Go Figure

The current economic downturn offers many reminders that we shouldn’t take things too personally. I was really offended about a notice I received until I found out that many others are having the same experience -- but it still doesn’t compute.

I have been dealing with a particular credit card company for more than 25 years. I have never had a late payment in that time. On rare occasions I could only make the minimum payment; other times I have been able to pay the balance down to zero at the end of the month.

Recently, I received a notice that as of mid-April, my annual interest rate would be increased to almost 18 percent. “Extraordinary changes in the economic environment,” they said. This particular company received federal bailout funds, and the major federal interest rates are almost zero, so where does the company come by the 18 percent figure?

That’s only half the story. The same company sent me a promotional offer saying that if I transferred a balance over from another card, I would enjoy zero percent interest on that amount for an entire year. So times are so tough that my regular rate will be 18 percent, but they can still offer zero percent on transfers.

Then there are the penalty rates. If for some reason I am late on a payment, the company has the right to raise the rate to almost 30 percent. Now in these extraordinary times, it might not be unusual that someone would be late on a payment or unable to meet a minimum. So if the company can’t get the regular payment out of a debtor in that situation, where do they think they’re going to get the 30 percent interest from? And you’re trapped: If you cancel your account, your credit score could be damaged, so the personal finance gurus say.

One of these, Suze Orman, is telling us that paying the minimum amount on your card each month isn’t good enough to protect your credit score or your credit line. Which sounds to me like the minimum payment the credit card companies want isn’t a minimum at all. It would be nice, then, if they told us what the real minimum is. Please don’t get me started on the whole FICO score thing – that’s a whole ‘nother discussion.

Many of these credit card issues will go away when new federal regulations take effect – but they don’t until 2010, so how are the card companies going to be treating customers between now and then?

In a much earlier post we speculated about the end of the credit card. The cards won’t go away, but put me down for this prediction: within 10 years, the revolving balance thing will disappear, going the way of credit default swaps and other such instruments. Either the banks will eventually conclude that revolving balances are bad business, or more likely, they will be flat-out illegal. There will be cards, but you’ll have to settle up every month, just like in the old, old days. Junkies, the street will be dry before you know it.

There, now I’ve said it.

Past Due Notice

If there’s anything out there that’s really past due, it’s this set of restrictions on credit card companies.

Credit cards are truly instruments of the devil, but I guess you could also say that about guns, and the argument you get in return is, it’s the user, not the instrument, that’s the problem. In the interest of full disclosure, let me say that I have a credit card balance and as far as I know, the card companies I deal with have always treated me fairly.

After hearing the horror stories from others, though, I was waiting for the day when I might be treated unfairly, so I could file my multibillion-dollar class action lawsuit. That would be the day I was late on a utility bill and found my interest rates jacked up to 29 percent by all my card issuers. But I am never late with anything, knock on wood, so that day hasn’t come.

I found that practice especially offensive, whereby being late on one bill would trigger mass rate increases among all creditors. As far as I’m concerned, if you have a relationship with one creditor, all that creditor should be concerned about is your check or payment arriving on time to them. What happens in other relationships is none of that creditor’s damned business. I’m glad this is an abuse that will be corrected under the new rules approved by the Office of Thrift Supervision (in 2010, if we last that long). Exactly what has the Office of Thrift Supervision been supervising all this time?

The credit card companies are warning that if rules are put in place to keep them from playing the games to which they have become accustomed, costs will be going up for current users, and it will be harder for many people to qualify for new credit cards. Perhaps that’s a good thing, compared to hidden fees and unexpected rate hikes.

It has always been curious to me why they raise rates to penalty levels for those who have been late on payments. If someone is late on a payment, is that an indication that they may have trouble paying even the current interest, much less covering the penalty?

The card companies are perfectly within their rights as creditors to be strict with their customers – as long as they do it transparently and for good cause. Credit – even unsecured credit – is one of those things that all of us – even the most responsible – need from time to time. Few of us are taught to use it responsibly, and in that regard, the card companies have been little or no help.

For these companies, there must be a middle ground between drowning us in credit and forcing us to die of thirst.

There, now I’ve said it.