In A Word: Obscene - Commentary on Credit Card Interest Rates
Gerald Eisman
May 16, 2006
Obscene: 1. Offensive to accepted standards of decency or modesty. 2. So large in amount as to be objectionable or outrageous
Just yesterday I received in the mail several offers from credit card companies to bestow upon me the privilege of carrying their card. I was guaranteed acceptance by two of the three offering companies and, as if by magic, the third told me I could transfer several balances. Not only that, I could pay back those balances in one year interest free. How nice of the companies to recognize my good credit and offer such generous terms.
At first glance one would think there was an appreciative recognition of my good name and reputation for prompt payment involved in their choosing me. But, after reading the fine print, a circumspect person would immediately recognize the folly of such a thought. The truth is, those companies are playing the odds and, when one considers the circumstances, the odds are all in the favor of the lenders.
One card in particular disclosed the fact that after the no interest period, the APR for all purchases would be 19.99%, or a practical 20 %, a figure that would seem, at first thought, usurious. It isn?t, as the law allows consumer rates to far exceed the normal, regulated loan rates. Now, considering a person pays back his credit card debt by sending the minimum payment per month as obligated by law, and also assuming the person never charged another item on the card, s/he would not be debt free for 17 years. 17 years!
Then, of course, there are the legally allowable penalties to consider. If the payment arrives one day late, there is a $39 late fee plus interest on the loan. If, and this happens often, a person who makes regular payments purchases another item that sends their account over the limit set down by the card company, there will be a penalty of $39. That figure is immutable even if the over the limit sum is five cents.
There is another little item that consumers can and must be aware of and that is the change of terms statement. It says this:
We may change the ?noted? terms, rates, fees and other costs at any time based on account usage or performance with us or other creditors, information contained in your credit report, or otherwise. Any such change will be made in accordance with the card member agreement and applicable law. Basically, what that says is the card company can change rated on you for being late on, or missing a payment to anyone if they so choose.
Now we come to another little hidden fee that becomes very costly. It?s called the Account Protection Plan or a variation of it. Most people who sign up for it think that, should they be incapacitated, the card company makes their payments for them while they remain unable to. That is not the case. What it does is suspend the card holder?s requirement to make payments for up to one year depending on the cause for suspension. At that point, the cardholder must resume payments from the moment of suspension and for the sum total at that time. Meanwhile, your ability to continue use of the card is also suspended. And for this, you will be charged a monthly fee, usually up to one dollar per hundred dollars of indebtedness.
In the past, such rates and requirements were considered usury and fines were levied against any entity that engaged in such illegal activity. Not so any longer. As the one explanatory paper noted, the maximum Annual Percentage Rate (APR) would be 29.99% Consider, on a thousand dollar debt, that would be $300. Somehow I see those numbers as usury
The Fair and Accurate Credit Transaction Act of 2003 (FACTA) added new sections to the federal Fair Credit Reporting Act (FCRA, 15 U.S.C. 1681 et seq.). Accuracy, privacy, limits on information sharing, and new consumer rights to disclosure are included in FACTA This is all good news for consumers. However, consumers came out on the losing end when Congress virtually barred states from adopting stronger laws, a case of the government giveth and the government taketh away.
Some new sections of FACTA were effective December 1, 2004. Other sections directed federal agencies to solicit public comment and then adopt final regulations. In addition to the Federal Trade Commission (www.ftc.gov), the federal financial agencies have jurisdiction and are involved in writing regulations to implement FACTA.
One year later, the rule writing is not finished. Although some rules are now final, other proposed rules have been published for public comment but not yet finalized. And as of this writing, some very important consumer protection rules like the ?red flag? guidelines have not yet been released for public comment.
The book isn?t in on what is being proposed, yet, but experience with our current administration shows a clear tendency toward protection of the financial institutions rather than we, the people. Isn?t it time our voices were heard by those we elected to represent us? Shouldn?t ?fair credit? be for the benefit of the multitudes rather than for the institutions?
Just yesterday I received in the mail several offers from credit card companies to bestow upon me the privilege of carrying their card. I was guaranteed acceptance by two of the three offering companies and, as if by magic, the third told me I could transfer several balances. Not only that, I could pay back those balances in one year interest free. How nice of the companies to recognize my good credit and offer such generous terms.
At first glance one would think there was an appreciative recognition of my good name and reputation for prompt payment involved in their choosing me. But, after reading the fine print, a circumspect person would immediately recognize the folly of such a thought. The truth is, those companies are playing the odds and, when one considers the circumstances, the odds are all in the favor of the lenders.
One card in particular disclosed the fact that after the no interest period, the APR for all purchases would be 19.99%, or a practical 20 %, a figure that would seem, at first thought, usurious. It isn?t, as the law allows consumer rates to far exceed the normal, regulated loan rates. Now, considering a person pays back his credit card debt by sending the minimum payment per month as obligated by law, and also assuming the person never charged another item on the card, s/he would not be debt free for 17 years. 17 years!
Then, of course, there are the legally allowable penalties to consider. If the payment arrives one day late, there is a $39 late fee plus interest on the loan. If, and this happens often, a person who makes regular payments purchases another item that sends their account over the limit set down by the card company, there will be a penalty of $39. That figure is immutable even if the over the limit sum is five cents.
There is another little item that consumers can and must be aware of and that is the change of terms statement. It says this:
We may change the ?noted? terms, rates, fees and other costs at any time based on account usage or performance with us or other creditors, information contained in your credit report, or otherwise. Any such change will be made in accordance with the card member agreement and applicable law. Basically, what that says is the card company can change rated on you for being late on, or missing a payment to anyone if they so choose.
Now we come to another little hidden fee that becomes very costly. It?s called the Account Protection Plan or a variation of it. Most people who sign up for it think that, should they be incapacitated, the card company makes their payments for them while they remain unable to. That is not the case. What it does is suspend the card holder?s requirement to make payments for up to one year depending on the cause for suspension. At that point, the cardholder must resume payments from the moment of suspension and for the sum total at that time. Meanwhile, your ability to continue use of the card is also suspended. And for this, you will be charged a monthly fee, usually up to one dollar per hundred dollars of indebtedness.
In the past, such rates and requirements were considered usury and fines were levied against any entity that engaged in such illegal activity. Not so any longer. As the one explanatory paper noted, the maximum Annual Percentage Rate (APR) would be 29.99% Consider, on a thousand dollar debt, that would be $300. Somehow I see those numbers as usury
The Fair and Accurate Credit Transaction Act of 2003 (FACTA) added new sections to the federal Fair Credit Reporting Act (FCRA, 15 U.S.C. 1681 et seq.). Accuracy, privacy, limits on information sharing, and new consumer rights to disclosure are included in FACTA This is all good news for consumers. However, consumers came out on the losing end when Congress virtually barred states from adopting stronger laws, a case of the government giveth and the government taketh away.
Some new sections of FACTA were effective December 1, 2004. Other sections directed federal agencies to solicit public comment and then adopt final regulations. In addition to the Federal Trade Commission (www.ftc.gov), the federal financial agencies have jurisdiction and are involved in writing regulations to implement FACTA.
One year later, the rule writing is not finished. Although some rules are now final, other proposed rules have been published for public comment but not yet finalized. And as of this writing, some very important consumer protection rules like the ?red flag? guidelines have not yet been released for public comment.
The book isn?t in on what is being proposed, yet, but experience with our current administration shows a clear tendency toward protection of the financial institutions rather than we, the people. Isn?t it time our voices were heard by those we elected to represent us? Shouldn?t ?fair credit? be for the benefit of the multitudes rather than for the institutions?
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