Article published Saturday, February 10, 2007
With welcome words of warning to the credit card industry, the new Democratic political regime on Capitol Hill indicated that it will be far more sympathetic to the plight of consumers than their Republican predecessors in Washington.
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.
There is little reason to doubt the assertion before a Senate committee recently by Elizabeth Warren, a Harvard University law professor, that 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.”
Indeed, with regulations stacked so far in favor of the lenders, credit card debt is fast becoming the modern version of indentured servitude. Even if strapped borrowers never charge another item, escalating fees can make it impossible for those who make the minimum payment each month to ever pay off their full bill.
That’s why business is so good for credit cards that entice consumers to consolidate their debts into “one small monthly payment.” Some credit card officials who testified before the Senate panel said they don’t employ the “universal default” tactic to make more money, but too many do.
Similarly unpersuasive were arguments that issuers only offer credit cards to those who can handle the debt. If that were the case, jobless college students would not be bombarded with applications, and neither would the mailboxes of millions of low-income Americans.
While credit card users have, in many cases, only themselves to blame, the industry should not be allowed to take undue advantage with excessive interest rates and surprise fees.
The “tricks and traps” we’re all familiar with should be banished and the fine print made plain and understandable. This is the mission Congress needs to undertake to solve the credit-card crisis before the bubble bursts. <> <> <>
Aila Noake
Debt Relief Consultant
http://www.MyIntegrityDebtOptions.com
