Credit Card Crisis in America

With more than six million people out of work and receiving  unemployment benefits, it is no wonder that more and more people are being forced to use their credit cards to help buy groceries and pay for utilities from month to month. That is a losing proposition, because sooner or later they reach the limit allowed on their credit cards

Although some of the banks that control the credit cards have received billions of public money to ease the credit stalemate, financial institutions are raising interest rates and fees on the credit cards of the very people who provided their bale-out money.

There is little constraint to prevent to card companies from raising interest rates and fees, or from their changing the rules to suit themselves. It is all spelled out in that tiny printing at the bottom of credit card applications, and in notices sent out periodically to the unwary and unprotected cardholders.

Some of the unfair practices initiated in recent years include interest rates as high as 30%, and the higher and higher fees for late payments and bounced checks. But the most unfair practice of all is the universal penalty practice whereby a cardholder who has defaulted on a payment to one company will arbitrarily have his interest and late fees raised on any other credit card debts he owes to different companies, even though he has never been late in payments to them.

Senator Claire McCaskill D-MO has said, "As American consumers try to get out of credit card debt the playing field isn't in their own favor. If we are not careful credit card debt could very easily become the next sub-prime mortgage crisis."

Yesterday, April 22, 2009, the House of Representatives passed by 312-112 votes the Credit Card Bill of Rights introduced by Carolyn Maloney D-NY who is Subcommittee chairman in the House Financial Institution of which Barney Franks is chairman. The main provisions in the bill can be summed up as follows:

• Protects cardholders against arbitrary interest rate increases
• Prevents cardholders who pay on time from being penalized
• Protects cardholders from due-date gimmicks
• Shields cardholders from misleading terms
• Empowers cardholders to set limits on their credit
• Requires card companies to fairly credit and allocate payments
• Prohibits card companies from imposing excessive fees
• Prevents card companies from giving sub-prime cards to people who can't afford it
• Contains NO rate caps, fee settings or price controls

On April 30, Senator Dodd, D-CT, will introduce another bill in the Senate. They call it Credit Card Accountability, Responsibility, and Disclosure Act, or C.A.R.D for short. Senator Dodd says it will "put the credit industry on notice against practices that are unfair and deceptive." Its provisions are similar to the House bill.

How did we ever get into such a mess of debt with these beguiling little plastic cards that provide instant gratification? Well, it started way back in 1958 when Bank of America made a mass mailing of the first credit cards in Fresno, California. At that time many veterans of WWII had finished their college education, and bought new homes with help from Veteran's benefits. The new kind of credit card appealed to their desire to furnish their new homes.

The first 10 years were not very profitable, but in 1966, in what came to be known as the Chicago Debacle, five million cards were sent out by mid-western banks hoping to be the first to benefit from the Christmas rush. Cards were sent willy-nilly to any name they could find. Errors and fraud were common. Credit cards were received not only by householders, but also by felons, children, and even dogs. The banks that survived after a Congressional was held, began to make a profit on their credit card investments. Two new companies were formed that came to be called Visa and Mastercard, and they linked networks with merchants nationwide. The credit card industry took off. From 1980 - 1990 credit cards more than doubled.

In 1991 Senator Alfonse D'Amato spearheaded a law to cap credit card interest at 14%.

Since we live in a Republic and not a Democracy, state laws differ, especially laws against usury. That came into play in the credit card business when the Supreme Court ruled that credit card companies could move their business to other states from where their customers lived. Some states such as South Dakota have no usury laws. So when the state found itself in dire financial straits, they jumped at the chance offered by Citibank that if South Dakota would change certain laws and allow Citibank to operate within their state, they would bring much employment and money to alleviate the state's financial problems. Citibank sought this arrangement because inflation had risen faster than interest rates in their home state, and they could not make a profit where low interest rates were enforced by law.

It is encouraging that, after so many years of unconstrained profit taking by credit card companies upon helpless consumers, Congress is enacting laws that will ease the burden of abuse by  suffered by so many Americans from the unfair business practices of credit card companies.

Information for this article was found in various sites online. It includes information from an article called The Ascendancy of Credit Card Industry by Robin Sten, and from writings by Michah White, a contributing editor at Adjusters Magazine.