Consumers: We're Mad As Hell And We're Not Going To Charge It Anymore!
Once upon a time, Peter Finch won an Oscar for telling us to go to our window, open it, and yell, "We're mad as hell and we're not going to take this anymore!" Now thousands and thousands of consumers are doing just that, but instead of yelling out their windows, they're yelling at the Federal Reserve in the form of a record breaking number of public comments about some proposed credit card reforms. Not as sexy as yelling like a madman, but far, far more effective.
From BusinessWeek:
Many consumers say it's about time. The rules were proposed just as the U.S. economy started to tank, when many card holders were falling further behind on their payments at the same time home equity lines of credit were drying up and jobs were disappearing. Regulatory agencies came under fire to act, and Senator Carl Levin (D-Mich.) held hearings this spring to examine card company billing practices.
The proposed regulations generated more than 56,000 comments from individuals, banks, credit unions, and industry associations. That's a record number of submissions, says the Fed, beating the previous record of 45,000 submissions for a proposal that would have let financial firms assume the role of real estate brokers.
BusinessWeek says that since 1996 our nation's credit card debt has doubled to almost $1 trillion dollars. And unpaid credit card bills are growing fast as the economy sours. For their part, the credit card companies are trying to stop the bleeding by raising interest rates on otherwise "good" customers. And those customers have had enough.
Here's how the Federal Reserve describes the proposed reforms:
- Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.
- Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.
- Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.
- Banks would be prohibited from imposing interest charges using the "two-cycle" method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
- Banks would be required to provide consumers a reasonable amount of time to make payments.
If you'd like to add your comment to the proposal, click here, then scroll down to "Proposals for Comment."
Federal Reserve Proposal Press Release [Federal Reserve]
Credit Card Rage [Business Week]
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Comments:
Nevermind. The other link works.
I'm curious as to what exactly 'limited circumstances' means.
Do those 'limited circumstances' effect promotions like no interest on balance transfers until X/XX/XXXX?
Now.. if we can get them to prohibit banks from predatory practices against low balance holders... We would be in great shape.
"Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances)"
Would one of those circumstances be universal default? I don't trust the current Fed.
All of those reforms sound fair, keeping in mind that the essence of Capitalism (the American Way!) is to allow people (and Corporations are people, too) the freedom to make a profit, when they own the method of production. CCC's 'own' credit and as such need to be able to earn a profit and should only be prevented from taking unfair advantage of consumers, however they will still be able to take advantage of consumers, until consumers realize that all credit carries a cost, i.e.: there's no such thing as a free lunch (or a free Plasma TV).
I'm not impressed until I hear a proposal for LIMITING these crazy interest rates. 20%+, WTF?? Al Capone didn't charge that!
I swear, credit cards were one of the most ingenious inventions of the 20th century. It's just too bad it's controlled by only two (maybe three if you count AmEx) large corps.
As for the Fed, the more damage it takes the better.
Since banks are just legally sanctioned loan sharks, none of this matters. They'll still continue to screw consumers without any fear or conscience.
@sketchy: Uh, corporations are NOT people. If they were, they would have the right to vote, contribute to and/or participate in political campaigns, and all kinds of other scary stuff that corporations are rightfully proscribed from doing. The idea of the 'personhood' of corporations is a lie conservatives tell when they insist that corporations somehow enjoy constitutional rights. That is flat-out bullcrap. In fact, it is the government's JOB to regulate everything having to do with the creation, structure, functioning, and dissolution of corporations as it deems appropriate for the proper functioning of the national economy.
Prediction: The changes will be implemented, and banks will find a creative way around them that screws us, just like when they invented dual-cycle interest.
@HurtsSoGood: Why would a corporation care about voting when their lobbyists can just get direct access to the politicians?
Maybe I'm naieve, but I don't see the problem. Honestly I don't.
You don't abuse the credit card system and it doesn't abuse you. It's really that simple.
In the last 10 years I've seen my father use cash maybe twice. He's fine. He doesn't make a lot of money, but he finds out when there's a promotion and he uses it to his advantage. He budgets to have everything paid off before the promotion ends, and sticks to the budget. And if he wants something but can't afford to pay it off in a reasonable amount of time he doesn't buy it.
Compulsory financial management classes every year from k-12 would do a lot more to stem the credit problems we have in this country than "fixing" the credit card industry.
When you use a fire extinguisher you aim it at the base of the fire, not the top of the flames. These reforms go after the flames. Education goes after the base.
I don't think that reform is needed for the CCC's, but for the consumers themselves. I used to abuse my credit, and now I'm seeing what a mistake that was, and I've reformed how I spend, AND how I pay the damn things off. I've learned a lot from coming here, and I don't believe so much that it's all the CCC's fault. Sure there's some pretty crappy cards out there, and sure, some people who've made bad descisions with their credit in the past NEED those crappy cards to "earn" back their good credit. But only if they learn from past mistakes, where I believe the reform should start to take place.
They'll all be in trouble (banks) when people begin to realize that they can stop paying their credit cards, as long as they don't want to worry about bad credit for the next 7 years... of course if you are already behind in your CC payments, you already HAVE bad credit...
Hm...
@thalensmom: I was about to say the same thing about your post.
I'd like to add as well that anyone who thinks that this problem has a quick fix, it doesnt. There's no way to flip a switch and get people to stop abusing credit cards. All we can do is start educating them and let it trickle up.
You don't abuse the credit card system and it doesn't abuse you. It's really that simple.
It actually does abuse you. That's the problem. For instance, one of the abuses is credit card companies sending out your billing statement about one day before the payment is due, leaving you no time to get the payment in before you're charged a late-payment fee.
Compulsory financial management classes every year from k-12 would do a lot more to stem the credit problems we have in this country than "fixing" the credit card industry.
Look, I really don't think education is the answer, here. What, exactly, do you think people are ignorant about? How many people do you really think are under the impression that their credit card is a magic money machine, not a debt they have to pay off eventually? Everybody knows what a credit card is. What a lot of people - like you - don't seem to know is that the profit model of credit cards has shifted from making money on the interest rate to gaming the rules so that regular people can't help but break them, and then get soaked for hundreds of dollars in fees and fines.
Sure, sure, it's in the contract; but no K-12-level course is going to give people the advanced contract law background they'd need to understand that document. The credit problems of this country stem from pretty much one thing - wage growth has lagged behind cost-of-living increase for the past 40 years. People are in hock up to their eyeballs because they're making less and less money as costs go up and up.
It actually does abuse you. That's the problem. For instance, one of the abuses is credit card companies sending out your billing statement about one day before the payment is due, leaving you no time to get the payment in before you're charged a late-payment fee.
I have 3 cards. They each mail me a statement on the 3rd of the month (give or take a couple days). The bills for all of those cards are due the 2nd or 3rd (again, give or take) of the following month.
Not that it matters, I don't buy things I can't pay for, so when I use the card I go online and make a payment.
Look, I really don't think education is the answer, here. What, exactly, do you think people are ignorant about?
I know plenty of people who truly and honestly think that Credit is "free money", and don't understand interest at all. Thinking back to my days in school, the only time I ever learned about interest was in math class when we computed it. There was never any "if you charge this much at this rate, you end up paying this much if you pay minimum payments." That goes for mortgages too.
I've never had a course in contract law, but when I get a CC offer that looks good, I read the contract 2 or 3 times. If I see something I don't like, it gets shredded. There are people who see one and say "OOH! Free money!". Thats what education would stop.
What predatory practices? Seems to me that if you're a low balance holder, you're not a very valuable customer to the bank. Therefore, you should pay more to use the bank's services than someone with a high balance. And, for the record, I certainly do not qualify (unfortunately) as someone with a high balance.@thebluepill:
Be Careful!
Peter Finch died before he received his award.
@lonebannana: Doesn't the clock reset every time that credit card debt you defaulted on get sold to another collection agency?
Actually, I have an ex that did just that, stopped paying his bills figuring he would just take the credit hit for the next few years. Too bad that also meant that he was never able to get an apartment without a roommate.
@johnfrombrooklyn: You're absolutely right. You maximise your profit based on the customer. If my CC company pisses me off and I leave, they don't care either way because they weren't making any money on me in the first place, so they do what they can to make money when they can.
Might suck, but it's a good business practice.
@Mary Marsala with Fries: Interest rates are controlled by the states, not the Fed.
That's why the big banks have their CC divisions in states that are "liberal" to the corporate usury laws.
You're exactly right. Overall, the credit card industry is not very "capitalistic". You essentially have 3 cards that control trillions of dollars worldwide. I know that banks actually issue the cards, but it'd be nice if the credit card industry didn't operate like an oligarchy. @cmkennedy:
You know.. I really like the idea of K-12 Finance Courses.
We teach our children about science and history, yet we only give them a 1 semester course in "economics" that just covers the basics.
Really.. Finance and money management is an enormous part of life, the leading contributor to divorce and the mark of personal success for most people. Having financially weak citizens will lead to the countries overall decline as well, like the crisis we are in.. Yet we only give the kids 9 weeks of high level and send them on their way.
Most kids know nothing of finance, personal or otherwise when they graduate high school. Hell, half cant even write a check!
So.. Yes, If we had a mandatory K-12 Finance Course, every year, just like science or literature, we would be a much better country as a whole.
@RamV10: Compulsory financial management classes every year from k-12 would do a lot more to stem the credit problems we have in this country than "fixing" the credit card industry.
I do agree that some fiscal-responsibility management is needed but more like Grade 11 through College. Especially college where the dorm hall boards are plastered with CreditCard apps (that reward the RA).
Yes, one needs to be responsible, but one also needs to know their compulsions and keeping them incheck.
Its very difficult to make it without a basic checking account of some type in life. Banks have got a real racket going with OD/NSF fees, Large Purchase First Accounting practices and other such methods that are wreaking havock on those that dont hold a high balance, or live pay-check to pay-check. Its really quite sad.
Is it all the banks fault? Of course not, but they do take advantage of it to an excessive degree.
@thebluepill: Where I went to high school economics was an elective too, and 75% of people didn't even take that.
But I can tell you all about what a crappy book Great Expectations is.
@SigmundTheSeaMonster:
Yes, one needs to be responsible, but one also needs to know their compulsions and keeping them incheck.
But education goes a long way to reminding people that being compulsive with credit is a really bad thing. (think of it as giving the little angel on your right shoulder a lot more ammo to go after the little devil on your left)
@RamV10:
Your absolutly right;
By the time a kid is in 12th grade, they can usually tell you all of the planets in the solar system, name all 50 states, tell you about the civil war and how to make a spreadsheet on the PC.
They cant usually tell you:
How to write a check.
How your credit score effects your life and what it is.
How a mortgage works.
How a car loan works.
How to balance a ledger sheet.
How interest works.
The list goes on and on… Its sad and the reason we have so many people failing financially right now.
As far as consumer economics courses, we teach biology and evolution and a large portion of the US still believes in biblical creation. Stupid is as stupid does.
Of course banks take advantage of it, that is called capitalism. You see an area where you can make some money, and you go for it.
Any one remember the early days of credit cards, you had to have a stellar credit score to qualify. We can "reform" the credit card industry back to those days if we try hard enough. No one but the top 20 or 30% will ever qualify and everyone else goes back to cash.
Having a credit card is a boon to millions of households in helping to cover emergency expenses and similar situations. Used responsibly, credit cards can save households money each year.
That is not to say the system should not be fair, with all terms and conditions CLEARLY disclosed in understandable terms. But lets face it, not everyone should have a credit card, and we certainly should not punish the majority by making them harder to get because a minority cannot use them properly.
Is it just me or does everyone in America need to rent "Fight Club" this weekend?
"I flipped through catalogs and wondered: What kind of dining set defines me as a person?" ~ Narrator, Fight Club
We need to improve general education before we start bogging the system down with additional courses in classes that probably wouldn't be necessary if the education we provided now was worth a shit.
I agree that it would be a good thing if people knew more about finance, but I don't think it's the "only answer." I have good credit, decent resources, satisfactory education, and time to look stuff up, so I can easily avoid or flee cards that offer predatory practices. The fact that I don't have to deal with them doesn't mean they don't exist, though.
It's not solely the individual's responsibility to make sure s/he's not preyed upon, attacked, hit by a car, or poisoned. Let's give people as much knowledge as they can to avoid such things, but let's also make sure the institutions that are designed to curb misuses can do so.
i just wish they'd stop with the traps. the two-cycle billing, universal default, retro-pricing - it's all nonsense. the one thing that pisses me off more than anything? due dates on days they don't accept payments (sundays & holidays).
unfortunately, taking away the income earned from these shenanigans means higher interest, less promos & smaller rewards for all. que sera, sera.
re: compulsory financial ed - i think it's a wonderful idea, but i really think it's a waste of time before high school. k-8 is "building blocks" time - it's much wiser to ensure that students have basic comprehension skills before trying to teach them how to manage credit wisely. still, a great idea.
These sorts of manifestos and demands are ridiculous.
Here's my horrible credit card situation:
I have never paid a cent in interest or fees to my credit card company. They have never charged me for service and my credit continually increases without me asking at about $2k/year. I get 1-3% off all transactions, so I get back some money every month. Included in my credit card is free warranty extensions, free rental car insurance, and free theft protection. Occasionally, a merchant tries to screw me over. Every time I've done the chargeback, the credit card company has responded quickly, professionally, and with no possible impact to my bank account. Once, I actually did a chargeback incorrectly to a company that put a rather misleading label on their charges. I informed the credit card company that I was in the wrong, not the merchant, and the credit card company refunded the charge anyway as a courtesy.
Why can I do all that? I read what I signed! I know all the nasty practices a credit card company can do if I don't pay. So, I do pay. Those practices should not be a secret to anyone - they're presented up-front in ink when you get your card. Customers can't be hurt by any company, ever, if they read what they signed. As a corollary, solving problems that result from not reading what you sign by regulating one party in a contract solves only a symptom, not the actual problem.
I don't know where this idea that consumers can't be informed. It's a dangerous idea. It's going to hurt the consumers in the end, because companies can only respond to regulation with increased fees and decreased awards. Every cent you take off of a company's profit margin is going to be replaced with an increased cent in fees - there's no other way for a company to operate!
@RamV10: Wouldn't one quick fix be simply putting laws in place so that card companies don't feel they are entitled to get their money back if they loan it to someone who may never be able to pay it back. If this were the case card companies might be more careful about the credit limits they hand out and make sure that they were getting their money back before they increased these limits.
If limits were controlled in this way we might not have as many young people getting burdened with credit card debt before they are mature enough to realize what they are doing, or desperate people getting themselves in bad situations, or stupid consumers getting into bad situations.
I admit that many consumers do dumb or irresponsible things with their credit cards, but blaming the consumer is such a cop out. The bottom line is; we do not want a society with massive credit card debt. Therefore, any system that leads to massive credit card debt is bad, even if consumers themselves contribute to the problem. Controls should be put in place that lead to a healthier situation regarding credit card debt. The controls proposed here probably don't go far enough.
@crashfrog: Ah yes. Finally someone who actually gets it. It's hard for me to keep up with the people who never have financial problems and their worry-free lives. A lot of people struggle financially and they're not just morons who don't know any better.
My favorite trick is when CC companies change the due date every month (sometimes by as much as a week) so you're never sure when the bill is due. I'm sure they're not hoping you accidentally pay the bill late and incur a $25 late fee or anything like that.
@thebluepill: Maybe you just have and/or know dumb kids. My oldest son is in 8th grade and he knows all those things.
I think it was Eyebrows McGee who posts on these types of stories that in Illinois they have mandatory financial classes in high school and it seems to have little or no effect on consumer practices in that state.
I'm with mac-phisto stop the shenanigans and most consumers wouldn't have much of an (legitimate) issue with CC companies. I have excellent credit and pay off my balances every month, but since I have been traveling again for business I don't get my mail and miss payment dates because they change monthly. American Express is the only CC I carry that has the same due date every month. Why is it that hard for a CC compay to do this? I signed up for e-mail alerts and I don't get them, and it's not because they are treated like spam. I finally got in the habit of checking my accounts online twice a month and paying any balance due in the next 15 days. And I love BofA who won't let you pay the bill on their CC's online with anything other than a BofA account. You have to call in and incur the "telephone fee" to pay with an account from a different bank.
And yes, I know, that's my fault for doing business with BofA.
If they stopped the scummy practices they wouldn't have this type of "uproar".
Even though I have and use two very low interest CCs and have never had any real dramas (knock on wood)I would still like to see these regulations come to light.
See Santa Clara County Vs. Southern Pacific Railroad, 1886. The Supreme Court gave person hood to Corporations
I totally agree that financial education needs to take place in this country. I volunteer with a program that teaches children about finances, and saving. We teach them how to open a bank account, how to balance a checkbook, interest and credit, loans and securities. A lot of times we have parents who also participate in the lessons, because they don't know anything about the topic either.
It would be great to see some credit card reform.
I believe the interest rates are beyond reasonable.
Regardless of whether something is legal or not isn't the issue ... its the UNETHICAL business practices that people are fed up with.
With that said, I have not had any of these fees, etc charged to me as I have a habit of going online and paying all credit card charges @ least once a week. I never look @ due dates because I don't wait until the bill comes. I simply place the receipt in my wallet and when I get to the office or home I sign into my online banking and make a payment for what I charged. It really is that simple. Can't afford to pay it off each month? Don't buy it. Shold you NEED to purchase something and make payments over a set period of time, PLAN on how you intend to pay it off.
I know I am considered a "deadbeat" by the CC companies because I get anywhere from 1 - 5% back on all my purchases and they don't make money directly from me. ( although they do from the merchants I shop with ) But if you think about it, those of you carrying balances and not paying attention to what you did agree to are supplementing my 1 - 5% rewards.
Its about personal responsibility for me.
And yes, the credit card companies have become very unethical and dishonest.
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Guess the Fed got tired of listening.