Thursday, May 7, 2009

National Addiction To Easy Credit Remains Consumers' Downfall


It really doesn't matter how much Congress attempts to curb credit-card abuses. Some consumers are too addicted to credit; no amount of legislation is going to help these folks. Michelle Singletary, writing for the Washington Post, says that some of the measures being pushed through Congress contain a number of exceptions and conditions that would allow card issuers to continue punishing cardholders. Meanwhile, Singletary predicts that the most vulnerable customers will actually opt in for this punishment.

From the Washington Post:

Congress and President Obama are trying hard to stop credit card issuers from allowing consumers to go over their credit limits. To reduce oppressive over-limit fees, credit card issuers would have to get a customer's permission to set up their account to process transactions that would place them over their credit line.

This "gives consumers control over their own credit behavior," said a senior administration official who is working with the Treasury Department on the president's credit card reform initiative.

I've stood in the store behind people who hand over their credit cards and close their eyes and silently pray that the charges will be approved.

Who do you think will opt in to allow over-limit purchases?

According to Singletary, those most likely to opt in will be those who can least afford it -- those who are already maxed out.

Later in the column, Singletary talks about clarity and transparency when it comes to card agreements and statements. She's all for that, of course. But she wants to take it a step further. She calls her idea a radical one. I figure she's joking, though. Maybe she's not.

You can read the entire column here.

23 comments:

  1. I pray every time I use a bank issed card, but it has nothing to do with me being anywhere near my credit limit.

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  2. Feds: Close rate-hike loopholes in credit card rules

    http://www.creditcards.com/credit-card-news/credit-card-federal-rules-interest-loophole-1282.php

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  3. So wait, interest rates can be hiked on existing balances if the card is a variable rate? Even I noiced that loophole.

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  4. Clutch, would clarify your comment a little more? You talking currently or after the legislation is implemented?

    Regardless, variable-rate cards fluctuate with the peg that your card follows (LIBOR, Prime).

    But hiking rates that are not tied to those pegs is what "hike on existing balances" refers to.

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  5. The credit-card wars

    http://www.philly.com/philly/opinion/44345047.html

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  6. As a merchant who accepts credit cards, I find they're rarely rejected. If customers are getting dinged for going over, I'm not aware of it. This is from my hobby store crowd.

    What I *am* seeing is what you reported a few posts ago, the huge switch over to debit cards. In most cases, this is cheaper for the merchant, so I'm happier.

    Also, this is off topic, but the recent report of a 38% drop in business investment seems to me to be very much about credit cards. Over half of non government employers are small businesses (a growing number). We've been financing expansion with home equity (gone) and credit cards (previously cheap). Now that there is no cheap credit, I know I've gone from an expansion mindset to a hunkering down, reducing of ALL debt plan.

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  7. BD, you talking about charges that take the customer over the limit? Is your comment in reference to the "pray" comment that Singletary makes?

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  8. "Those rules limited interest rate hikes on existing consumer credit card balances to four circumstances: when a cardholder is more than 30 days late paying a bill, when an introductory APR or teaser rate ends, if a card has a variable interest rate or after the first annivesary of a new account. Issuers must give 45 days' "

    I assume this means after the legislation. I guess what I'm asking is does this mean they can change a variable rate only as much as the LIBOR or Prime changes (I don't consider that an abusive hike) or are variable rates subject to the extreme crap we are seeing?

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  9. Clutch, that's a good catch. You're referring to the creditcards.com story (for those following along). The way that story is written, it would appear that variable rate cards would allow for hikes. However, I need to see what "hikes" means. It must be defined some place in the rules.

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  10. That would be one heck of a loophole. Might as well add "or any card silvery in color".

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  11. Yeah. I would need clarification there. My guess is they're talking about rates floating with LIBOR or Prime.

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  12. Note that variable rates are a sleeper rate-jack. My USBank card just bounced to 16%, no problem for me since I pay in full. I'm a great customer with a $20K limit, so the ratejack is a surprise. Tied to prime today, near three --
    not 20-plus like I recall from the 1980's.

    So wait until the economy revs up again: "Good" prime-based rates could jump past 20 percent.

    What could happen to subprime rates, and to those borrowers with no alternative? Scary indeed.

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  13. I agree with the WP columnist that the credit card companies need to be reined in and am willing to accept a certain chilling effect on credit availability. I also sympathize with those who will still get ratejacked when they are the most vulnerable. I think she goes too far, however, in "nannyizing" the credit card industry to protect the relatively few people who can't control their credit use. Besides, those same people would likely abuse a similar courtesy overdraft feature on their checking accounts with their debit cards.

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  14. Some Americans overuse some products and services. I may eat too much fried food, or spend too much on my cable instead of putting money in my child's college fund. These are problems, but is Congress, or legislation generally, really the solution to anyone's problems?

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  15. "BD, you talking about charges that take the customer over the limit? Is your comment in reference to the "pray" comment that Singletary makes?"

    Yes, I rarely see "praying" that something will go through. I haven't seen an increase in declined cards. It's the huge jump in debit card use that's noticeable.

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  16. BD, I appreciate the "on the ground" comment. Always nice to see what's really going on.

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  17. There is no true solution to all of this. We are a credit-based economy full of bargain-minded consumers, plain and simple. Irresponsible lending and borrowing will always be part of our culture, so the best we can do is mitigate the fallout. This requires a combination of sensible legislation and consumer responsibility. Now where's my credit card? I need to buy this flatware set from QVC.

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  18. that needle photo is freakin' me out, haha

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  19. Not so much a credit addiction as a "keeping up with the Jones" addiction. The credit is just a means to an end.

    Although, over the last decade or so its been a bit more complicated.

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  20. Good post mate hope you wll write something on mortgage too in near future.

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