FREEZE CREDIT CARD RATES
To provide a workable solution to the 80 to 90 percent of the nation who pay their credit card bills on time but are having a difficult time in meeting their obligations because of the deteriorating economic conditions and the aggressive tactics of the banks and other credit card issuers.
To create an active BLOG where people can tell their stories of how they fell into the trap of excessive debt and what they are doing to escape their situation.
The president will meet this week with the major credit card companies. Our objective is to present the consumer’s position, and offer a simple and straight forward solution for the bulk of credit card debtors. Before providing our plan we would first like to lay out a brief synopsis of how we got to the current untenable situation.
The USA is the richest and most successful economic power in the history of the world. However, somewhere in the last 50 years, this power went to our collective heads and we went completely off track. We fought wars without paying for them, we deindustrialized by shipping millions of jobs overseas and we began to live by financial engineering. It started with massive trade deficits that led to unmanageable fiscal deficits. We utilized creative accounting at all levels of society from stated income loans for individuals to off balance sheet transactions for the banks and worst of all a Federal Government that created massive off budget debts and contingent liabilities. We strongly recommend that everyone who has not seen David Walker’s fabulous documentary, IOUSA, do so as soon as possible.
CREDIT CARD SITUATION
Credit cards started out as an elite product with cards such as American Express and Diners and more down scale issuers such as department stores. Bank of America developed its card in 1958 and the race was on. Banks issued their cards prudently at first, but the profits were so great that by the 1990’s credit standards gradually deteriorated and banks started to develop unsavory practices that have led us to where we are today. We, of course are all to blame, as we became accustomed to building up our credit card balances and paying them off with investment profits, house refinance proceeds or teaser rate balance transfers from other credit cards.
WHERE THE BANKS ARE TO BLAME:
- They utilized low interest rate offers to entrap their clients and raised rates and tightened conditions once balances were at a sufficiently high level.
- They employed psychologists and targeted college students and even high schoolers to help create a culture of debt and over consumption.
- Small business owners were targeted as the banks were aware of how difficult and cumbersome it was for small and medium sized businesses to obtain a line of credit from a commercial bank.
- Immigrants were targeted as they normally came from cultures where credit was difficult to obtain and could not believe their luck in being granted a credit card so easily.
- Banks began to securitize their credit card obligations and sell them off in the secondary market. As they were no longer at risk they went out and granted more credit and added to the credit card bubble.
- Some banks used deceptive practices such as slow application of payments to create the excuse for late payment fees and increased interest rates. We are preparing to name names and are particularly interested in feed back from the public on this issue. We are very surprised that lawyers have not picked up on this. One major issuer in fact has their call center in India blame the United States Postal Service for the problem. We want to be fair here and clearly state that this is not a generalized problem with most major credit card companies.
- All of the issuers, however are using the small print on opt out statements to pass on major rate and fee increases.
WHAT SHOULD BE DONE NOW
The banks have received massive support from the Federal Government they in turn should be required to assist their credit card customers. We suggest a rate cap of 7 percent with a 2 year moratorium on mandatory principal payments. The banks have an average cost of funds of less than 2 percent so they would still have more than a 5 percent average spread. The question of fees should also be looked into and those institutions that are creating unscrupulous and illegal fees should be punished. The 2 year moratorium on principal payments would allow consumers to rebuild their balance sheets and would also allow time for a housing recovery. The goal here is for consumers to change their habits and borrow more carefully in the future.
Easy credit has been harmful to many people. The banks are not solely to blame but they certainly played a large part in this fiasco. We are sending this statement to all our senators and congress members in the hope that they will help to create legislation to cap credit card rates for a limited period of time until the market can correct itself. We are not sure that 7 percent and 2 years are the absolute correct solution but we think they are a good starting point to begin the debate.
TELL US YOUR STORY
Please reply with your credit card story. We are especially interested in information on abusive practices but would also like to hear about your debt story and how it affected your life. We are not entirely one sided and would also like to hear positive stories on how credit cards may have helped you. Unfortunately the bad far outweighs the good and it is now time to act decisively. Help us get the government to act.
You can assist us by sending us your questions and comments. Good luck in getting out of debt!