« McCain is Losing because of John McCain and Sarah Palin -- Not the Economy News | coonsey's Blog | Women Should Register with Selective Service Too! »
Require Credit Card Companies to STOP Feeding the Bears.
Some of the talk shows were discussing credit cards and American's getting themselves too much in debt because of them; that perhaps somebody should come forward and tell voters to stop it. That it is their getting in debt that is hurting the economy. They also said however, that it would be political suicide if a candidate did that.
It made me think of an idea however. What if someone (Obama) were to suggest that his administration would stop credit card companies from allowing a customer to get in debt -- beyond their means that is.
Imagine getting a credit card worth $500. The customer ends up spending $475 of that. The customer pays his monthly premium on time every month.
The card company likes those actions so they give the customer extended balance available (even though the customer never asked for it). Now that customer has $1000 total limit. The customer of course ends up taking advantage of that money, saving his cash for other things. Always paying his monthly premium due.
Soon however, that card company offers the customer a 10,000 balance available. The customer, not paying much attention to his debt, just his monthly premium says, "Wow, I can buy that new boat now".
The monthly premium jumps up so high the customer can't make the payment. He begins paying his bill late each month or not at all. The card company decides to punish the customer by raising the interest rate on the customer's account. Instead of paying that original 8% APR, the customer is now paying a whopping 21%.
To top this off, the card company decides to continue increasing the credit limit for that same customer. It's like offering fudge to a person that loves fudge.
The customer is left with a debt for life, that he/she may or may not be able to keep up with over the years. And if they can't meet those bills, they end up filing bankruptcy.
Yes, the customer is as mush at fault for his problems as the card company; but was there something the company could have done to stop the over spending and abuse? Could they have avoided that customer from claiming bankrupt and therefore losing most of the money the customer owed them? Yes.
As soon as that customer had missed two payments, they could have put a hold on that account. They could have stopped the customer from using their card until they've once again proven they can meet their obligations toward it.
Instead, they packed on -- even more debt to the customer by charging more interest rates and therefore, more money due. They even turn around and charge a huge late fee each time the miss paying.
Now think about it folks. If the customer can't meet (and did previously) the payments now, how is adding more money due each month and in the long run helping?
Sure, the company (if the customer is finally able to pay his monthly premiums) ends up making more money -- but what if he doesn't and files bankrupt?
Both the customer and company lose.
Perhaps Barack Obama should say he plans on making new regulations to help stop that 'throwing money' at customers, and stop credit cards from charging outrageous fees and interest rates for being late. Perhaps he should say he will require companies to put a hold on accounts for a period of time while the customer catches up.
Oh sure, there are specifics to look into, like the cost of extra paper work and labor for keeping tabs -- but this feeding the bears will only continue to make things worse.
What's your opinion? Can something be done to not only help the customer from him/her self; but to help the company to get back what is owed with a little profit?
It made me think of an idea however. What if someone (Obama) were to suggest that his administration would stop credit card companies from allowing a customer to get in debt -- beyond their means that is.
Imagine getting a credit card worth $500. The customer ends up spending $475 of that. The customer pays his monthly premium on time every month.
The card company likes those actions so they give the customer extended balance available (even though the customer never asked for it). Now that customer has $1000 total limit. The customer of course ends up taking advantage of that money, saving his cash for other things. Always paying his monthly premium due.
Soon however, that card company offers the customer a 10,000 balance available. The customer, not paying much attention to his debt, just his monthly premium says, "Wow, I can buy that new boat now".
The monthly premium jumps up so high the customer can't make the payment. He begins paying his bill late each month or not at all. The card company decides to punish the customer by raising the interest rate on the customer's account. Instead of paying that original 8% APR, the customer is now paying a whopping 21%.
To top this off, the card company decides to continue increasing the credit limit for that same customer. It's like offering fudge to a person that loves fudge.
The customer is left with a debt for life, that he/she may or may not be able to keep up with over the years. And if they can't meet those bills, they end up filing bankruptcy.
Yes, the customer is as mush at fault for his problems as the card company; but was there something the company could have done to stop the over spending and abuse? Could they have avoided that customer from claiming bankrupt and therefore losing most of the money the customer owed them? Yes.
As soon as that customer had missed two payments, they could have put a hold on that account. They could have stopped the customer from using their card until they've once again proven they can meet their obligations toward it.
Instead, they packed on -- even more debt to the customer by charging more interest rates and therefore, more money due. They even turn around and charge a huge late fee each time the miss paying.
Now think about it folks. If the customer can't meet (and did previously) the payments now, how is adding more money due each month and in the long run helping?
Sure, the company (if the customer is finally able to pay his monthly premiums) ends up making more money -- but what if he doesn't and files bankrupt?
Both the customer and company lose.
Perhaps Barack Obama should say he plans on making new regulations to help stop that 'throwing money' at customers, and stop credit cards from charging outrageous fees and interest rates for being late. Perhaps he should say he will require companies to put a hold on accounts for a period of time while the customer catches up.
Oh sure, there are specifics to look into, like the cost of extra paper work and labor for keeping tabs -- but this feeding the bears will only continue to make things worse.
What's your opinion? Can something be done to not only help the customer from him/her self; but to help the company to get back what is owed with a little profit?
Advertisement
Personally, I don't think it's asking too much for people to be responsible for their own budgets. Just because a credit card offers you a line of $10K, doesn't mean you have to use it.
However, I will point out that American Express DOES do that - if they think your spending and payment habits suggest you're spending beyond your means then they'll impose a limit on a typically limitless card.
Just my two cents.
October 12, 2008 3:00 PM | Reply | Permalink
Oops - left out a line on the cut and paste...
One thing I DO think cards should be asked to cut out is the interest rate hikes without notification for a single offense. If you make one payment a day late then they can bump your interest rate from 8% to 20% without actually telling you (it just shows up on your statement). I think that is unreasonable and should be criminal.
Otherwise, they can give customers whatever limit they want...it's up to customers to use that limit responsibly.
October 12, 2008 3:02 PM | Reply | Permalink
If companies want to lend to high-risk consumers, that is their right. The credit card issuers (ie banks) will get burned if their credit standards get too lax and consumers start to default on their obligations.
Consumers need to have discipline. Putting a hold on accounts doesn't make any sense. The banks are already reining in their lines to consumers. I know people who's limits on their HELOCs and credit cards have been cut recently.
October 12, 2008 3:03 PM | Reply | Permalink
Well, here comes the Democrat in me. The Government is NEEDED in times like this. It’s like the court system being needed when two neighbors can’t get along. Or when a parent finally has to step in between a fight between a brother and sister. Or an arbitrator must step in during wage disputes.
Sometimes an outsider needs to step in and clean up the mess.
October 12, 2008 4:09 PM | Reply | Permalink
Consumers SHOULD spend responsibly, but they DON'T. It's the American way, spend now and pay later. That's part of the reason we're currently experiencing economic turmoil. It's banks giving $500,000 mortgages to people that might never be able to pay it off. People need to learn to spend within their means. And if that means more government regulation, so be it. As for companies making profit, i think the only way is through interest.
October 12, 2008 5:10 PM | Reply | Permalink
I think that I just might have come up with a simple elegant solution to the problem.
Why not let the Palin family shoot all those Bears from helicopters. They are very good at it.
Barbicuda's ancestors wiped out all the Dinosaurs, six thousand years ago, by shooting them all in that manner.
October 12, 2008 6:02 PM | Reply | Permalink
I do not understand why more is not being done to stop the cc comp. from hiking up the rates. After having a card for 13 years with no late payments, I was literally 1 day late twice in a calendar year (not consecutively). They raised my interest rate to 28%. They said they could do nothing. I have excellent credit but my husband started traveling out of the country and he paid the bills late not accounting for time differential. I should have been suspect. The year before, I closed a bunch of store cards and I later received a letter from them lowering my limit below my balance then charging me an over the limit fee! I often laugh at the amount of credit available to me considering I'm a stay at home wife and have never made more than $16,000 any year, but it is up to me to not use it. I have a balance on only 2 of my cards and not very high. But how is it legal to rake an interest rate so high when bills are paid steadily with only 2 late payments in 13 years. what is the justification. If I was high risk and they want more money then why keep extending limits. When they raked up my interest rate I transferred the balance to a lower rate card that offered me double the limit. Is their logic to the system???
October 22, 2008 2:21 PM | Reply | Permalink