Monday, May 25, 2009

Credit Cards

Many clients who come to me about problems with credit card companies. Just recently, one woman spoke with me about a credit card she cut up when she lost her job five years ago. Since then, she's made a payment every month without fail although not on time and not as much as her minimum required. When she quit using her card, she had a balance of approximately $1,800. She now owes almost $2,500 with interest, late fees and penalties. She is being sued by the card company (which I will not name, because it doesn't matter, their unethical practices are all the same). She wrote to the judge to explain her situation and her inability to pay the amount required. The judge notified the card company that they should try to "work with her" considering her circumstances. Instead, they insisted that nothing less than their previous demand was acceptable.

The second woman who captured my heart was elderly, in her eighties. She'd been caught up in one of the scams that are so prevalent on the internet in which, supposedly the perpetrator is unable to access funds in the U.S. In return for extending him money temporarily, he assured her that she'd receive a large payment, $1,000,000. He kept calling, talking her into advancing him more and more until she'd run her credit cards up to over $100,000. She finally, very belatedly, began to wonder if she'd been had and called the police. When I spoke to her, she still didn't seem to accept that she'd been taken advantage of and if she had, she assumed the police would find the con man and get her money back. Because, after all, she said, she'd given them his name and phone number (in a foreign country). I didn't have the heart to tell her that there was no chance the information was true.

This one wasn't strictly the responsibility of the credit card companies. This woman had excellent credit prior to being scammed so they just kept letting her get cash advances without question, one in the amount of $32,000. They knew her age and her previous record of rarely charging her cards up so it seems they would have had to have been aware that something hinky was going on. She didn't stop until she was nothing left to give.

The fact is that the credit card companies have prowled the economic world for years like hungry wolves, preying on their customers, particularly the ones who are least able to avoid being victims - the low-income, the laid-off, the sick, students. They offer an introductory rate that leaps into double digits should a payment be so much as 24 hours late as well as charging an extremely high late fee, even for a first occurrence; they charge higher rates for cash advances, most often used by the poor; they assess a substantial cost to make phone or on-line payments which are, again, mostly likely to be needed by people who have to wait for payday to make their payment; they allow cardholders to exceed their credit limit, then charge large over-limit fees; they allow a very short time between billing and due date and even then, use tricky practices like not crediting a a payment received late in the morning until the following day.

Now Congress has passed and President Obama has signed the Credit Card Accountability, Responsibility and Disclosure Act of 2009 putting some limits on what the credit card companies can do to their customers:

  • They must disclose the period of time and actual interest it will take to pay off card balances if only minimum payments are made
  • A customer must be 60 days late before a penalty can be charged.
  • Payments that arrive before 5:00 p.m. must be considered on time.
  • Customers must give permission before their credit limit is exceeded.
  • Under age applicants must show proof of income or have a co-signer before receiving a credit card.
  • If the interest rate is increased because payment is not received until 60 days after the due date, it must go back to the lower rate if payments are made on time for 6 months.
  • There can be no charge for on-line or phone payments.
As you can imagine, the credit card companies fought fiercely against this legislation, claiming that their profits were in jeopardy. Now they say they'll have to make the lost money back on their good clients by reinstating annual fees, limiting rewards and beginning to charge interest from the day of purchase instead of allowing a grace period.

The credit card companies hire smart people and pay them lots of money to figure all the angles. They've invented fees the normal person would never think of. They have given cards to people who obviously had no business having them and then when they fall behind, harangue, harass and hound. As a profession, they have probably caused more mental breakdowns than all the others put together, calling people multiple times a day, disturbing them at work, threatening consequences just short of bodily harm. They engage in practices that are clearly unethical and immoral. That they aren't criminal is only due to their ability to influence Congress to let them have their way.

Now they've been reined in a little although they won their biggest fight not to have maximum allowable interest rates instituted. For a while, life will be slightly more fair for their victims but probably not for long. They are probably devising fiendish new ways to rip customers off even as this is being written.