And You Thought Credit Cards Companies Here Were Vicious?

America’s painfully slow economic decline is partly fueled by almost $1 trillion of revolving credit card debt, an albatross our imperial credit card companies are all too happy to export. Most of the world’s 3.76 billion credit cards already circulate abroad, “handed out to unsophisticated consumers — as they often are in shopping malls, factories and university campuses in middle-income developing countries.”

“Industry experts” worry that the 100 million credit card users in China and Turkey may not be able to pay off their debts.

At the upscale Akmerkez mall in Istanbul, the siren call of credit is everywhere. Advertisements posted in the doorways of stores promise bonus points if shoppers pay with a preferred card. Big-ticket items like refrigerators can be paid for over several months, provided the purchase is made with plastic.

Turkey’s two biggest card issuers, Yapi Kredi and Garanti, have branches in the shopping mall, with agents busily processing applications. In the anything-goes era before the 2006 law, banks handed out applications to families as they shopped. Cards were issued with only cursory credit checks.

That is how Halim Uzel got his first taste of American-style credit. In 1999, two salesmen from a Turkish bank turned up on the floor of the textile factory where he worked, hawking cards. He showed them identification and his cellphone, filled out a one-page form, and in three weeks received a Visa and a MasterCard in the mail.

By 2001, Mr. Uzel was deep in debt. Earning the equivalent of $4,360 a year, he had nearly $6,000 in unpaid balances on five credit cards. Seven years later, after borrowing from family, friends and even his boss to meet payments, he finally paid off his cards.

“My best years as a young man have been wasted,” said Mr. Uzel, 32, fingering a set of worry beads. “I haven’t had a social life for 10 years. I’ve given the last penny in my pocket to the banks.”

Turkey instituted modest reforms in 2006, long after credit cards trashed South Korea’s economy.

For Turkey or any fast-growing market, the chilling example of a credit culture run amok is South Korea. Frenzied competition in a deregulated market led to the issuance of 148 million credit cards in a country of 49 million people.

Korean banks and industrial conglomerates showered consumers, even high school students, with free, unsolicited cards. They put little effort into credit checks and competed to offer ever bigger cash advances.

As consumers took advances on new cards to pay old ones, debt ballooned. In 2003, with default rates soaring to 28 percent, the industry collapsed. The government had to intervene to rescue issuers; the largest was taken over by banks.

Americans still haven’t figured out how to responsibly use credit cards, and many “industry experts” look at the little wallet weevils as the next subprime meltdown. At least consumer advocate Nazim Kaya is betting that personal responsibility will save the day: “We can’t blame American hegemony for this. We should learn to use credit cards properly.”

The Debt Trap [The New York Times]
G.19—Consumer Credit [U.S. Treasury]
(Photo: Getty)

Comments

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  1. Carbonic says:

    The local bank setup a credit card application table in front of the dollar store, walking in they asked me to fill out an app and I’ll get a free mug.

    Ruin my credit for a coffee mug! I said

    They were not too happy.

    Had it been Yapi Kredi on the other hand…..

  2. evslin says:

    Frenzied competition in a deregulated market led to the issuance of 148 million credit cards in a country of 49 million people.

    Geez.

  3. LordofthePing says:

    Who foots the bill for all this debt?

  4. [DFX] Deimos says:

    “America’s painfully slow economic decline is partly fueled by almost $1 trillion of revolving credit card debt.”

    I really disagree, I think consumer spending is the only thing that keeps this massive ship moving forward.

    It would be bad for the country’s economy if people started saving money and not spending every penny on goods and services they don’t need.

    Am I way off base here?

  5. Hongfiately says:

    I think this would be a good time to review the global financial crisis of 1997-99.

    [PBS Frontline: The Crash]

  6. azntg says:

    I’m currently on vacation in South Korea right now and my impression is that credit card usage is more ubiquitous here and in the United States (along with other more high tech payment options).

    Credit card companies in America are vicious, make no mistake. However, I think it’s fairly safe to assume that the credit market in the United States has reasonably matured and that there’s bigger money to be made overseas.

  7. dragonfire81 says:

    How come when some industry causes a huge clusterfuck does the government always have to bail them out. Why aren’t they just left to crash

  8. vastrightwing says:

    We’ve managed to convince other countries that they need to lend the U.S. consumer their money in order to “buy” their goods. This is like Tom Sawyer, who convinced people to pay for the privlidge of white washing his fence.

    There are many problems with this: 1) They don’t need the U.S., they can consume their own goods, 2) The U.S. dollar is being devalued quickly, so their value is being diminished. 3) America may not be able to pay off our debt.

    We’ve nearly lost our ability to produce, so how will we be able to pay off this debt? Printing more money? Ah!

  9. Charles Duffy says:

    @dfxdeimos: Consumer spending in excess of income is unsustainable long-term; you have (1) increasing amounts of payments made on debts rather than on new purchases, and (2) defaults on debts which cannot be paid.

    The other thing is that money which is unspent isn’t kept out of the economy; rather, it’s invested (if not by the individual, by the bank they keep it in via new loans), which multiplies its effect.

  10. Brontide says:

    I don’t understand how they intend on making money in this situation? Lending to people far in excess what is a safe level and somehow making a profit?

  11. Marshfield says:

    We’ve been up and down with credit cards, and have decided the siren song is too irresistible, so we just do what we can afford.

  12. hardcle says:

    Regarding Turkey, I thought that Muslims were prohibited from earning or paying interest.

  13. MayorBee says:

    “My best years as a young man have been wasted,” said Mr. Uzel, 32, fingering a set of worry beads.

    I’m wondering how much those worry beads cost and if he put them on one of his credit cards.

  14. Ausarb says:

    I’m all for capitalism, but in some cases there are some things that need to be regulated because of their potential harm. Why is it that an 18 year old can rack up huge debts no problem, but yet there is a seatbelt law forcing him to wear a seatbelt, for his own good? We are quick to outlaw drugs because of their potential to be abused but even though debt can ruin lives, the government has a “laissez faire” attitude.

    I too ran up large CC debt in college. I still remember my first purchase (Blade Runner VCR video) and the sweet siren of instant gratificationd. I’ll just pay it off later I thought. I was lucky though. I graduated in 1998 before really easy credit was everywhere and I got a decent paying job after graduation, where I was able to pay it off. On the other hand, without credit cards, I would have never been able to afford annual ski vacations as a 20 year old. Ahhhhhh, the memories.

  15. Ausarb says:

    hardcle: There was an NPR story recently that dealt with interest (mortgages) recently: [www.npr.org]

    I bet the contracts in Islamic countries are similar to the mortgages in the NPR story. Instead of buying something on credit, the CCC “buys” it and then leases it back to the “buyer” on a “rent-to-own” plan. If it walks like a duck and quacks like a duck, it isn’t really a duck!

    Countries like Turkey though are secular in their governments and therefore probably don’t outlaw credit cards and other loans and instead leave it up to the discretion of the borrower.

  16. Televiper says:

    @Ausarb: It’s politics. It’s who is interesting in having what, and how powerful and persuasive that who is. Strong seat-belt laws make law makers look good, and there are many interests including insurance companies, medical associations, and consumer groups backing them. With credit cards the interests lie in keeping them as unregulated as possible. The consumer wants the freedom to spend as they wish, and to own their own financial responsibility. The credit card companies like making interest off their ability to be financially responsible. A seatbelt on credit cards isn’t going to happen because there’s too much political ‘demotivation’ to do it. There was a point when an 18 year old couldn’t get a credit card without a parental signature.

  17. ShariC says:

    “America’s painfully slow economic decline is partly fueled by almost $1 trillion of revolving credit card debt, an albatross our imperial credit card companies are all too happy to export.”

    but…

    “Turkey’s two biggest card issuers, Yapi Kredi and Garanti…”

    I could be wrong, but those card issuers don’t sound like American companies. How are we responsible for “exporting” our problems when this sounds like foreign companies simply choosing to follow the same path as the U.S. without any influence from us at all? Is the U.S. to be blamed for every bad choice made by every consumer/company world-wide?

    The tone of this article would seem better set by saying that other countries are not immune from falling into the same trap as the U.S., not that the U.S. is sending its problems abroad.

  18. supertechman-protests disemvoweling by disemvoweling himself says:

    @hardcle:

    “Regarding Turkey, I thought that Muslims were prohibited from earning or paying interest. “

    Islam does indeed forbid usury and Turkey is indeed primarily Muslim, however; the government of Turkey is secular (see [en.wikipedia.org]).

    So while a great many Turkish individuals may have a problem with lending at interest, legally, there isn’t a prohibition against it.

    A common misunderstanding :)

  19. seamer says:

    @ShariC: Wells Fargo is an issuer, but its backed by Visa.

  20. Decius says:

    @Televiper: The introduction of seat belt laws (and later similar laws) were difficult and long-winded and politics, auto makers and other interest groups fought against it for many years, resulting in the USA being far behind Europe and Australia in terms of car safety for decades.
    We have to thank Ralph Nader (before he went crazy) and John D. States for making driving safer and saving thousands of lives every year. Before Nader’s campaign American car makers often didn’t even include a seat belt in the car.

    For more informations:
    [en.wikipedia.org]
    [en.wikipedia.org]

  21. @LordofthePing: It’s ok. Dubai and China will come to the rescue, if things go really bad.

    Hope you’ll like your new overlords.

  22. Angryrider says:

    Preying on the poor is a robust industry. Our Christian business leaders commit usury for a source of income. So it shouldn’t stop other peoples around the world from doing the same.

  23. JustThatGuy3 says:

    @hardcle:

    They’re also prohibited from drinking alcohol, but just try to stand between a Turk and his raka. Turkey’s a secular country, by law, like the US. The vast majority of its citizens are Muslim, but the level of observance varies widely.

  24. bohemian says:

    What the articles quoted don’t say is who owns those two Turkish card companies. Businesses frequently operate under different names in other countries. It also doesn’t say if they are Visa or Mastercard backed. If they are then US business is participating in that.

    US companies started focusing on other countries as the new source to exploit for sales and obviously credit too to some extent. I think they saw US sales drop as people were saturated with consumer goods and saw their credit debt grow so now they want to move on to do the same thing elsewhere. This is really not something we want to be exporting.

  25. digitalgimpus says:

    @hardcle: Indeed, though I believe that depends on exactly how strict they are. I know many won’t even take a mortgage on a house.

    But Turkey is technically secular, so I believe it’s allowed by law. What percentage of people in Turkey have credit cards… that I don’t know.

    There may also be a slightly tweaked business model to help woo customers who are on the fence about the idea.

  26. econobiker says:

    It should not be called a credit card application anymore. It should be called an “application for debt”.

    At least the Urban Dictionary has it posted that way…

  27. Erwos says:

    @econobiker: Why? The only debt I have is my mortgage, and my wife and I have two personal credit cards each. We just _spend responsibly_, pay them off every month, and thus are able to live a good lifestyle while saving money into the bank every month.

    Guns don’t kill people, and credit cards don’t put people into debt. The people who _use them_ do! And I don’t need a nanny state government dictating what terms I’m allowed to take credit on.

  28. P_Smith says:

    For two years I’ve been trying to get a cash card (you put cash in, then use it like a credit card) and the banks won’t even talk to me. I don’t want credit, I just want the ability to buy over the internet. The banks issue them, just not to me.

    It seems that unless you are dumb enough and willing to dig yourself into a financial hole, the bastards won’t give you a card. Those who manage their money well aren’t a priority to the banks and indenture card – oops, I mean credit card – companies.

  29. darundal says:

    Here is a link [www.pbs.org] to an episode of Frontline about the credit card industry.

  30. Erwos says:

    @P_Smith: Most ATM cards function like that. Have you thought about switching banks?

  31. Quilt says:

    I have one credit card with a $500 limit. I’ve had it for 7 years.

    Guess what? No debt, because I never even use the stupid thing except for small purchases over the internet and possible emergencies. I don’t think I’ve ever paid a penny of interest on the card either.

    It amazes me how stupid so many people are with their credit cards, and money for that matter.

  32. Tedicles says:

    I’ve got more than $50,000 in limits on my cards. My current balance is $0, as it has been since I began using them. People tend to forget that we are still spending OUR money, not some gift giving Visa corp. Don’t buy it if you cannot afford it, seems simple, right!? I feel no sympathy for people in debt because they thought they could spend whatever they wanted to.

    Unfortunately, I think the gov’t will probably be enlisted eventually to bail everyone out, so guess what, you and me (the responsible people) will eat the costs. Just like in the housing market. So much for doing the right thing…:(

  33. ppiddy says:

    “Turkey may not be able to payoff their debts.”

    Nitpicking, I know, but isn’t payoff a noun?

  34. Kahyaki says:

    I wonder why did you select an Arab’s picture for a topic related to Turkey. Although the majority of the people are muslim, Turkey is not an Arabic country. This is a common misunderstanding among people. Please google some pictures regarding Turkiye (not turkey -you may come up with the bird pictures :) – ) and you will be surprised how actually it is different than what you think.

    I even suggest to replace the photo with a more proper picture when you find it.

    Here is one for you: A Turkish woman holding her credit cards.

    [yenisafak.com.tr]

    you can think of it this way: All Arabs CAN be Muslim, but NOT all Muslims are Arab.

    Best regards.

  35. pfeng says:

    Yeah, personal responsibility has worked SO WELL for the problem to this point, I’m SURE it will solve the crisis in future! [/snark]

    @Quilt: I wonder how you keep your limit at $500 — even my never-used credit card (the one that’s an old account, to make the credit rating pretty) ups its limit $1000 or so every year. The one we DO use for purchases goes up an average of $2000 a year. I could buy a car if I wanted to. If I didn’t have good spending habits, wasn’t naturally stingy, and didn’t pay it off every month, I’d be in for a world of financial hurt. (But hey, I’d have that great car…)

  36. enderx says:

    Once again, another american idea – playing the victim.