Deeper in Debt: Congress must get tough on the credit industry

[Doondoo]

With words of warning to the credit card industry, the new Democratic regime on Capitol Hill indicated it will be more sympathetic to the plight of consumers than its Republican predecessors. But soothing words are not enough. The financial services lobby is so powerful that it will take a strong bipartisan effort among lawmakers to roll back the industry's unconscionably high interest rates and fees, which in many cases would make a mafia loan shark blush with shame.

Americans -- many of them spending unwisely, others struggling to stay afloat financially -- have rolled up outstanding credit-card debt of $750 billion to $800 billion, roughly $2,500 for every man, woman and child.

Just paying off a hefty monthly credit card balance is tough enough for most people, but increasingly oppressive interest rates, coupled with fees and penalties hidden in a sea of fine print, have made the prospect of being debt-free a pipe dream.

Elizabeth Warren, a Harvard University law professor, said the rules need to be changed to rein in card issuers who use "tricks and traps" to snare borrowers in an endless cycle of debt. "Once they are trapped," Ms. Warren said, "they are bled with 29 percent interest rates, late fees, over-limit fees, double cycle billing, disappearing grace periods, $15 phone payment charges and every other possible way to run up the bills and keep the customer paying and paying and paying."

One particularly ruthless but legal tactic is for an issuer to summarily jack a borrower's interest rate to the maximum when the consumer is simply late on a payment to another creditor -- known as "universal default." Some credit card officials who testified said they don't employ the universal default tactic to make more money, but too many do.



http://www.post-gazette.com/pg/07046/762216-192.stm

[terip64]

1. Something has to be done about this. K&R n/t

[fed-up]

2. was allowed to keep economy "rosy" and bleed every last penny from l-m class nt

[tsuki]

3. Then we need a list of companies that do employ "universal default." nt

[Double T]

4. I was very disappointed in Senator Christopher Dodd's..........

position regarding the Banks and their credit card divisions. Senator Dodd's position is to give the loan sharks the opportunity to 'regulate' themselves; criminals will NEVER do it without being forced. Interest rates must be capped in the lower teens and outrageous bank fees and charges must be capped at significantly lower levels in the single digits. The abusive money grab by all sectors of corporate america must be stopped, it is up to Congress to act responsibility. Further, wall street needs to have their wings amputated.

[Sadie5]

6. I agree with double T

Those rates are killing the people who have these cards. It is worse than loan sharking.

[quiet.american]

5. I had never heard of universal default. That's truly an indefensible practice. n/t

[Sadie5]

7. Is Dodd crazy

Regulate themselves! That will never happen.

[Doondoo]

10. More info on universal default

http://credit-cards.interest.com/content/articles/credit-cards_story.asp?story_id=1000035037&ID=interest

[quiet.american]

11. Thanks for the link. I've always despised the grip the credit card industry has on one's life.

This is another serious reason to do so. (For the record, I'm still managing to function without having to give in and get a credit card.)

[sarcasmo]

12. A Debit Card will do just fine for renting hotels and some car rentals.

[quiet.american]

14. Oh yes, I know. :) It's the only card I use.

I've never liked the fact that credit cards were a mandatory product to own. I paid cash and money orders pre-debit cards, and now I only use debit cards.

[sarcasmo]

16. Be careful using the debit card at the gas pump.

You may only want ten dollars but some will put a hold on extra funds at the pump. I remember seeing a story on this, wish I had the link.

[nyrnyr1994]

18. I've seen it as high as a $50 hold on some occasions...

And unfortunately, most people aren't aware of this when they go to buy gas (I only use cash now at gas stations). I only found out about it b/c one of my job functions is checking card balances and holds.

Here's an article I found about this:

~snip~
If you use your debit card at a pump that does not require a PIN, your bank regularly will block out an amount -- often $50 or $75 -- on your card.

That amount doesn't "un-block" as you drive away. Instead, the hold remains up to 72 hours, until the station does a "batch" transaction that lets the bank know the actual amount, according to the U.S. Public Interest Research Group.

While the length of the hold is up to your bank, the amount of the hold is up to your gasoline retailer.

~snip~
http://articles.moneycentral.msn.com/Banking/BetterBanking/HosedAtTheGasPumpByYourDebitCard.aspx

EDIT: gas stations not cash stations...interesting slip I made that accurately describes them as "Cash Stations" :evilfrown:

[quiet.american]

19. Thanks for the tip -- I'm a subway and cab user - no car - but I'll keep it in mind. n/t

[phantom power]

8. There is another step that must be taken.

We need much stricter regulations about how much credit a person can get. People have trouble getting out of debt not just because of high interest rates, but because they applied for too many credit cards in the first place, and purchased too much stuff with them. The credit companies are just as much to blame for this as for their high interest rates. Evidently, we need to regulate this too, since the credit companies themselves have proven that they aren't responsible enough to honestly evaluate a person's financial situation and limit them to a line of credit that they can actually pay off.

[jhasp]

15. Your post frightens me.

I use to work as a lender. I went through considerable training to make decisions on issuing credit to small and medium size businesses and a strict blanket policy on how much debt a person can take out would be dangerous. One of the greatest boons to the third world now is microfinance loans, which, according to US standards, generally have usurious rates (around 35%). In many cases, especially for new companies, money is lent based on expected income rather than existing income, and forming blanket regulations around expected income would be difficult.

For FDIC insured banks, the government does somewhat regulate the amount of debt on average that a person can take out. If these banks make loans that are, on average, too risky, then the government can close the bank.

[Paranoid Pessimist]

9. The U.S. Government, in hock up past their eyeballs . . .l

. . . to the Chinese and Japanese (and who knows who all else) certainly doesn't have much standing to try to bring the credit industry into line. This is a problem that could solved through consumer education. If people were aware what a racket the credit industry is they could bring it into line.

One of my hoped for projects for '07 is to do a video about the credit industry's crooked (though not illegal) tactics. Credit cards are a high tech update of the old "I owe my soul to the company store" scam. I'm starting to do research now.

My once horrendous debt is now all paid off. I should boycott them, but I still have a couple cards with 0 balance in case of an emergency, such as eitheir one of my deeply in debt parents dying. But I use debit ATM cards for everything.

American Express has one going. You get junk mail inviting you to participate in their million dollar drawing and, no matter how carefully you fill out the forms, you get signed up for a $70 a month travel something or other. They're good about it if you call them up and say, "Hey, I didn't ask for that, didn't want it, what's it doing there?" -- they'll apologize and remove it. But how many people don't call them, think the charge is legitimate and pay it. They're playing the percentages. With the number of cards that are out there, if 1% pay even though they didn't ask for the service, that's millions of dollars in profit for them.

I like the last line of the post "Some credit card officials said they don't employ the universal default tactic to make more money ... " Oh yeah, then why DO they employ it?

If people who understand how the credit racket works would do the best they can to explain it, and organize, a stop could be put to some of the worst of the abuses.

[Kixel]

13. It's interesting...

Credit card companies deserve what they get when their consumers default. They give too much credit to people who aren't able to pay it back. Maybe if the laws weren't in their favor, they wouldn't be so free with the credit and people wouldn't be drowning in unnecessary debt.

[Name removed]

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