Credit Card Crackdown
Credit card companies raising interest rates, lowering limits, putting the squeeze on consumers. What's being done about it? Help me Howard with how to protect yourself.
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"The abuses in our credit card industry have only multiplied in the midst of this recession," said President Barack Obama, "when Americans can least afford to bear an extra burden." New Yorkers are feeling those abuses and sharing their stories.
"About a month ago," said Molly Gordy, "I got a letter that said, by the way, from now on we're going to charge you 6% more for a total of 19% for both new purchases, and this is what really burned me, for all your existing balances, which is about $10,000! I was really steamed because they didn't even bother to give me a reason."
Same thing with hairdresser Monica Minoui. It took her weeks to get a reason and it turned out her credit history had been reevaluated. "There's been no change in my credit report whatsoever," said Monica. "So the whole idea that it's based on something that already existed when they allowed me to have the credit, now they've reevaluated me, I'm a risk."
And how about this couple? They were out to dinner when they got a nasty surprise. "Easter Sunday," said Sean Davis, "we thought we were going to enjoy ourselves, pay our bill, the guy comes back and goes, 'I'm sorry sir, you're card's been declined,' I said, no problem, here's another card. He said, 'I'm sorry sir, it's been declined.'"
The credit card company lowered their credit line on both their cards without telling them.
"It's just embarrassing," said Sean. "If we had been in an emergency situation God only knows what would have happened. And God forbid if we didn't have the cash to pay for the meal."
Senator Chuck Schumer hopes to put an end to such practices. He's behind a piece of legislation being called a Credit Cardholders Bill of Rights. "The economic crisis has hit New Yorkers, all Americans, like a punch to the gut," said the Senator. He's got the President's support.
President Obama has vowed to sign it into law. "Instead of abuse that goes unpunished," said President Obama, "we need to strengthen monitoring enforcement and penalties that take advantage of ordinary Americans."
But credit card companies squeezing consumers is going to get worse before it gets better.
Even after the President signs it, the bill won't take effect until July 2010. And in the meantime, credit card companies, which wrote off about $45 billion in bad debts, are bracing for the worst year in the industry's history. Expect credit card lenders to cut the lines of credit they extend to borrowers by more than $2.5 trillion through 2010.
The president acknowledges the Catch 22. "We need a durable and successful flow of credit in our economy," said President Obama, "but we can't tolerate profits that depend on misleading working families."
And Sean Davis says, "If you want me to spend money let me have the money to spend it with. We have proved that we are actually good credit risks because we do pay our bills on time, unlike some of our financial institutions."
And from Molly Gordy, "It's very troubling. I think it's accelerating because the banks of course are really hurting, but why should we subsidize them twice."
Of course, it's hard not to take a swipe at the very banks that took bailout money. The American Bankers Association warns the legislation could further restrict credit at a time when Americans need it most..but that remains to be seen.
A word to the wise. Keep reading the fine print until the credit card companies are forced to make it bigger. Maintain good credit habits and keep your wits about you during this crazy time.
Comments: 5
Never before in history has the irresponsibility of personal debt been in the spotlight more than today. Rather than reflecting on how we got into this problem, a more productive alternative would be to proactively come up with an idea of how to prevent such a crisis from happening again.
Blind tradition has painted a picture of credit card companies as inherently bad entities, coaxing consumers to miss payments so that they can charge enormous penalties. What is overlooked, however, is that credit card companies make most of their money from transaction fees that are charged to vendors who accept consumer credit cards, not from fees on the consumers themselves. Credit card companies would actually thrive in a more stable environment in which consumers paid their debt in full and on time, avoiding late penalties and interest payments. Credit card companies do not want you to fail; they would rather earn a commission from vendors in exchange for making it more convenient for you to make a purchase.
The negative stigma of credit card companies is propagated throughout society. In schools, for example, efforts are aimed towards persuading young people that credit card debt is bad and should be avoided. What if schools instead created a mock situation where students acted as a credit card company, as opposed to assuming the role of a victim consumer, with a mission to make as much money as possibly for the company? Such an exercise would build a basis for understanding credit rather than avoiding the issue and would prepare students to make better financial decisions with not only credit cards, but other parallel types of debt as well.
Warning people about credit cards has not convinced society to be more responsible with debt. Financial journalists may have the consumer’s best interests at heart, but their efforts to shun credit cards have not made people more self-reliant with their credit life. By having people experiment with credit cards rather than be scared of them, the creditability of the message “be financially responsible” is passed on to the consumer through their own experiences.
Never before in history has the irresponsibility of personal debt been in the spotlight more than today. Rather than reflecting on how we got into this problem, a more productive alternative would be to proactively come up with an idea of how to prevent such a crisis from happening again.
Blind tradition has painted a picture of credit card companies as inherently bad entities, coaxing consumers to miss payments so that they can charge enormous penalties. What is overlooked, however, is that credit card companies make most of their money from transaction fees that are charged to vendors who accept consumer credit cards, not from fees on the consumers themselves. Credit card companies would actually thrive in a more stable environment in which consumers paid their debt in full and on time, avoiding late penalties and interest payments. Credit card companies do not want you to fail; they would rather earn a commission from vendors in exchange for making it more convenient for you to make a purchase.
The negative stigma of credit card companies is propagated throughout society. In schools, for example, efforts are aimed towards persuading young people that credit card debt is bad and should be avoided. What if schools instead created a mock situation where students acted as a credit card company, as opposed to assuming the role of a victim consumer, with a mission to make as much money as possibly for the company? Such an exercise would build a basis for understanding credit rather than avoiding the issue and would prepare students to make better financial decisions with not only credit cards, but other parallel types of debt as well.
Warning people about credit cards has not convinced society to be more responsible with debt. Financial journalists may have the consumer’s best interests at heart, but their efforts to shun credit cards have not made people more self-reliant with their credit life. By having people experiment with credit cards rather than be scared of them, the creditability of the message “be financially responsible” is passed on to the consumer through their own experiences.
Both parties have responsibilities.
Some people do see credit lines as somehow free money, and max them out, end up being charged huge interest rate, late fee and other fees. They somehow don't realize they do have to pay the balance when the bill comes.
BUT, credit card companies are no saints also. They do made money from very high interest rate, like around 20% and up (almost like usury), with late fee and other fees.
The most unfair practice is, credit card companies can change the terms and conditions of the cards any way any time they wish, and the customers can't do anything about it except close the account.
What's worse is, credit companies have powerful lobbyists and special interest groups to pay top dollars to the politicians in congress, make sure the laws keep favoring them.
The banks and credit card companies have become enormous leeches on America's average working class consumers. They are being allowed to bleed the people of their hard earned American dollars with higher interest rates and penalties during these hard ecomomic times. Waiting until July 2010 for the protection we need just allows them to transform from money grubbing leeches to highway robbers. Not only are these banks and credit card companies imposing higher interest rates or else, they are lowering comsumer lines of credit and cancelling credit cards, all without notice. Regulations and strict monitoring needs to take place NOW! How can America successfully recover from this Economic Recession if there is a higher penalty on consumer cash flow? I have filed a complaint with Consumer Affairs and the Better Business Bureau concerning the unfair, unjust and grievous newly imposed practices established by Chase bank since its take-over of Washington Mutual. Every hard working class consumer across America affected by this major problem, issue and concern should do the same. I hope the news media's like Help Me Howard with WPIX continue to assist, share information and bring light to this situation.
My question is what happens to those that do pay their bills on time. Those that have had no choice but to use credit cards to survive or help out family members in a crunch, your paying it back, more than your monthly min and you still get reduced.
This happened to me. Happily paying my bills on time. I did it, I know I have the items to show for my debts. I pay my bills on time every month and have for the last 12 yrs. I am 33 yrs old, got into trouble as a teenager. Fixed it and now as a grown adult with a child am being penalized illegally. I watch BOA raise my interest rate 5% with NO explanation, no warning, no notice. When I called to complain they took this time to review my complete credit history and reduced my credit limits to $300 from the balance. Yet they could not explain why they raised my interest rate. I am in the middle of buying a home. This could cause my credit score to drop to the point of where I no longer qualify, due to credit score not income.
My fiance and I are trying to do our part in this economic crunch and buy a home, yet credit card companies that have taken money from the government to protect themselves are hanging the consumer out to dry.
Someone needs to do something before June 2010 because in the mean time they are going to stomp all over the consumers so that when 2010 comes along there is nothing more to be done!