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www.NationalView.org's Note From a Madman
June 29, 2008
The Credit Card Crunch
So what does your credit card's annual percentage rate have to do with
inflation? Not a darn thing. Credit card companies, many of them the same banks
you put your money into for safe keeping, make a lot of money on the interest
payments, late fees and other surprises they throw your way to keep themselves
in business. With lowered interest rates, why is it that credit card companies
charge astronomical usury rates for their credit cards?
Because they can. Thee is no regulation stopping them.
In the old days, a bank would take your money and lend it to people buying a
house or financing a business. They would charge that person or company interest
while at the same time offering you a few points of interest for their borrowing
your money.
However, a funny thing happened on the way to fair play - the banks found other
uses for, and other ways of obtaining your money without the usual quid-pro-quo.
One of the main ways they "earn" your money is by charging you inflated fees,
increasing the APR (annual percentage rate) and anything else they can think of.
In a recent bank commercial, a man and a woman are climbing a mountain when the
woman's cell phone rings. You hear only her side of the conversation, which goes
something like this:
WOMAN ON MOUNTAIN: I'm overdrawn... Okay... thanks.
MAN ON MOUNTAIN: Who was that?
WOMAN (as she accesses her Internet banking account via her cell phone-PDA):
That was my bank. They told me I was overdrawn. I'm transferring money into my
checking account from my savings account.
MAN: Overdrawn?
WOMAN: Yeah. (the camera pans out showing the couple alone high on the face of
the mountain) Now that's scary.
VOICE OVER ANNOUNCER: Avoid overdrawn fees with a bank that cares.
Okay, so it's not verbatim. Hey, I'm a busy guy. But you get the gist. Doesn't
the bank own the bank? Isn't it their self-defined policy that causes the giant
fees you have to pay if you're late with a payment or overdrawn a few dollars in
your checking account? They make it sound as if they have no choice but to
charge you the sixty bucks a pop for each and every check you bounce.
In the spirit of fair play, I decided to check out the website of one of the
biggest banks in the US - Bank of America. With an advertising budget somewhere
in the tens, if not the hundreds of millions of dollars, surely a visit to their
website as a snapshot of the banking industry would be worth the time. Here are
some of the highlights (or is that lowlights?) of their Credit Card Interest
Rate web page:
BOA: The amount of interest, or finance charge, you pay is largely determined by
your interest rate, also referred to as your Annual Percentage Rate, or APR. The
APR on your account can adjust up or down over time from its initial point for a
number of reasons:
MADMAN: Of course, the big reason banks raise interest rates is "because they
can". In all the time, however, that I've had credit cards, I've never had a
credit card company call me, send me a letter or make a phone call to tell me
that they're going to lower my interest rate. As a matter of fact, just the
opposite is true. With about $800 on a GM MasterCard. our next bill came with
the notice that I was having my interest rate raised to 39.5 percent. Although I
pay my bills on time and have a credit rating in excess of 700 (I also have a
credit service which keeps me informed of these things, thanks to another bank
who accidentally allowed my personal information to be stolen), they decided I
was a higher risk factor and should pay more. I called them, cancelled the card
and sent them a check for the $800 which ended my relationship with them. During
the phone call, they said "WAIT! Maybe we can work something out? How does 29.5
percent sound instead?"
Click!
BOA: Everything that affects the larger economy can also affect your credit card
rate. For instance, if the interest rate banks pay to borrow money changes, it
may have an impact on your APR. APRs on a variable rate account will fluctuate
with the index to which they are tied. Most commonly, the prime rate.
MADMAN: As of April 30 of this year, the prime rate stood at 5.00 percent. So if
banks, such as the Bank of America, were lending money on credit cards based on
this rate, one has to ask just where the reasoning of interest rates as much as
eight times the prime rate came from.
Additionally, I find it funny (as in ironic) that they charge us figures such as
39.5 percent. I guess it sounds more official than 40 percent, huh?
BOA: Changes in your personal financial situation, including changes in your
income, your amount of debt, your overall credit history and how you use and
maintain your Credit Card account with us can all affect your interest rate.
MADMAN: No doubt that "change" which BOA is referring to is a downward "change".
Consider this: If you have a credit card with a balance and you run into some
sort of bad luck (loss of a job; medical bills due to illness, a large
deductible or co-pay; personal property damage due to a natural disaster not
covered by your insurance company; etc), the credit card company has the
unfettered right to change the amount of money you owe them. Since you already
owe them a decent sum of money, they can now charge you a higher interest rate
while you get back on your financial feet.
In other words, the credit card company makes you pay them more when you have
less. Must be a part of that compassionate conservatism I hear so much about.
BOA: Over the life of your account, Bank of America may also make periodic
changes to your Credit Card Agreement. Any changes to the rates or fees on your
account will be fully disclosed to you before the changes are effective, and if
an increase to your APR is included, you'll be given an opportunity to reject
that portion of the amendment. Should you decide to reject the change, you will
probably lose future charging privileges with your card but will be given the
opportunity to payoff your existing balance at the current rate.
MADMAN: Now there's a rule which I have never seen. That one must be in the
really, really, really fine print. Anyone have a magnifying glass?
BOA: Avoiding Default Rate Increases
You can avoid automatic triggering of a higher default rate on your Credit Card
by following two simple rules:
-Pay at least the minimum monthly amount by the payment due date.
-Never exceed your credit limit.
* Note that Bank of America will not automatically increase your APRs without
notice based on your account performance with another creditor, including if you
make a late payment to, exceed your credit limit with, close your account with
or have a payment returned from that party.
* Note by MADMAN: So even if you follow all of their rules, someone else has the
ability to screw up your deal with just about anyone else, including your
current bank. Simply closing your account with another credit card company
allows your current credit card company the right to change their deal with you.
Sounds like a sweet deal - for them, that is.
On June 29, 2006, the prime rate (the rate banks get to borrow our middle class
tax dollars from the Federal Reserve Bank) stood at a whopping (by today's
standards) 6.25 percent. Ben Bernanke, Alan Greenspan's replacement at the Fed,
and his band of compassionate conservative commissioners have since lowered that
rate to the 2.25 percent. That's where it stands today. How much has your credit
card bill - by lowering your APR - been lowered as a result, I wonder? My bet is
that it went the other way - up.
WE are the Fed. The money the banks borrow at that very favorable 2.25 percent
rate is coming from us, the US middle class taxpayer. And while we're lending
these institutions such enormous sums at very favorable rates, we get bigger and
bigger fees, larger interest rates and nothing much else in return. And,
somehow, the Bush administration, John McCain and all of the Wall Street Big
Money McBush experts say that it's going to, somehow, save the US economy.
It hasn't and it won't. But it will make the McBush "base of haves and have
mores" the "have so much mores."
-Noah Greenberg
In response to "On Health Care", Robert Scardapane writes:
McBush's plan is one heckofa of a "plan" ... for the insurance companies that is
who will make even more money once everyone is forced to buy individual
insurance policies. That's why McCain's staff is nothing but industry lobbyists.
What really galls me is that Ms. Outsourcing herself - Carly Fiorina (the failed
and ousted former CEO of Hewlett-Packard) - is his chief economic advisor.
Send your comments to: NationalView@aol.com
-Noah Greenberg