May 16, 2008
View From Lodi CA: In Over Your Head On Credit Card Debt? Help May Be On The Way!
By Joe Guzzardi
In my
column last week, I wrote about the recent push in
Washington D.C. lead by
Treasury Secretary Henry Paulson to overhaul the
rules and regulations that govern the financial
securities markets.
I concluded that no new federal approach to policing
the markets, assuming one could be agreed upon and put
into place, would be as effective for investors as their
own due diligence.
But I have an entirely different perspective on the
feds going after
credit card issuing banks that, for years, have
engaged in usurious practices that have strangled the
average consumer.
Only half of all American households participate in
the stock market.
Of those that do, many hold stock through 401(k)
plans or other tax-advantaged accounts. Or they have
portfolios valued at less than $50,000 that consists of
treasury securities.
But many more people use credit cards.
Most households average at least one card per family
member, have an $8,000 outstanding debt with interest
charges that range from 18 to 30 percent. Current
aggregate U.S. credit card debt is $800 billion. (www.creditweb.com).
Not surprisingly, California—the leader in everything
bad for consumers—is
the worst offender when it comes to protecting the
little guy.
Along with Tennessee, South Dakota and Delaware,
California offers the least consumer protection against
outrageous fees on the following credit and routine bank
charges: delinquencies, cash advances, over-the-limit
transactions, stop payments, ATM usage and mandatory
grace periods.
The culprit is a 1978 U.S. Supreme Court decision
that allowed these the-sky's-the-limit rate policies to
prevail.
In
Marquette vs. First Omaha Service Corp.,
the Supreme Court ruled that a national bank could
charge the highest interest rate allowed in their home
state to customers living anywhere in the United States,
including in states with restrictive interest caps.
Even if you
make your credit card payments on time, the issuing
bank can raise your interest rate automatically
if you're late as little as one hour on payments
elsewhere -- such as on another credit card or on a
phone, car, or house payment -- or simply if the bank
feels you have assumed too much debt.
This is standard practice found in your credit card
agreement fine print, the result of another Supreme
Court decision in 1996, Smiley vs. Citibank, that lifted
the existing restrictions on late penalty fees. Back
then, fees ran to $5 or $10; now they can run as high as
$45.
On a PBS special dedicated to exposing the
consequences credit card lending, Harvard Law School
Prof. Elizabeth Warren, a contract law expert, said:
“I don't know any merchant in America who can change the
price after you've bought the item, except a credit card
company. They are the new
loan sharks in America.”
Credit agreements are another trap for unsuspecting
cardholders.
Even Professor Warren, the well-schooled authority,
says she can’t decipher hers.
One controversial practice the Federal Reserve Bank
wants to eliminate is "two-cycle billing," which
adds to interest charges by calculating the average
daily balance for the last two billing period rather
than one.[U.S.
Aims to Rein in ‘Unfair’ Credit Cards, By Becky
Yerak, Chicago Tribune, May 3, 2008]
Sandra Braunstein, director of the
Division of Consumer and Community Affairs,
testified April 17th before the House
Financial Services Committee and outlined other changes
proposed by the Fed.
Among them are:
