I call this the “big company conspiracy falacy”. If you think that Big CC companies rip the consumers off, start your own. Try to make moneyt that way (or start a non-profit CC company). If what you say is correct, consumers will come to you and you have a great business. I say you will not be able to pull it off.
Note that your first proposal is already State intervention
Estilicon there are at least 2 issues contributing to crushing consumer debt, maybe more. I think the primary issue is the consumer overspending on credit, they get flexibility with their finances, and abuse it rather than using it wisely.
Another issue is CC companies issuing credit to folks who are bad risks. Certainly this is bad for both the consumer, who’s going to dig himself deeper, and the CC company who will pay out bundles of cash with little or no prospect of payback. This is a concern, but I don’t think it is the place of government to tell a company that they may not legally do business with adults who agree to do business with them.
I suspect that nebulous contract terms are pretty much a non-issue. We all know that when you spend on credit cards, you have to pay it back, monthly and with interest. Late payments get fees assessed, etc. I struggle to understand what unknown contract terms cause CC debt to become unmanageable.
I call this the “perfect market fallacy”. If you postulate the market is perfect, ergo the problem does not exist and is a figment of your imagination.
Of course, one could also turn this around…When MBNA and company come to the government and ask them to tighten up the bankruptcy laws claiming that people are abusing them, we could say, “The market seems to be working fine. We don’t see any reason to tighten up the bankruptcy laws.”
That opens a can of worms that is probably worse than the current situation. There is no better way than your proposal to unleash a multitude of lawyers trumpetting claims of “consumer obscure clauses” in contracts. And who gets to decide what is “obsscure” and what is not? You system is a step towards rule by man rather than rule by law.
My wife has excellent credit, and as a result, has many cards from stores, banks, etc.
Recently she applied for a card, and was rejected on the grounds that she had to many open lines of credit. This is after they looked at her record of paying every single balance off at the end of the month.
The perceived risk, I believe, is that with so many options to get into debt, you are more likely to end up in over your head, and perhaps prioritze some other creditor over the bank that is considering your application.
This is already the case. It’s an axiom of contract interpretation that an ambiguous provision will be interpreted against the drafter of that provision, unless both parties are sophisticated and the document was the product of negotiation. A court won’t eliminate the provision entirely, but it will interpret it in the manner most favorable to the non-drafting party.
The problem isn’t obscure contract terms. Users of credit cards understand the basic terms of the revolving credit line they’re signing on for. The problem isn’t people confused by the credit card contract, it’s people spending money beyond their ability to repay.
Because they agreed to those repayment terms.
Credit card companies knew the currently bankruptcy laws existed at the time they lent the money. Bankruptcy isn’t an easy thing for the comsumer, but it provided a last ditch escape when a person made a mistake (or many mistakes) and got in too deep. Now, the companies want to change the rules in the middle of the game again. Like Calvin of “Calvin & Hobbes” they want the rules unfair in their own favor.
Exactly right. The credit card companies were no less spendthrift than consumers when they were offering credit to everybody and his dog (literally) when times were good, now that crunch time comes, they want the rules to change so that their bad judgement doesn’t hurt them, while consumers’ bad judgement hurts even more. Unfair in their own favor, indeed.
I agree with your big point, Dewey, which is that people gotta understand that they gotta repay what they charge, with interest. So, making the terms clearer will not solve the burdensome debt issue.
There are nonetheless some terms that need to be explained more simply–someone earlier gave the example of a 0% balance transfer that didn’t work if you charged anything new to the card. This type of provision is not intuitively understood by people.
It offends my sense of good draftsmanship that cc companies won’t think outside the box of “language that has already been upheld in court.” Clear writing cannot be legislated (mandating type size doesn’t solve the issue here)–all SEC filings are now in “plain English” because they have to be, right?–and we don’t really want to eliminate competition by dictating standardized terms (with legislated terms we wouldn’t get the competitive innovation of 0% balance transfers, for instance). It chaps me that the lawyers drafting cc contracts, knowing they are indeed contracts of adhesion, don’t have the professional pride to do it right. Yeah, yeah, they’ll say they “have to go with what has already survived litigation.” I don’t buy it–if you can’t say it simply enough for people to understand, it shouldn’t be a mass market product. If it is too complex (like some insurance annuities, IMHO), it should be a customized product only, negotiable with sophisticated customers, not mass marketed as a form agreement.
And this gets to the heart of my confusion on this issue. I will freely admit that I have Liberal leanings. I tend to prefer that people come before corporations. That said, I do understand where the more Libertarian folks are coming from when they sate that the consumers that ran up these debts need to suck it up, pay what they owe and deal with the consequences of their bad choices. Hell, I am in the end stages of dealing with and repairing the results of stupid choices that I have made with credit myself (w/o declaring bankruptcy BTW).
Where I have disconnect is that my perception is that they are willing to give the corporations a free ride. Shouldn’t the consumer have a reasonable expectation that the original terms of the contract into which he entered won’t change? Shouldn’t the Credit Card Companies be expected to suck it up and deal with the consequences of their bad choices? Why the lopsided sentiment here guys?
It’s still hard to have much sympathy for people who get their shiny new CC with, supposedly, 0% interest and then go out and charge enough on it that they have to declare bankruptcy as a result. If something seems like a deal that is too good to be true, it probably is. I get several of these CC offers every week and they all go straight to the recycle bin, unopenned.
And I’m not advocating that CC companies should be able to write our banckruptcy laws. Those should be written as fairly as possible to take into account the needs of the lenders and the creditors.
Example 1: The triggers for changing the advertised interest rate to a much higher interest rate are hidden pretty well in the Old High Martian.
I’m sure people will provide others; that’s just the first one off the top of my head.
Er, your recycle bin isn’t sitting out where any Joe Blow off the street can root through it, I hope…
FWIW, today it was Mr. Carmichael’s turn to get not one, but TWO credit card offers.
Well, I am not one of the more libertarian folks you refer to in your post, but from my own viewpoint, there is nothing wrong with the banks offering what they offer. My wife has a lot of cards, and as I said, pays off the balance every month.
In other words, whether or not the often outrageous lending terms apply to a particular consumer is entirely in their own hands. They can use the card only to buy what they can pay for each month. Then there is no interest in most cases, and the rate doesn’t matter.
If a person has run up a lot of debt, and uses the card as a balance transfer, then they should look very carefully at the terms before signing, and not be so naive as to think that someone is swooping in to save them from themselves.
Now, as for the banks offering these cards. A revolving credit account is no small matter. A bank is lending out an unspecified amount of money (up to the account’s limit) for an unspecified amount of time to a person they don’t know from Adam. It’s only reasonable that the interest rates are high, because the risk is as well. They can pretty much charge whatever the market will bear.
If you default on the loan, the bank can fairly easily enlist a drooling, yelping pack of collection agents to get the money you owe them. Evil? Yes. Unwarranted? No.
So if charging themselves into bankruptcy is an epidemic among the people of this fair land, shouldn’t the banks refrain from doling out so many credit cards? Probably. And they shouldn’t get to have too much influence into how the bankruptcy laws are written. But who makes the laws, just like how far the card is charged up, is entirely in the hands of the citizen.
Americans just need to get over the idea that they have a right to abysmal stupidity in this day and age.
With the election results in the US and the country’s tilt towards the religious right, we have a golden opportunity to get the President and the Congress, backed by the people with “moral values”, to outlaw Credit Cards.
After all, the religious right in Islamic Republic of Iran has outlawedcharging interest on loans.
Hundreds of thousands of people in the religious right Israeldo not own a credit card.
Why can’t we do the same in the Christian US, a religious right country with 51% majority vote?
Wuc: Why can’t we do the same in the Christian US, a religious right country with 51% majority vote?
Many conservative Muslims don’t charge or pay interest on loans because their interpretation of Islam forbids usury. Islamic theocratic governments are just establishing that prohibition explicitly in law.
Many orthodox Jews also feel that usury is religiously prohibited (hence their avoidance of credit cards), but the government of Israel has not established any such prohibition legally
Even if a majority of US citizens similarly believed that charging interest on loans is immoral according to religious precepts (and I seriously doubt that many modern American Christians would claim that their religion forbids usury), I don’t think we could establish a law against usury specifically on religious grounds, because that would violate the separation of church and state.
We don’t have to use terms such as “usury” and relate it to “religious grounds”, but we can at least do the right thing by outlawing modern loan sharking practiced by the Credit Card Companies charging outrageous interest rates.
As you said on 20 September 2001
Maybe because the Bible makes it pretty clear that:
As far as loaning money to the poor goes, Christians aren’t supposed to charge interest. I’ve never seen anything in the Bible that prohibited interest in other situations, but usury is OUT. Big no-no.
Bankruptcy may be legal, but for a Christian it should be avoided at all costs. (I am not saying that Christians who file for bankruptcy are bad Christians so don’t get all huffy.)
Anyhow, the point I’m trying to make is that your average Christian probably isn’t going to go for outlawing credit cards, especially the part how to do so would be somehow “moral.” What’s moral is to pay your bills and take responsibility for your actions. What’s wise is to live within your means.
A economist-to-be friend pointed out to me the other day that nobody is taught anything in school about managing money. I don’t think we should even wait until high school: a 4th grader could understand the basic concepts of credit. Credit cards are convenient and a great idea. Our first line of defense should be to educate people about how very dangerous they can be, not make it easy for them to wiggle out of their bills because they won’t practice a little self-control.
You could make an argument that it’s immoral to charge excessive interest, but even then I don’t think you’d have much success. We live in an immoral world. Christians know this. Corporations are going to do everything the law allows: if they could charge 60% interest, they would. It makes more sense to expect the individual to restrain themself than a corporation whose only goal is to make money.
I could not read the article about Iran, but I’m not clear on what your point about Jews in Israel was. The impression I got from the article is that many of them don’t have a credit card because of Sabbath concerns, not because they find them morally wrong.
OK. Everyone should first save $250,000 to buy a house and forget about getting a mortgage.
So, that means if I buy the house at $250,000, and the real-estate prices fall down by 20%, I cannot foreclose and walk away? Come on. The bank gets the property and they can sit on it until it climbs back again. Meanwhile, I am downsized from my job and can’t find another job unless I move to another state.
You are kidding, aren’t you? Please get real. Look what the World Bank and IMF are doing to the third world countries, let alone what your “caring” local bank is doing to the poor. Remember, capitalist profit motif of $2 billion takes precedence over attending the church on Sundays, putting $2 in the basket. Time for a **Wake up call. **
You may sell pontification in Vatican, but you’d have a tough time selling it here at SDMB.
Agree. That is why we should get rid of the concept of religion by demonstrating that the stuff is not in the best interest of its followers. “Your average Christian” just voted for George W Bush. The guy is running the country on Credit Cards. Guess what is the US budget deficit and the National debt.
My “means” is a job that pays $60K per year. That is supposed to be above average earning. Could you please run the math and tell me how I can make the “American dream” on that? I take responsibility for my actions, but somehow I do not seem to be able to secure my health care and retirement.
Excuse me. I know very well how to manage my money with $60k per year income. I pay my rent, I pay my modest food, I pay all my bills, I pay taxes and all. At the end of the day, I have no security, and can get laid-off or downsized by the whim of an overpaid CEO. You go figure.
Yeah. As Nancy Reagan said: Just say “NO”!! The solution is to “Abstain”. Let us restrain ourselves to have a life. Let us work hard and make our bosses prosper. Let’s pray that their wellness may “trickle down” so that we can be bestowed 2-weeks vacation per year. Let us have no workers union to fight for health care and pensions. Let us not blame the government and the corporations we work for to dump and downsize us at their will. Let us lose our house when we cannot find a job in the vicinity. Let the credit/mortgage companies and banks take the lien on our house to give us a loan to pay for medical expenses that neither the insurance company, nor our employer, nor the government gives a damn, even though we have worked for years and paid all our taxes.
Let us be the one to be blamed, as we are sinners. As sinners, no one is responsible for our demise except ourselves.
Bottom line, Abbie, do you still think the credit card companies are to blame for consumer debt?