In a society increasingly moving away from cash, credit card companies have been earning a justified reputation for taking advantage of an era where credit is treated with somewhat of a laissez-faire attitude, as opposed to the respect and caution with which we used to approach credit card debt not that long ago.
Plus we're busy. Dual incomes, volunteering, working out. The emails never stop coming, and the cell phones never stop ringing. All the more reason to sneak in an extra charge here and there. 'What's this? A new fee? A higher interest rate? Oh well...let's just pay it, I haven't got time to deal with it now.'It's so easy. But it's also so shameful, especially when it hurts consumers who can ill afford to absorb an unjustified jump to their interest rate, or the inclusion of fees and penalties that often have nothing at all to do with the credit card account itself.
And when all you can do is make the minimum payment, a well-meaning consumer could be years retiring a purchase. It was recently estimated that, were a new parent to put the cost of a baby's room onto a credit card with a typically high interest rate, but making minimum payments only and avoiding putting extra purchases on the card, the baby would achieve college age by the time the baby's room was paid for.
Worse, too many credit card consumers, already trapped in the tenterhooks of credit card debt, will use one credit card to pay the minimum balance on the other.
Then voila - a new credit card application arrives in the mail, with a low interest rate just to entice you into signing up. That low rate won't stay low for long. Meanwhile, you've just dug your hole a little deeper.
Getting out of that hole, it should be noted, is harder too, given recent changes in the Bankruptcy Act that makes it twice as costly to file for Chapter 7, or Chapter 13 Bankruptcy. Thus, as it takes you longer to set the wheels in motion to file, you're on the hook to your creditors even longer.
That's the secret of the credit card, for the issuer: it's not so much their investment, the money they give up by allowing you to defer payment on a purchase and carry a balance.
No, it's the monthly payment, which is precious cash flow. Keeping you on the hook longer protects that cash flow. And the higher interest rate you must endure and the added fees and penalties that you pay, the greater the probability that you will pay the credit card company much more, in the end, than that initial purchase cost them to carry on your behalf.
The return on that investment, therefore, is significant. And the more credit cards you have, and the more minimum payments you must make, the better. Default? Who cares? Chances are the credit card issuer will lose far less than the amount they have made off of you.
Will credit card companies suffer the same fate as those corporations hurt in the sub-prime mortgage meltdown? Time will tell. The structure is not dissimilar—mortgages handed out hand over fist to virtually anyone with a pulse, all for the grab of cash flow (and precious fees), not to mention the chance to re-package mortgages into mortgage-backed securities, taking advantage of the long-held belief that you can't go wrong with a mortgage.
Likewise, most people go through their day shielding themselves from a rain of credit card applications; complete with consolidation offers, low-interest offers, the works. Just to get those monthly payments going, and the cash flowing.
Affordability is a word generally not in their lexicon.
The fate of the 'Stop Unfair Practices in Credit Cards Act' proposed in May of last year and presented to Congress by Senators Carl Levin (D-MI) and Clair McCaskill (D-MO) is anyone's guess. The proposed Bill would put an end to unfair and abusive credit card practices, such as the charging of interest on any portion of a credit card debt, which the cardholder paid on time during a grace period. Among other provisions:
The prohibiting of added interest charges on credit card debt which the cardholder paid on time, and in full.
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The requirement that increased interest rates apply only to future credit card debt, and not to the current balance
A ban on charging interest on credit card transaction fees, such as late fees and over-limit fees.
Prohibiting the charging of repeated over-limit fees for a single instance of exceeding a credit card limit, and the allowing of such fees to be charged only when a card holder's action, rather than a penalty, causes the overage.
Sounds sweet. And you can bet that the credit card company lobbyists are working overtime on this one, in an effort to water it down, and drag it out as long as possible.
Sort of like your balance, that keeps going on forever.