I’m all for personal responsibility, but credit card companies engage in the most aggressive, predatory practices I’ve ever seen when it comes to helping people get into debt - namely, targeting people who need the money, giving them comically high credit limits in light of their financial status, and then raising said limits when they get close to them.
What do you think? Where do you draw the line between personal responsibility and these companies’ predatory practices?
Well. how exactly do credit card companies get someone into debt? Do the companies force the people to go out and buy stuff? Do the companie tell people that if they don’t buy a cretain amount of stuff every month that they will lose the credit cards? Do they put people in headlocks and give them noogies until they buy that shiny little object that they really do not need?
Nope. If people do not understand compound interest it is their own problem, not the credit card companies.
Slee
In a nutshell, OP, yes. Partially.
People who are broke and/or irresponsible shouldn’t get credit cards. Nor should companies give cards to people they KNOW can’t pay the bill.
People who charge up a card they can’t afford and then default are stupid. But I’m not feeling too sorry for the company who gave it to them, knowing that their gross income is only $10,000 a year and gave them a $2,000 limit. WTF did they think was going to happen?
I think this is the root of the issue - the companies extending that credit to people with little (or even no) annual income.
A few years ago, a small office I was working for got a piece of accounting software called MYOB, which led me to a revelation (I’m not a financial type) that shines light on the credit card problem:
In standard modern accounting practice, debt owed to a company is considered a financial asset.
In other words, the more people owe you, the richer you are.
Put this into a business climate where:
and you have the recipe for our current mess.
Now, this merely EXPLAINS why we are in this situation, where companies extend more credit to a customer than they will ever be worth.
As far as BLAME, it rests squarely on the shoulders of Americans who insist on getting themselves into financial agreements they understand only dimly, if at all, for the sake of being able to spend, spend spend.
I myself grew up in a family with horrible credit practices, and taught myself not much better when I was grown. With the help of some maturity, my wife’s sterling record, and some consolidation loans, we have, this month, finally paid off the last dollar that fills in a credit hole I began digging for myself 15 years ago in college.
Whatever questionable behavior the companies used to offer and extend my credit, I was the dipshit who repeatedly took the bait. No one held a gun to my head.
So tell me, who do you blame for the heroin traffic, the junkies or the pushers?
(Yes, I know my drug jargon is terribly outdated … )
Even if you consider this “baiting” wrong… can it be legally stopped ?
I partially agree with the OP that its certainly bad business practice… but the people involved are being a tad stupid or delusional.
Take some responsibility. The individual signs the contracts. The individual goes shopping without a supporting income. The CC companies do not force you to sign the contract- or to use the card. If you need a credit record [1], get one card and use it once a month. For that matter, get only one card. And pay it off. If you can;t pay it off, you spent too much. HINT!
If you think that people do not understand the concept of interest, blame the schools, get on the local school board, and maybe start an evening education program.
Blaming credit companies for your debt is like blaming the car maker for the color of your car. You picked it. You live with it.
This really pushes my buttons. Reminds me of the day I went to a boat show and one catalog had a footnote saying “sailing might lead tio injuries, including drowning”. You are on a boat. The boat is on the water. If you fall in and can’t swim, you drown. Why do we have to waste paper on that?
It seems to be that the average person wants all the freedom, all the rights, but no responsibility. You spend money. If you spend more than you earn, you will go bankrupt. That’s called a consequence of your actions.
Dorfl
PS: For the record, I think the social net in the U.S. sucks compared to Europe and does not support the people who really need support because they came into poverty without fault.
[1] what a stupid concept anyways - in order to get credit you need to show that you have debt.
If these companies were non-profit, only earning enough in fees and interest to keep the company going, they would be lauded for their largess. Giving all that money and flexibility to people with little resource, so they can get through the tough times. It’s not the company’s fault that people squander that opportunity on things they can’t afford to buy.
Throw in some profit and all of a sudden the companies are eeeeevil for extending credit to people.
That’s what this all comes down to, people given credit flexibility abuse it to buy things they can’t afford. Our schools do a lousy job educating youngsters about finance and parents do a lousy job teaching frugality to their children. At the end of the day, we expect the credit card industry to be our nannies and protect us from our own crapulence (thx, Mr. Burns for that lovely and appropriate word).
Used properly a credit card is an absolute boon to someone living paycheck to paycheck. You get to borrow when you need to, adjusting your actual payments to coincide with your pay periods. You get to borrow more for emergencies then pay it off over time by cutting in other areas. Most of that borrowing and cash flow management is paid for by the retailer through a fee to the CC company, you only pay for longer term borrowing. If you have 2 credit cards, you can even keep the long term separate from the short term so you don’t run into more trouble.
I think there’s some parallel between this and the tobacco trade. A smoker can’t be let off the the hook for what is, after all, irresponsible behavior; but if he gets lung cancer from his bad habit, are the rest of us just going to turn our backs on him? Can we ignore the ripple effect his illness will have on his family and the community? And are the tobacco companies, which for decades tried to suppress the results of research which showed the dangers of tobacco and attempted with some success to manipulate the laws in their favor, utterly without blame for the social and economic consequences of tobacco abuse? After all, they did everything they could to promote the use of tobacco.
The credit card industry today is practicing usury no matter how you look at it. Even if their customers aren’t entirely blameless, the credit card companies are engaging in exploitative and risky practices that can have serious consequences not only for themselves and their customers but for the American economy, and the federal government would be fully justified in regulating the industry much more tightly, especially in regard to interest rates, penalties, and the standards by which unsecured credit is issued. The ripple effect of each default goes well beyond the creditor and the debtor. Millions of poor credit risks defaulting on risky loans has simply got to be bad for the economy. Bear in mind much of the money used to finance this profligacy comes from abroad, and sooner or later foreign investors are going to wake up to the fact that they’re putting their money into what is almost literally a house of cards.
American banks (and for that matter, American consumers) don’t have the right to throw money down the toilet just because they can.
Are they? They get a bunch of stuff and then they don’t have to pay for most of it.
That doesn’t really shine any lights on anything. A credit card company, like any other company, is in business to make money. Unlike a manufacturering company that has a physical product, a credit card company sells credit which is really issued debt. Other than the phones and infrastructure stuff, a credit cards companies biggest asset is the ammount of outstanding debt and interest recievable it’s customers have. The more debt, the better the balance sheet looks.
The thing is, no money is actually made by Visa until that credit and interest is payed. It is entirely possible for a company with a great Balance Sheet to go out of business because it is not generating enough cash (basically having a crappy bottom line which is found on the Income Statement). It is to Visa’s benefit to aggregate that debt from bad customers and sell it to a company that will collect a fraction of it for a profit (usually IIRC they get paid as a % of what they collect) and then write some of it off.
Really the ideal customer is somewhere between me who pays off my entire bill each month and some guy who never pays his bill. Card companies want someone who can pay enough of their bill to keep it open and charging interest but not someone who will default.
Anyhow, I have little sympathy for anyone who is too stupid to manage their own financial affairs. You don’t need an MBA to know that you can’t spend more than you earn.
People who can’t pay their debts back are a risk to lenders, but those who can carry a large debt perpetually are pure gold. The objective is to maximise the amount of perpetual debt carried by an individual without inducing bankruptcy.
The other day, the bank called me up and offered to double my credit line, for no apparent reason. What they are doing in reality is attempting to adjust my debt “comfort level”. So if I am comfortable with using half my credit line and paying it down as soon as it hits 50%, it follows that increasing my available credit also raises the actual amount equivalent to 50% of my debt. Based on my transaction patterns (lenders can infer a lot about behaviour/habits through spending records) and a good payment record, the bank figured that I had unused “debt potential”.
Of course credit companies are not being forthright, but many people are entirely too trusting and/or careless with their finances.
I don’t have any sympathy for folks who go out and get credit cards, charge em to high hell, and then have to deal with the financial consequences. They made their bed.
Unfortunately, credit card companies are also making their own bed. Those financially irresponsible people often default on their debts to MegaCorp Visa, and who gets stuck with the bill for making sure that MegaCorp doesn’t take a loss because of those knuckleheads? Yup, me. And all the other responsible owners of MegaCorp Visa cards. I’m paying higher interest in my modest balances because MegaCorp decided to extend credit to someone who is irresponsible.
I can’t think of a single reasonable way that I, as a customer, can hold MegaCorp responsible for its actions. Face it, it is practically necessary for someone to have a credit card these days. So, yeah, MegaCorp is probably screwing me out of some modest amount of money each month because of its irresponsibility in trying to get more cardholders at nearly any cost.
Furthermore, my girlfriend just got screwed in an indentity theft case. Seems that Discover didn’t bother to thoroughly question a caller who, claiming to be her, said that she needed an address change and several new cards. I suppose they were only too happy to send more cards out to these crooks claiming to be her, and someone is going to have to pay for the thousands of dollars of charges that were run up on those cards. Yep, all of Discover’s honest customers. And that doesn’t even begin to describe all the hassble, time and expense that my girlfriend is looking at to clean up her credit record, etc. In my view, the practices of credit card companies makes identity theft a hell of a lot easier than it should be.
Credit card companies do aggressively push customers to go into debt. That’s the only way they can make money. I laugh – LAUGH – at those who think that credit card companies are the moral equivalent of innocent bystanders to the massive problem of increasing personal debt. I have no sympathy at all for those who spend themselves into the poor house, but I do think it is very wrong to stick those of us who use credit wisely with the bill for all of those poorhouse jerks.
Luckily for them, they can get Congress to buy them a whole new bed.
MBNA has written proposed legislation to make it harder to escape credit card debt through bankruptcy. I expect this so-called “bankruptcy reform” will be enacted during Bush’s second term.
If so, the credit card companies, having already extended credit to consumers (and having them on the hook), would in effect be able to change the rules of the game while it is still being played.
Neat trick.
What makes a practice “predatory”? If the campany commits fraud, then they are liable and should be prosecuted. But if “advertising a lot” = “predatory”, then you have no case. Anyone who actually uses a credit card as a device to borrow money (instead of just a convenient way to pay for things) gets no sympathy from me.
Credit card companies have every right to do what they do, but I still think they’re evil. They give out credit like it was candy, offer misleading “introductory” terms (usually hiding the real disclosures in some comically fine print on the back of the letter), neglect to impose any sort of effective security measures for their cards (or when they do, it’s horribly inconsistent*), and then bitch to high hell when the fraud that they neglected to guard against inevitably happens, and try to fob it off on their legitimate customers. We had a thread awhile back where an employee of a credit card company admitted that they don’t try that hard to discourage fraud because they make enough money to just consider it an acceptable loss.
*I have, at various times, been asked for a photo I.D., been asked for my zip code, or had the clerk examine my signature on the back of the card. Each of these things is done inconsistently, if at all, by various merchants. I was once asked to sign my card that I had neglected to sign earlier, in the presence of the clerk. The point of the signature is to see if the person using the card has a signature that matches the one on the card. If you let the possessor of the card sign the card, of course it’s going to match. The point being that they have no coherent policy on security, and aren’t effectively communicating whatever policy they do have to the merchants, let alone to the card holders.
Yeah…God forbid they actually expect their customers to PAY their bills. As long as people tread credit cards as “free money”, they will get what they deserve.
Anyone else thought this seems similar to the: “Are women to blame for rapes ?” 
IMO, the practice of mailing out unsolicited credit card offers (just call the number and read off the invitation code) is morally equivalent – and should be treated as legally equivalent – to picking people’s locks and leaving their doors wide open to all and sundry.
I’d say about 70 percent of the blame should go to the consumer, but the credit card companies don’t get off scott free. Last week, Frontline on PBS aired a great report the modern credit card industry, and it focused on a few things the credit card companies do that I find pretty indefensible:
[ul]
[li]The contracts are written in the most obtuse fashion possible. Even a contract law professor interviewed on the show had a hard time deciphering the terms of the contract.[/li][li]Credit card companies often set the minimum payment so low that paying it faithfully and on time for years will only make a small dent in your overall debt. Such a tactic encourages people to keep their debt around longer.[/li][li]The credit card companies can raise interest rates for almost any reason. You can pay your bill on time, every month, at more than the minimum payment, and you’ll still see your interest rate go up. Wny? Cause you were a week late with your gas bill. Yes, that’s legal.[/li][li]Even the lawyer who fought to give credit card companies more control over their fees now says he thinks that late fees and over-the-limit fees have gone out of control. These fees, which one would think would encourage people to pay off debt, are actually so high now that they make paying off debt harder.[/li][/ul]
As for this presumption that anyone who takes on credit card debt deserves what they get: it’s rubbish. Under that presumption, I should have gone without books and a computer during college simply because I couldn’t afford them, and should never fly home for the holidays. But the fact is I needed those things, and I simply did not have the money for them.
So, yes, I feel dicked around by the credit card company. But I only have one card now, and I did actually persuade them to lower my interest rate a few days ago after it went up 5 percent for no reason at all. Consumers aren’t without their options here, but the credit card companies are really engaging in some vile behavior these days.