The recent Federal legislation and new regulations have spelled out the pitfalls of credit cards. In addition, they have created a shift in the way the credit card companies deal with the credit consumer. Years ago, the consumer was told of the “financial freedom” that accompanied their new “passport to freedom.” In reality, it can be the first step toward “financial disaster.”
First, let me mention that there is no limit on the number of credit cards that can be issued to one person, but each additional card multiplies your risk in ways that you never dreamed. I recently received my credit card statement in the mail. It gave me exactly 23 calendar days to pay the balance. Now this is an improvement over the 13 days I used to get but with every benefit the credit card company passes on comes bad news. My statement balance was $135.00. I was offered the minimum payment of $20.00 per month with the disclaimer that it would take me 8 months at that payment rate to pay the balance off. Now the hooker is that the $115.00 remaining was subject to 17.99% interest. If, for some reason, I was late with my payment, I was hit with a $35.00 late fee and my interest rate would jump, if late, to 30.24%. I should also allow up to 7 days for the U.S. Postal Service to deliver my payment.
When I initially opened my credit card account, I was offered a revolving line of credit of $2,000.00. Being such a good customer, the credit card company has raised my revolving line of credit over the last two years to $20,000.00 with a cash credit line of $8,000.00. Here is where I think credit card companies bait their customers in an effort to entice them to buy products and services way beyond their ability to pay. My wages have not gone up 10 times in the past two years and the danger is that this is only one of my credit cards. If the same thing was happening with two or three other cards, I could be looking at $60,000+ in available short term credit.
With my statement came six pages of fine print that, I am sure, the credit card company hoped that I would not read. Interest, for example, will accrue on a cash advance or balance transfer from the date it is added to your daily balance until it is paid in full. You can avoid interest on purchases but not on cash advances or balance transfers. Now interest on these items is at the rate of 21.99%. I think that one might want to think twice before taking a cash advance using a credit card.
Now in the fine print, I suddenly realized what I should have known all along. The credit card company sells my personal information. Now the fine print listed at least six ways that my personal information was available for sale: everyday business purposes, marketing purposes, joint marketing with other financial companies, “our” affiliates everyday business purposes, and for our non-affiliates to market to you. Nowhere in the six pages of fine print did the credit card company clearly identify the word “affiliates.” By calling an 800 number, I could limit the sale of my personal information, but somehow, I was just not convinced that it would matter. How would I know or how would I be able to verify or control this practice. Basically, I had to take the word of the credit card company – something that did not make me feel warm and cozy.
I tried to find from the small print, the maximum interest rate that the credit card company could charge and the best that I could determine was that there is no legal limit. A 53% interest rate is possible. Now the Federal regulations recently passed do place limits on the acceleration of interest rates. The Credit Card Act of 2009 does limit the interest rate increase on past due balances where the account has been 60 days late, and there is a limitation on general rate increases to 45 days after a written notice is given allowing the consumer to opt out.
Recent beer ads have added the statement that “you should drink responsibly” and I think credit card companies should add a similar statement that reads “you should use this card cautiously. Failure to do so will create serious financial risk.”
One last point is that one should never have any credit card in more than one name. The debt, as the old law saying goes, dies with the debtor. Credit card companies will put tremendous pressure on the surviving spouse stressing “social responsibility” but there is no legal obligation to pay the balances on a credit card when the owner is no longer living. The old credit card company exists for one reason and one reason only – to make money.