Word out is Obama is going to do something about the “credit card abuses” as part of looking out for the little guy while rebuilding the nation’s financial system.”
It’s about time and is something I wished Bush and Clinton had done during their Presidencies. The pushing of credit cards to people who can’t afford them has not only created large risks for financial institutes, created a sub group of our population carrying a large debt but also decieved consumers that they can buy much more than their budgets can afford. If you don’t have the money than you shouldn’t be buying something. Food, LCD TVs, vacations, liquer, prostitutes, clothing, boob jobs… and the list goes on of products which people would never pay cash for vs. charging.
Obama should insist that anyone applying for a credit card must meet stringent credit/income requirements and those who qualify will only get “limited” credit lines. This should be done right alongside revising of extremely strict mortgage requirements going back to the standards used 10-20 years ago with employment records, debt/mortgage ratios, good credit scores requirements… There should also be a requirement of being a US citizen.
Student credit cards should be eliminated since DEBT cards can easily fill the void for parents wanting to give their kids this spending ability. Consumption will go down and home ownership might drop but too bad. We will have to learn to live in a slightly smaller economy but a sounder and more predictable financial system is worth it.
There are aspects to this reform, such as preventing credit card companies from raising existing rates which will have to be worked out. If a customer is late on payments they should get a late fee and then another late fee and then if they stay late then close their account vs. raising rates. I think CC issuers should have the right to raise interest rates on their users but users can close their accounts. The downside is your credit score goes down by switching from one credit card to another. Something needs to be done to adress this “switching” activity from being consumers simpl getting the best deal vs. the current “negative” hit you take from closing your 6 year old Bank “A” CC and switching to Bank “B”. Thoughts????
Discuss
54 Comments . Leave a comment below.I'm not really sure what you meant to write here. I'm also not really sure why a discssion of things like food and clothing are in the same sentence as LCD TVs, vacations, liquor, hookers, and boob jobs. While I fully appreciate that in both food and clothes there's plenty of room between "bare minimum for health" and luxury, I would suggest that I have no problem with someone who is short of money buying food and clothing on credit cards if that's what's necessary to eat.
Why? There are plenty of people in America who are neither citizens nor incapable of paying off their credit card bill every month.
Negatory good buddy. Debit cards are inferior to credit cards. If my credit card gets stolen and the thief goes and charges $10,000 worth of goods, I'm legally on the hook for a maximum of $50, and most credit cards put their customers on the hook for $0. If, on the other hand, somebody steals my debit card (and figures out the PIN), he can buy $10,000 worth of goods and I'm on the hook for all $10,000. This is the sole reason -- not rewards, not convenience, not marketing -- that I refuse to carry a debit card. The credit card is safer.
Credit scores are an entirely private service, and how they choose to score is entirely up to them [short of discrimination of protected classes I'd hope]. I'm hesitant to encourage the Feds to be involved in calculating the actual score for a long list of reasons.
Sure. I think you're making this too hard. Here's what I'd do:
1. Limit the interest rate to Fed Rate + 15%. 2. Require that interest on a purchase on a particular date be limited to the interest rate on that date. The credit card company shouldn't allow you to buy something with an interest rate of 9.9%, and then increase that rate after the fact (with or without notice) later. 3. Require that all payments be credited to the portion of the debt with the highest interest rate first. If the debt is $3000 at 17% and $2000 at 15% and the customer writes a check for $500, apply that to the $3000 only by law. 4. Create a minimum period between the close of the month and the payment due date, say 21 days. 5. Create a maximum late fee, say $29 plus one dollar for every year after 2009.
By doing all of this, the high risk customers become less attractive. They'll stop getting applications in the mail, get lower credit limits, that sort of thing. It will help keep the lid on things. As a side bonus, it will benefit the rest of us too. This nonsense with $40 late fees and moving interest rates and teasers which negatively impacts all of us would stop too.
Would credit cards become less profitable? Yes. Yes they would. That's OK -- they're still getting a taste of the purchase from the vendor and even with limits will make a killing on late fees.
The issue of liability with debit cards vs. credit cards is a big concern, but this is a regulatory flaw, not a structural flaw. JohnD is correct here, in that it would be vastly preferable for people (especially but not limited to students) to use debit cards instead of credit cards.
But rather than contradict him with an off-hand "negatory good buddy", I'd argue that this should be changed. If Obama's gonna make a significant push against credit cards, he should simultaneously even up the liability issue between credit and debit.
Let's go over the details, because it's not quite as simple as you paint it.
Starting with the trivial basics, a credit card means that the bank is extending you a line of credit. Charges to the credit card amount to money that you owe the bank. On the other hand, a debit card comes straight out of your account. There's no owing anybody anything; there's just money taken straight out of your account.
If a credit card gets stolen, you dispute the charges, which means there's an ongoing issue as to how much you owe the bank. With adequate notification and documentation, this issue generally gets resolved in the customer's favor, with them owing the first $50, and the bank eating the rest.
If a debit card gets stolen, there is also a disputation and resolution process, but while the dispute is going on, you are simply out the money that the thief took. It's harder to win, and until you win, that money is simply gone. It's not that you owe the bank; you just don't have any money.
How to fix this issue? Simple: Mandate that the bank extend a line of credit at minimal interest (or even 0%) to the customer, in the amount that the customer disputes. So if a thief wipes out my $300 account, I get a $300 "loan" from the bank while the dispute is ongoing. If I win the dispute, that "loan" is mine. If I lose, then I owe whatever I charged against the $300.
That would be my suggestion to making debit cards more palatable and reducing this nation's dependence on quick and easy
debtcredit.As I said, not a structural issue, but a regulatory issue that is easily fixed, for those who have the political guts to stand up to the banking and credit industry. Not an easy task, I'll admit. But if Obama's gonna take them on, he might as well do this while he's at it.
It's often quite easy to show it wasn't you with the fraudulent charges, so it's generally not hard to get the CCCo to eat the charges. I've never heard of them making the customer eat the first $50, even though they could do so. This is based on my experience with 2 difference CCs of mine, once for my wife, once for my mom, etc. In all cases the credit card company notified the holder that charges looked fishy, and immediately refunded all the money [ie didn't post the charges] even though they could have hit them for $50.
That's not my understanding. My understanding is that you have to sue the thief in civil court to recover -- the bank is never left holding the bag. Good luck finding and suing the thief.
That makes it a substantial difference. It's not just where the money lies during the dispute (you with CC vs. bank with debit) but the likelihood of recovery in provable theft (100% with CCard vs. almost 0% with debit).
Your simple fix doesn't work because it presumes that once the theft is proven the bank gives you back the money and eats the losses. They don't, and they don't.
I've never had a card of any kind get stolen; I was just going by what PIRG says.
And the FTC.
Both of them very reputable organizations, both say that if you notify the bank within 2 business days of a debit card loss, you will ultimately not be liable for more than $50, but you are out your money in the meanwhile. After 2 business days, your liability sharply increases.
So, to recap:
You have $1000 in your checking account. Thief steals card, uses it for $85 in purchases. You write four checks for $200. They all bounce. You now owe your bank over $100 in bounced check fees, possibly the vendors over $100 in bounced check fees, and if you used that check to pay a credit card bill [my head is exploding], you'll now also owe your credit card company a $29 late fee plus interest. Etc etc.
The PIRG page you link to also claims
At the end of the day, the credit card just seems like a better deal. 100% consumer protection, not ranging from all-but-$50 if within 2 business days to none if discovered more than 60 days later. To each his own... to me, debit cards are like credit cards only not quite as secure, and no bonuses, rewards, or any of that jive.
With a debit card, unlike a credit card, the bank is not required to product you from a fraudulent merchant -- there is no automatic charge-back process. Instead, the bank (in my case Bank of America) says "take it up with the merchant".
The $50 limit applies to stolen cards, not merchants who defraud you. You go online and buy some fabulously priced downloadable purchase. The card is valid, the purchase is real, and you discover that none of the download links work. You attempt to follow up, and discover that emails are unanswered and nobody returns phone calls. The "merchant" has vamoosed with your cash. You can try and pursue them yourself -- good luck with that.
With a debit card, once the money is gone it is gone -- just as if the merchant had taken cash.
The single largest advantage of debit cards, in my opinion, is that you cannot get over your head in debt. The card is good for however much is in your account at any given moment and not a penny more.
For a number of folks, especially young people struggling to make ends meet, that is a significant benefit.
A good way to solve this problem, as it is a charge card, not a credit card.
I don't deny anything you state. What I'm saying is that it would be easy to put in place regulations that would make debit as safe as credit. That was my whole point.
Do you disagree?
but I don't know the details from a banking-legal point of view. Fundamentally, a credit card is different from a debit card. So yeah, it sounds like beefing up the consumer protection on debit cards is a good thing... but because some debits to a checking account aren't instant (ie checks) I have no idea if banks could prevent more/all overdraws with debit cards.
What I do wonder is: * If a person goes to a teller and claims to be me and the teller gives him money from my account, can I get it back from the bank or do I have to sue the thief? * If a person steals my ATM (physically or electronically) and withdraws money of mine from the ATM, can I get it back from the bank or do I have to sue the thief?
At minimum, debit cards should be as secure as other banking transactions with respect to theft. On that I agree. Past that... my instinct is to agree but I don't know enough of the technical or legal transaction issues to say for sure.
Credit cards are issued by independent companies (Visa/Mastercard, Diners Club, etc), while debit cards remain tied to the financial institution that issues it.
When a credit card transaction occurs, the bank that authorized the merchant to receive transactions pays the merchant from the merchant bank's funds, and then (later) expects to be paid by the institution that issued the credit card (the "issuing" bank). If the transaction was fraudulent (such as in a "chargeback" situation), the merchant bank takes the loss -- not the issuing bank. Visa/Mastercard makes money through fees on each end of the transaction, and the merchant bank loses money when the transaction is fraudulent. This is why merchant accounts require such strenuous credit checks of each merchant -- the merchant bank is essentially extending credit to the merchant.
Conversely, in a debit card transaction, the funds are directly withdrawn from the issuing bank. If the transaction was fraudulent, the issuing bank takes the loss.
There are, therefore, two banks involved in a CC transaction, and just one in a debit card transaction.
I strongly suspect that the differences in consumer exposure are tied to that fundamental structural difference -- and require more than "easy" regulation to change.
Another abuse that needs to be addressed is that banks have turned debit cards into pay day loans. Many banks will allow a user to swipe even if they do not have sufficient funds to cover their purchase. This is mostly true when a customer has say $100 in their account and they purchase items at the mall all well under $100 at each store. The debit card is auth'd for the amount in the account with no hold being placed on that money from all the other purchases on that trip to the mall. If a consumer isn't careful and their multiple purchases total more than a $100 and process 2-3 days later they can easily run afoul and suddenly be in the hole and liable for wicked high fees. This is part of the reason your bank always tells you to hit the credit button (plus the bank earns their little commission (3 to 4%) or whatever you call it for the sale). All of a sudden you your $100+ mall trip just had a $39 over the limit fee added on top which in my opinion is a de facto 39% interest rate. This isn't to mention that some banks will then hold you liable for your account being overdrawn for more than one day. They usually give a small window for you to come current but if that is missed its a daily fee. The credit union I worked at charged $5 a day after the $39 dollar fee was added.
I always thought if I made that mistake on a shopping trip where I made serial purchases that I would simply get a little stare and whisper from the sales attendant prompting another form of payment. I'll take a bit of embarrassment to save on those fees.
But like another commenter I don't use my debit card either. Hate to know the cash that pays my rent is that available to me and to anyone else!
People that think they have $400 in the bank can easily discover they actually owe the bank $600, because they haven't been watching the bank balance and their debit card suddenly goes overdrafted. Even if they look at the slip when they deposit their check, they might not notice the little Minus Sign, and think they've got a couple hundred bucks, plus their weeks pay, when in fact the weeks pay was swallowed up by the bank fees.
There is no way we should allow a bank to take hundreds of dollars from someone who never asked to borrow any money, and didn't try to overdraft, just used their card and expected it to be declined if they didn't have enough money. The most the bank should be able to charge is standard credit card interest rates, not 900% interest, which is what it works out to for some people. It's robbery, and Obama should get that back to all the people it was stolen from!
My son had this issue a few times and I was shocked to find out they okay the purchase and then whack him with an "insufficient balance" fee. The same should be true with credit cards... if you go over your credit limit then deny the sale vs. letting it go through and then hitting you with an over-limit fee.
I keep track of how much money I have in the bank. If I spend money I don't have why is that the fault of the bank? Not the banks job to keep track of my purchases versus my balance. It's all in the paperwork given me when I got my debit card, you know, the paperwork I read and paid attention to.
Man, your attitude is what's wrong with the world. Maybe if your sweet innocent girlfriend was taken for all of her money by the very institution she thought was supposed to keep it safe, and you had to listen to her crying on the phone telling you that the bank says she owes them $300 and come in and talk to them, then you'd have a little more sympathy for people. She didn't do anything wrong, she deposited her hard-earned pay and didn't try to over-draft, she just isn't a math major. (Plus, she had even been lured into signing up for Save The Children, and they took out $25 a month automatically - I'm not sure she realized that would happen, and that was what put her under.)
So I went to the bank to try to straighten it out, but only ended up writing a goddamn check for $300 just so she could close the damn account. And then I had to give her money for rent. She didn't do anything wrong, she was sweet and innocent and trying to be responsible. The bank took $600 bucks from her, and she didn't even ask for any credit lines, she wasn't trying to take what wasn't hers, she didn't ask the bank for anything except to keep her money safe. What kind of asshole blames the victim?
How can anyone survive in the world if they can't figure out some basic shit like a checking account? You're going to be pretty busy when you come home from work and find she bought a new car, a new vacuum cleaner, a full set of Encyclopedia Britannica, donated $1,000 to "cause of the day", purchases a service contract on every single item you own... I mean Dude, do you serioulsly think a customer who can't understand simple shit is a "victim"? Ever read a monthly statement? I just got a new cell phone from Verizon but had to sign a 2 year contract... I'm a victim, please help me. I just missed a dealine for the kid's soccer league (the deadline date wasn't bold on the flyer)... He's a victim. Cashed out some equity on your house (for a cool car) and now they're foreclosing cause you can't pay the mortgage... give me a "victim"!!!!
I can guess where more of my tax dollars will be going in the future... to all the future "victims".
She just assumed that her debit card would be rejected if she didn't have the cash. And when she used the ATMs to deposit her check and get cash, she just thought the amount was positive, and checks hadn't been credited yet, and maybe her math was wrong. And she certainly knew in her own head about how much she made and spent, and she thought she had a savings of $300, not negative $300. The bank took her money instead of keeping it safe, she thought she was being responsible and doing what she was supposed to. The mail was going to an old address, so she never got the notices.
We shouldn't allow banks to charge scandalous overdraft rates, they have the technology to decline a card, but they'd rather exploit poor people. If you had a family member exploited maybe you'd understand.
The question comes up as to who is being exploited and who doesn't pay attention. I have 5 kids and I am all over them trying to help them understand financial issues and they still screw up on things. Sometimes it's a hard way to learn. I started this diary by mentioning some of the things I think the Government should do to protect people but I think there is a time when the government has to let people learn the hard way too. If your girlfriend was "lured into signing up for Save The Children, and they took out $25 a month automatically" then that is her fault. She should not have signed it and she should certainly have been watching her monthly statements to see the $25 going out every month. I don't call this exploitation.
You fault me for being responsible. You must be young.
You are lucky you are responsible and able to navigate your way through modern life successfully and not be taken advantage of. But responsibility is not to yourself, it's to other people. Thank other people for making you the excellent person you are, don't thank yourself, you had nothing to do with it. And don't fault other people for being naive or exploitable, it's because they didn't have the same good fortune you lucked into.
No one expects, or should expect, a bank to take $600 dollars from their customers, that's unacceptable that our government allows banks to do that to people.
But you don't know very much about me and how I have succeeded or failed or why. I think one would expect a bank to take $600 dollars from their customers if those customers utilize the credit of an overdraft and if those charges are disclosed to the customer in advance and entered into voluntarily by that customer. Seems logical and simple to me.
After I write all of that, of course, I think of another possible solution, one which I'm suprised doesn't exist already.
Debit card insurance.
Pay $1/month or so (most likely some very small fraction of your balance), and if your debit card is stolen, you're completely covered.
Does this exist? If so, why have I not heard of it? And if not, why not?
Sorry but not buying it. People who need food at the lowest end of the ladder have social programs (food stamps) and should not be relying on credit cards. I see far more abuse with eating out at restaurants and buying $125 shoes... which comes back to bite their asses later. It's like the commercial on TV of that guy riding a lawn tractor talking about everything he has and he says "how do I do it.... I'm in debt up to my neck".
Because our finical system and the US government needs up footing the bill (directly and indirectly) for the loans/credit that goes bad. If someone is going to run up a credit card bill then walk away and the FDIC insured bank is on the hook then I want them to be American. Just my opinion.
Good point about the downside of debit cards. I still think students should not be targeted for credit cards.
Credit scores are an integral part of the US financial/credit market. I know they are run separately but they are tightly interconnected. My point is we have many choices where market conditions dictate what company you may do business with. If you stay at hiltons and then they treat you poorly then you shift to Marriot. No issues! But if you have a long standing BOA credit card and they raise your interest rate so you shift to Amex, your credit score will go down and that isn't right. The assumption at the credit score company is you must have done something wrong to close your account at BOA so they slap you.
1. Limit the interest rate to Fed Rate + 15%. Good 2. Require that interest on a purchase on a particular date be limited to the interest rate on that date. The credit card company shouldn't allow you to buy something with an interest rate of 9.9%, and then increase that rate after the fact (with or without notice) later. Good too. 3. Require that all payments be credited to the portion of the debt with the highest interest rate first. If the debt is $3000 at 17% and $2000 at 15% and the customer writes a check for $500, apply that to the $3000 only by law. I think it should be in the order you purchased/borrowed. 4. Create a minimum period between the close of the month and the payment due date, say 21 days. Good. 5. Create a maximum late fee, say $29 plus one dollar for every year after 2009. Good.
You make some statements that are without evidence...
1. What evidence is there that our fin system foots the bill (dir or indir) for bad credit card debt? We're not talking mortgage or swap meltdown... we're talking the credit card market. Got any data?
2. What evidence is there that non-citizens default a higher dollar value per capita than US citizens? If, in fact, that isn't the case than the non-US'ers are in fact subsidizing the US'ers.
3. The FDIC has nothing to do with this. The FDIC insures depositors -- not banks, not lenders, not credit card companies.
So, without more information, I fail to see why non-US citizens ought to face regulatory restrictions.
As for the rest...
I agree. But, if you have enough smarts/logic/sense to sign up to die for your country, surely you have enough to have a credit card, no? I prefer a different tact: colleges and universities should not allow credit card marketing on campus, and should not sell lists of students to credit card companies. That would go a long way.
I've heard this claim before, but never seen it backed up with documentation. Of course there's lots of devil in the details, but in the general sense -- got evidence that this is true?
let's talk about banning these "payday" loans which suck people into cashing their "upcoming" paycheck but then smack them with 30-40% interest rates. Obviously the root cause of many scams like this are people in need who default at much higher rates which drive the costs up so they charge higher interest rates... but let's stop the outrageously high rates... or force them to wear masks while they rob people.
Then we can talk about the most egregious assault on the poor... the MA Lottery! Only a sucker would burn their money on the Lottery but considering the MA Lottery sales were $4,709,000,000 ($699/per MA resident) in 2008 (up 5.7% from FY2007) I guess MA is chock full of suckers. I don't have the data so don't ask for it but I'm guessing the per capita sales in affluent towns is dwarfed by sales in poor areas.
But their claim to fame is they give back $1 billion (21% of sales)...
FY 2008 DISTRIBUTION BREAKDOWN
Direct Local Aid Distributed in Fiscal Year 2008 $935,028,283 Arts Lottery Local Aid $78,613,899 Mass Cultural Council Appropriation $12,268,059 Mass Council on Compulsive Gambling $1,000,000 TOTAL DISTRIBUTION $1,026,910,242
A whole $1M for the compulsive gamblers... wow. How much will the Governor's new casino contribute to the Mass Council on Compulsive Gambling... since I know the casinos will contribute a lot to a new wave of poor people. Ka-ching!!!
I had a math teacher in high school that used to joke that if we didn't learn how to do math well that the government had a tax for people like us: the lottery. I still play now and again. I certainly don't pin my hopes on it. I just like to see the numbers roll in. Silly but its a $1 here and there - not more than $20 a year.
If everyone did that then I agree it would be a fun lottery. The problem is many people (who can't afford it) will plant down their paychecks on payday for scratch tickets and quick picks.
Stomv, too funny. Are you an expert in the credit card business? Why not let consumers and credit card companies work it out? How come I've never been in credit card debt trouble? Can't folks read the fine print? I can, and always have. Let the credit card companies (and the card holders, too) bear the brunt of having to write off their bad credit risks. Keep the government out of it.
Do you remember Regulation Q? Passbook savings? Do we really want that for the credit industry?
JohnD, by all means let's turn the credit card time clock back 20 or 30 years. That would be terrific. For me and spouse. We could travel in peace again.
How old are you? Were you an adult in the 60's or 70's? Credit cards were a privilege, and damn hard to come by. You had to have money in the bank, and maybe own a home. I bet 50 million card holders couldn't qualify using underwriting criteria circa 1975, let alone 1965. That would likely mean you wouldn't qualify.
I was a kid in the 1960's traveling with relatives a lot in Europe. Luckily, they were well-to-do and could obtain an American Express card. Otherwise, it was "travelers' cheques" or cash. Because of this, Americans traveling on the Continent were rare.
I'm all for "deleveraging". However depending upon who you are, where you work, your income, and your net worth, forget about car loans, a new computer every couple of years, and home mortgages.
Can you spell "lay-a-way"?
Credit cards were a privilege back then but you forgot to mention foreclosures were rare. Some of the procedures in place back then had more to do with technology (computers, communications, banks talking to banks talking merchants...) so I believe the elitist usage was more due to that.
Credit card charge-off rates have incased from the norm of 6% to 9% so I think the vast majority of CC users pay their bills on time. I think I would easily qualify as would most Americans with good credit.
Again, your remarks about traveling in Europe using an AMEX card are not relative to credit card abuses, IMO.
As for the "lay-a-way" remark... what is wrong with it? Why have we grown into a society that needs to get everything NOW, right away and with no delay. I do it myself with my kids. One of the kids wanted a iTOUCH and he had to save up for it. Took Christmas and a birthday but he got the cash and bought it. Why can't saving to buy, "lay-a-ways" and more traditional methods be employed?
and that's the whole point -- there's a limit on the fine print that people ought to be expected to read. This has all kinds of basis in our society too. Lots of financial (and other) regulation is because of a massive imbalance in time/skill between the parties.
In this particular case, letting "consumers and credit card companies work it out" isn't working. People are constantly being taken advantage of, and it's simply not necessary. I'm not arguing that the government should insure anything... merely that we have some consumer protection from some of the brazenly unfair and inappropriate behavior the credit card companies pull, justified by a 14 page contract in 7 point font that's mailed to you 3 times a year with changes you couldn't possibly be expected to find, no less understand.
Sez you. The sheer size of the unsecured credit market is immense, which signals, hey, it IS working! Otherwise, people wouldn't be taking advantage of these consumer credit facilities. It's like saying Microsoft's XP isn't working just because you don't like it and can't take the time to understand its basics.
I know prudent folks have don't have a credit card, and get by just fine. I know others who have 10 and get by without any debt problems. How is it "not working?" For whom is it not working?
I agree the contracts should be in more understandable formats, but that doesn't mean the government has to regulate the consumer credit market they way you suggest.
It's analogous to food labeling. It's OK to require disclosure on the label, but please keep government out of my canned peaches which I know are full of sugar and preservatives.
You want government to backstop all the morons out there who haven't learned to manage their financial affairs, can't control their spending, and can't responsibly use a credit card.
Why do you want to wreck the credit industry for the rest of us who are responsible?
Either your 'success' in the credit industry is on the backs of those who are getting mauled by fees, games, and confusion which, in my opinion, simply isn't fair or appropriate
or
your 'success' in the credit industry isn't on the backs of those who are getting mauled... in which case, making the rules clear, consistent, and fair won't do anything to "wreck" anythign for the rest of us who are responsible.
We have laws on the books for lending because of the imbalance of power. Not only do lenders have more power due to their size, they also have more power because they're not as in need as the lendee. As a result, history is full of cases where the power us abused... it was even a key component of a pretty famous work by that British poet-playwright guy. The idea of regulation in lending to protect consumers is straightforward, and it certainly exists in our society today. The open question is: when to regulate, and how much?
On this, we disagree. I think the credit card companies have gone way too far, and have created a shell game where they successfully hide the price for their services behind constantly changing fees, rates, and the like. I think that restricting these shell games would result in a consistent, fair, and transparent set of rules so that consumers would be able to participate in the market with an appropriate level of confidence. It's true that this would cut into the profits of credit card companies, and it's also true that this would make it harder for those least able to afford credit to get that credit. On balance, I think we as a society would be substantially better off should that happen.
but banning cards to college students seems a bit much. Maybe limiting maxes would be good, say $250 (as opposed to my $3k limit in college). Credit is important and people need to learn how to use them adequately. If people don't learn then, it's only pushing it off -- and if they have zero credit rating when they're 22 or 23, it'll only be that much longer before they could do something like buy a car, decent job or not. Starting people small is not a bad idea.
I was given my first card at 17 and taught to use it prudently. If I never got a card until I was 20 or 21, without a little parental guidance, I may have been one of those college students who spent thousands and thousands on beer, clothes and Cancun.
and maybe a low limit would protect kids from getting in deep trouble. But it just bothers me to see the aggressive marketing of cards to college kids and would at least push for tight regulations on marketing.
Mine did. I had a credit card in college, strictly overseen by mom and dad. They taught me to be responsible.
Credit, like an handgun, is a passive thing. It's the user that is reckless.
Instead of regulating the passive thing which has done nothing wrong by itself, how about teaching kids about money, savings, and credit?
Mine did.
I pictured bs with one hand on his cutlass, the other on his flintlock, squinting fiercely out of the eye with no patch: "Credit, like an 'andgun, is a passive thing. Aaarrh."
I also think that students should be allowed to have credit cards. What exactly is it about graduating that changes someone's ability to handle a credit card? Who counts as a student? If someone drops out of college, have they proven that they can handle credit better than someone who is still a student? If someone is in grad school until they are 30, should they not be allowed to use a credit card for that entire time?
Credit card companies should be allowed to give credit cards to anyone they want to. They just shouldn't be allowed to change the terms of the agreement unless the borrower agrees explicitly. I would be in favor of standardizing credit agreements, so that you can read the entire thing in less than a minute or two, and requiring more information about how much debt costs when people are applying. But I think anyone who is legally allowed to sign contracts should be allowed to get a credit card if they want to.
I might put age restrictions out there... either (a) you get a cosigner, or (b) the loans pre-18th birthday aren't collectible.
But otherwise, I agree.
Someone under the age of 18 is not able to legally sign contracts. Which is to say, they are free to sign them but the government views the contract as unenforceable. So if a bank issues a credit card to someone younger than 18, the debt is already not collectible. Which is why credit card companies don't issue cards to minors.
This is also why minors can't have their own investment accounts. If a minor has a stock trading account, they can keep all their winning trades and force the broker to take all the losing trades. Which is why UTMA and UGMA exist.
The fact is, when you charge something on a credit card, you are borrowing money. Regardless of contracts, fine print, the ability to raise the rate or assign fees, everyone should understand the basic principle that when you borrow something, you are at the mercy of the lender. To try to change that changes the nature of borrowing money, and not for the better. While I appreciate that noone really reads the whole contract and the average person probably wouldn't understand all aspects of it, the one safeguard used to be a realization that borrowing money was a serious and potentially dangerous thing to do; and it was your responsibility to make sure you weren't in over your head.
There's a reason my parents were deeply terrified of using credit cards and why people in my generation see no problem with revolving thousands of dollars in debt they have no reasonable way of paying off quickly should they have to. There has been a big cultural shift from the fear of being in debt (something, yes, people should be fearful of) to seeing it as so commonplace that we should be protected from lenders.
For me, this comes down to a contract. Does a grown-up in our society have the ability to negotiate and agree to a contract and abide by its terms? If the answer is no, they need to be protected, than we have much, much bigger problems than credit card policies.
No. No no no. No. In fact, this is what separates borrowing from a legal institution and borrowing from the Mafia or from Shylock for that matter.
She's right that when you borrow from someone, you are obliged to them for what you agreed to. The problem which I see that goes beyond just credit cards is our inability to keep our word. Our society very often now agrees to do something (pay credit card bill) and then we decide to change our minds. We look for every stalling or avoidance method in the world but the bottom line is we just don;t want to do what we agreed to do. I see it everywhere and it is getting tiresome. We will soon be reading about the kids caught drinking at their prom who will not be allowed to graduate with their class. We'll read how they were warned, had to sign a "contract" acknowledging this promise and then they (and their parents) will hire lawyers to try to break the contract and allow their kids to graduate with the class. Homeowners who took equity out their homes for vacations, new cars, college tuition... are now blaming those lenders of taking advantage of them since they are having trouble repaying, a spiraling rate of divorce which in many cases are people "changing their minds or breaking promises"...
Why should we be surprised that credit card users will happily use their cards up to the limit and then whine when the payments come due from the bad evil credit card companies? We should remove the "over the top" fees, charges, penalties... from the CC issuers but then force CC users to honor their commitments... or lose the privilege to borrow.
A financial institution won't physically hurt you or your loved ones if you are late on a payment; from what I've seen in movies and TV (which is where every single ounce of my mafia knowledge comes from), that is not the case when you borrow from the mob.
I wasn't a credit card holder in the 1970s. Am I correct in assuming that the more regulated rules also meant less credit in the hands of average Americans? I'm afraid that is what will happen with more regulation. Banks, if they weren't allowed to raise rates to compensate for risk, would simply stop offering credit to people who appeared "unworthy" credit risks. Then, a group of already disenfranchised people don't get the convenience of a credit card and the ability to build up a good credit rating.
Right on, Jeanne. And I find it very dangerous that the Obama administration is now suggesting a cram-down be applied to the CC industry.
If Obama keeps subsidizing and bailing out with taxpayer money the losses of the financial system, credit card companies included, what sort of message does this send, to the companies lending the money, and the folks borrowing it?
This administration is reckless -- reckless! -- in its destruction of moral hazard, on both sides of the ledger. Barney Frank's quest to include mortgages in bankruptcy is a big example of this.
The result is we have home owners walking away from mortgages just because the value of their home is less than their mortgage. So what? This happened to me in the late 1980's, and I paid my mortgage religiously because (1) that was what the contract said I must do, (2) that was the right thing to do, and (3) there were terrible consequences for not doing it.
It seems like the elimination of (3) is a goal of this administration, congress, and stomv, unintentional or otherwise.
A major contributor to the problem that Jeanne correctly states is that the CC agreement includes broad provisions that say, in essence, "We can change the terms of this agreement whenever we want".
This creates what Douglas Hofstadter calls a "strange loop" -- the agreement is, in essence, self-modifying.
It seems that bostonshepherd is uncomfortable with the same provision being applied to the industry itself. Yet, our legal system is itself self-modifying -- that is, after all, the purpose of our legislature. Even the self-modification process itself is self-modifying -- hence constitutional amendments and the Supreme Court.
Perhaps bostonshepherd has outlined the framework for a solution that both sides can embrace:
What if the terms of the CC (interest rates, penalties, daily balance calculation methods, etc) were fixed during the duration of the contract, and what if the government agreed that the regulations concerning the industry would be fixed for the same period.
But wait -- that's what we had, before Reagan and GOP changed the rules in the interest of "deregulation".
When I got my first credit card, in 1975, the interest rate was capped by the federal government at 18% per year, and the credit card company was required by law to provide a 30-day payment period for any amount billed. Payments were credited on the day mailed at that time.
The credit card, finance, and banking industries worked diligently and hard to dismantle all consumer protections. They changed the laws that regulated them, and they dissolved or de-fanged the regulatory agencies that enforced them. They jockeyed the entire system to their own benefit, and then -- as their predatory lending practices led to an explosion of personal bankruptcies (virtually the only consumer option left for a great many people), they made it impossible to file personal bankruptcy.
When the personal bankruptcy laws were changed, how many consumers who had taken on untenable debt were grandfathered under the old laws?
Like you, I lived through those changes but had forgotten all about them. The banks have had things their way for the last 30 years or so.
A creditor is entitled to the return of its collateral, or the value of its collateral. In bankruptcy, every single piece of collateral, from the truck to the inventory to the industrial equipment to the real estate-- is subject to "cram down." That is, the creditor gets a claim for the value of the collateral, and the debtor keeps the collateral, subject to its obligation to pay the value of the collateral. If the value is less than the creditor's claim, tough luck creditor. Creditor gets an unsecured claim for the deficiency, which is another way of saying that the deficiency is not paid. This has the effect of making lenders careful to ensure that they have sufficient collateral to repay the debt.
This works for ALL collateral with the single exception of real estate that is the residence of the borrower. Not residential real estate. If you have a rental property that is underwater, you can cram the mortgage down.
What is it about residential real estate, in your view, that makes it so different from everything else?
When we talk about the "tough luck creditor" part, don't forget that the balance "forgiven" (lost) by the creditor is treated as taxable income, for the debtor, by the IRS -- and bankruptcy does not clear tax obligations.
That statute applies only to the foregiveness of debt OUTSIDE bankruptcy.
If the borrower has debts discharged, including mortgage deficiency debt, IN bankruptcy, there are no income tax consequences. See 11 U.S.C. s 346(j).
That is to say, if the bank says, the heck with it, we're forgiving a debt of $100,000 because the debtor can't pay it and it isn't worth trying to force him, the debtor realizes $100,000 in taxable income from the foregiveness of the debt.
If the debtor files a bankruptcy petition, and therein the $100,000 is discharged, the debtor realizes income of $0.
With respect to other tax obligations, only tax debts that meet certain criteria are not "cleared." Other tax obligations-- very old tax debts, penalties, interest-- can be discharged. Those that can't may nevertheless be stretched to some extent.
I meant that when the bank forgives the debt (before bankruptcy) the amount forgiven is treated as taxable income. If, as is often the case, a bankruptcy follows, then the tax on that income is not cleared.
In your example, I think that the bankruptcy petition must be filed before the debt forgiveness in order for the $100K to be treated as you describe.
I hope they add something to stop the mass mailings, it's insane how many things they mail out.
but I hate it from an environmental one. I imagine (and hope) that technology removes this issue over the coming years.
...comment when the thread first started.
Frontline did an excellent report on the problems with credit cards:
http://www.pbs.org/wgbh/pages/...
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