa, Mastercard, American Express, Discover) and hundreds of issuing banks. That's better than for many things we use on a daily basis. Without the competition, we might be worse off.

In theory, yes. In practice, anything but. Due to the introduction of the Universal Default Clause, they can raise your rate at anytime, for any reason. For all intents and purposes, it makes all points of the contract that protect you null and void. And here is the real kicker, if for some reason the program that monitors your account sees something it does not like and raises your rate it reports that back to central servers that are monitored by all the credit card agencies and they therefore raise your rates also. It triggers a chain reaction to every credit contract that you have with a Universal Default Clause, which is likely to be every RLOC you have by now. Anything can cause this, even paying a utility bill a couple of days late by accident just once. Does that ever happen to you? It does to me, every great once in a while. Life happens, people forget, stuff happens.

In my opinion, part of the answer is to limit some of the bank practices but the most important thing people can do is to vote with their pocketbooks. Don't run up giant balances and if you do, make darned sure you pay on time. If everyone had the discipline to do that, the bank rules wouldn't matter quite so much.

Agreed, wholeheartedly. But, if EVERYONE did this, there would not be credit card companies or at the very least your Citigroup stock would not be at the level it is and paying the dividends it is.

Education is the answer to this. And perhaps shock collars for those who don't get the point, hehe.

I am not trying to pick on you. In fact, you and I are 95% on the same page, it is that last 5% that I feel very strongly about. You are just willing to debate me and I always appreciate good debate. My girlfriend is mostly Swiss and it seems they don't take a side on anything so she never debates or argues her point. So I have to come here to get the interaction I desire. It feels like cheating, lol.

[jonmulzer]

I don't think they made it immune from bankruptcy, but if you have income and can afford to pay a payment then you are required to file chapter 13 instead of chapter 7.

Many people who didn't own homes were using chapter 7 as a get out of jail free card. Then running up debt again only to file all over.

Now, they do an income test and that determines if you can file chapter 7. If you make too much, then you can only file chapter 13 and make payments.

You are mostly right. According to the way they structured it though, for all intents and purposes if you make over $42K a year you will pay back everything you owe. Now imagine a person in their late 20's who really messed up on money. They have 4 kids and make $42,500 a year and owe $250,000. Not THAT outrageous of an example believe it or not. They will pay back everything in Chapter 13 without the option for Chapter 7. They will be crippled financially and still have 4 kids. No chance for further education really, no way to advance themselves and pay it off more quickly, stuck where they are. Yes, it is by their own making, yes personal responsibility comes into play heavily.

The only part of bankruptcy reform that I really agree with is the financial education they have to complete at filing. But why was that not done earlier in life for them before they become indentured servants to Visa and Mastercard?

[JR]

Ok, jonmulzer, let's see if I've got it straight.

Credit cards - bad. Banks - bad.

Cash - good. Personal responsibility - good.

JR

[jackellis]

Credit cards - bad. Banks - bad.

Cash - good. Personal responsibility - good.

I'd say it a bit differently. Cash - good. Personally responsibility - virtuous.

Banks - sorta like "trust but verify". Credit cards - useful tool but handle with care.

I think the reason banks aren't real happy about those of us who pay off our balances right away is that we're playing their game, which is to take advantage of the "float", or the use of someone else's money between the time we buy and the time we pay, without paying any interest on that money.

Tough stuff!

Banks are saints compared with pawn shops and payday loan outfits.

[jonmulzer]

Banks are saints compared with pawn shops and payday loan outfits.

Would it surprise you to know that the largest owner of payday loan outfits and pawn shops is Wells Fargo? Last I checked anyway, that statistic may be a bit dated, so forgive me if it is. But banks own a lot of those subprime markets also.

[jonmulzer]

Ok, jonmulzer, let's see if I've got it straight.

Credit cards - bad. Banks - bad.

Cash - good. Personal responsibility - good.

JR

Without the sarcasm, yes. I trust my credit union. Want to hear some horror stories about banks? I have them in spades.

[JR]

Want to hear some horror stories about banks?

No.

Sarcasm aside, your points are well taken. I just don't think they require quite the number of bits to describe.

JR

[dkerfoot]

All major religions preach against usury. And, all states have laws limiting the amount of interest you can charge for lending.

Of course, the major religions also preach against borrowing. Whatever your faith, I believe all can apply the wisdom in Proverbs 22:7 - "The rich rule over the poor and the borrower is slave to the lender" If your CC company is treating you like a slave, it is because they own you.

My only debts are my mortgage (about 6 months family wages left to go) and some product inventory for my business. We just paid off my wife's van, but I personally haven't had a car payment since 1984.

I do use a CC online, because if someone steals your debit card information, they can drain your checking account (and perhaps savings too). Sure, you may be able to get reimbursed, but it can take months and in the meantime, how do you pay your mortgage and buy groceries? With CC fraud, you simply dispute the charges and it is the CC company's money that is in limbo while it gets worked out.