Credit Card Companies Are Fighting Back Against Consumers: Get Out of the Way!
By The Money Hawk
This is a guest post by Kevin Geary at The Money Hawk. You can subscribe free to The Money Hawk via RSS or Email.
No matter how many late night infomercials or Kiyosaki books you read, leveraging debt to build wealth is not a winning strategy. It is for some people, but not for you. For most of us, it’s stupid. And that’s not just my opinion; the millions of people in this country who are deeply in debt, filing for bankruptcy, working through foreclosure, closing businesses, and struggling to feed their families can attest to it. And thanks to these millions of people, it’s about to get more ridiculous.
Americans have approximately $968 billion in outstanding credit card debt, and now, with the economy slumping, they are struggling to pay their bills. That’s bad news for companies that issue credit cards. The number of accounts that are 30 days or more past due is higher than it has been since the first quarter of 2002. At many banks that issue credit cards, the charge-off rate — the balances that a credit card company writes off as uncollectible — is near a three-year high. American Express is feeling the pinch of the weak economy; its second-quarter profit fell 37% compared with the same period last year.
There you have it. Now they’re angry and they’re fighting back. Do you know what that’s going to look like?
Higher interest rates
Did you know that credit card companies can hike your interest rate at any time for any reason? It’s called “Universal Default“. And Universal Default doesn’t actually have to be a default at another institution. Credit card companies are pushing the envelope so far that they are starting to scan retail chains to figure out where the highest risk people shop and raising the rates of those who shop there!
On Tuesday, msnbc.com reported on a new policy at American Express that allows the firm to penalize consumers based on where they shop and which bank holds their mortgage.
Does that make any sense to you? I didn’t think so. But you still have a card in your wallet so we’ll continue…
Lowering your limits
If you have a $3000 limit, how would you like to see it fall to $1500? Credit Card companies know they can limit their exposure to risk by limiting your exposure to plasma TVs.
Experts say consumers also should expect their credit limits to be lowered for what might seem like arbitrary reasons and their balance transfer fees to climb.
Yes, you signed an agreement detailing a specific limit and an interest rate, but none of that matters because credit card companies have the ability to do pretty much whatever they want, aside from closing your account and demanding full payment. It’s the only industry that gets away with changing the terms of an agreement without the consent of the other party.
Because of card agreements, credit card issuers cannot simply close accounts and demand full payment. But they can do the next best thing: Raise the cardholder’s interest rate. They can also lower credit limits repeatedly to prevent a consumer from making any new purchases. That’s effectively the same thing as closing the account.
And you still want to be a part of this scam?
But you can’t blame them
You can’t completely blame the credit card companies for this. If you boil it down, they exist to make a profit just like every other company. To that effect, they work to maximize their profit. This current “fight back” behavior is a side-effect of poor personal money management on the part of the consumer.
In the first quarter of 2008, banks charged off 4.7 percent of credit card loans, a 33 percent increase from the first quarter of 2006, according to the Center for American Progress. That timing is no coincidence; that’s when easy credit for home equity loans dried up. In 2009, according to consulting firm Innovest StrategicValue Advisors, banks will charge off nearly $96 billion in credit card debt, double the projected 2008 losses.
Yes, the credit card companies were stupid not to limit their exposure sooner and stupid to issue credit cards to dead people, dogs, and the irrational masses, but the consumer is at the heart of the problem. If the average consumer was responsible, you wouldn’t see this happening. So stop using already. Put the needles down. You don’t have to live addicted to debt anymore. In fact, you don’t even have to touch the cards! There’s no reason to. That’s old school. The new school of debt free living is the road to massive wealth. Stop subjecting yourself to further abuse from these companies.
But what about emergencies?
What’s the difference between paying cash for emergencies and using a credit card? Yes, you have to build up an emergency fund with plenty of cash in it, but that’s what personal responsibility is all about. If you use credit cards for emergencies, you’re going to clean up one emergency while creating another one. That’s stupid.
But what about my points/miles/free stuff?
Nobody builds wealth with airline miles. You’ll win in the long run if you stay away from the sharks. Points, miles, and giveaways are marketing tools to get you to buy more stuff with money you don’t have.
But what about…
STOP. Close your eyes and imagine not owing anyone money, not having to make any payments. What would you have if you didn’t have a car payment, credit cards, and personal loans? MONEY!
Do you realize how much you can save and invest when you don’t have payments? Do you realize that credit cards amount to nothing more than bondage to a greedy, corrupt company? Imagine again how it would feel to not have any payments…
There is no valid reason to use credit cards, especially in this hostile climate. It’s time to get out of debt, save an emergency fund, invest for your retirement, and build mountains of wealth. Stop being “that consumer” who is adding to the crisis and killing their own future.
If you choose bondage, you won’t get any sympathy from me.
Great article. I had no idea that these kinds of tactics were legal. Thanks for opening my eyes.
Credit Card Rewards are a complete and total scam! People do not realize that in most cases, one dollr = 1 mile. It takes about 20,000 miles in order to get $200 off an airline ticket (Discover Card). That means you have to purchase and payoff over $20,000 on your credit card before getting that $200 discount! That’s a 1% perk! If you factor in Inflation, you actually LOOSE money!
Larry
http://www.theluckymoneycat.com/
Full of sound and fury, signifying nothing. I have a credit card, and I pay it off in full every month, so none of these screw-over tactics apply to me. It’s a convenient way to keep track of my spending, it means I don’t have to carry huge amounts of cash around with me all the time, and I get to treat myself to a nice gift certificate once or twice a year. If the credit card companies ever try to screw over people like me, I can close my account in an instant – which is why they will almost certainly never try.
1. hate amex, but why not, if a mortgage lender’s financials are secure, it only makes sense that someone else be allowed to adjust terms on credit to account for increased risk.
2. interest rates increase and bt fee: don’t carry a balance and it doesn’t affect you. if you are bouncing from one cc to another through bt, then you really need to focus on paying down debt rather than trying to bounce it around.
3. CC raise rate: ok, so they are making it painful for you to carry a balance. you obviously need someone to tell you hey, idiot stop living beyond your means. if they increase, you don’t have to accept it. close the account, pay what you owe at the old terms. if you are carrying a balance, why do you need to keep the account open anyways, especially if you are getting charged over limit fees, are paying late etc?
i can tell you, i think for the first time ever, responsible credit card users are being rewarded rather than punished as was in the past when we were considered deadbeats. thus far, i still continue to get 0% BT offers, my limits have continued to increase, and rates are lower.
Then there’s the subclass of people (like me) who take out hundreds of thousands of dollars from the credit card companies at 0% interest for a year and invest it–making thousands of free money each year. 🙂 It feels good to bite the card companies back.
I agree that zero debt is absolutely the goal, but why NOT use the credit card company’s money to help you get there? I put all of my monthly expenses on my credit card and use their money interest free for the month. Then my money can be working for me to either earn interest or cancel interest, so I can pay off my biggest debt, my mortgage, more quickly. I pay off my cards in full when they’re due, so the interest rate doesn’t matter to me. And, about every two months I cash in my points (1 point for every dollar spent) for a $50 Mastercard or Visa giftcard that spends just like a credit card. Yippee – free money!
I have to say, and from my own experience, nobody ever got rich with airline miles, nor with Discover Card cashback bonuses.
That said, if you want to use credit cards, be my guest. I, personally, do not plan to use them again. Right or wrong, from my own experience, I have a very bad taste in my mouth.
And credit cards for emergencies? I agree! Give me a break! If you are serious about wanting to be ready for an emergency, nothing will beat an emergency fund.
Great post!
There’s lots of people here who haven’t been bitten yet. Whether you think you’re using the cards responsibly or not has no bearing on the situation, these companies are crooks and they find ways to make you pay. They’ve been caught shredding payments and not applying them so they charge late fees; they have all sorts of tactics and making excuses for why you’re better than everyone else with them only means you’re aiding and abetting these frauds.
And the comment about using credit cards to invest in the market is the dumbest thing I’ve ever heard. There went all your credibility out the window.
@ Johanna:
Don’t be naive. You can track spending and avoid carrying cash without a credit card. It’s 2008, we have these things called debit cards. They work quite well and allow you to spend money you actually have.
I know you think you’re responsible, but you’re playing with snakes. It’s fine, but it’s like I said in the article, don’t start whining when something goes wrong.
I did not say that my credit card was the only way to track spending and avoid carrying cash. I said it was a convenient way. I have a debit card too, but I see no reason not to use my credit card for the bulk of my spending, and your little rant here has done nothing to change it.
You seem to think that “something going wrong” is an inevitable consequence of having a credit card, as if having the ability to live beyond my means implies that I will automatically do so. Please. Some of us are not that stupid.
Kevin, I have to agree with Johanna and (some of) the others. Just because someone owns a credit card doesn’t mean that they are automatically in danger of getting taken advantage of. It goes back to personal responsibility and control. Sure there are some people out there who “play with snakes” when it comes to credit cards, and yes, they deserve to get bit. However, those of us who are capable of handling their finances in a responsible manner really should have nothing to fear.
Now with that said, I think that this post was timely and informative. There was even some information in there that I was not aware of. It is all fantastic information and sage advice for anyone who holds a credit card. But once again, not necessarily a reason to abandon the practice.
Quite frankly Kevin, you sound like someone who has been bit before and is now spreading your contempt like Chicken Little… “The sky is falling!”
And don’t think that your snarky attitude and condescending tone isn’t noticed. That was uncalled for. You talk about someone loosing their credibility?! With that last post you’ve just lost more than that from me,.. you’ve lost my respect.
Rob,
I apologize. I don’t appreciate it when the Johanna types try to tell people that my content isn’t worth anything because it doesn’t apply to them. She’s one of those people that “have it all figured out”. I didn’t tell her that the sky was falling, I told her not to whine if she ever gets in trouble with her credit cards.
Credit card companies have proven that they want to exist to take advantage of people. So when you use their cards, you are directly putting yourself at risk. If they were honest, that wouldn’t be the case, but they aren’t honest.
That’s like saying your financial planner has been arrested for fraud but using his services wisely will prevent you from getting in trouble. I’ve not just been bit, I’ve been bit by the fraudulent side of the credit industry, meaning that I did not do anything wrong. I was one of the victims of “universal default” policies where my card went from 14.99% to 32.99% overnight for no good reason. And then because that one card raised your rate, all the others follow suit. So you have debt that was financed at 14% originally jump to 32.99% overnight. Have you ever tried to pay off a 32.99% credit card? I’ve also had them claim to not receive a payment and I’ve fallen victim to their rotating due date game where they try to bill you on different days of the month to get you off guard and hope to be able to charge a late fee.
So yes, I like to warn people. And when the Johanna types come along and pretend like what I’m saying is meaningless because they’re doing just great it really frustrates me. Look at the statistics, credit card use isn’t helping a lot of people “do great” – in fact, it’s doing the opposite. It’s destroying lives and destroying families. I wouldn’t even associate myself with a credit card company for that reason alone (their lack of integrity).
So I apologize, Rob. I’ll let my content speak for itself. If people want to listen to Johanna and RISK getting themselves in trouble, that’s fine. The sky isn’t falling, but neither is national consumer debt. How long until the credit industry implodes and they all need bailouts? Credit Card use has impact beyond individual finances; it’s a global risk.
“I told her not to whine if she ever gets in trouble with her credit cards.”
Kevin, what you actually said was, “don’t start whining when something goes wrong.” When, not if. (Also, it’s card, not cards.) That is, you seem to think it’s inevitable that I *will* get in trouble, that my credit card company *will* find a way to screw me over even though I don’t carry a balance, never have, and never plan to. And yet, you haven’t even tried to explain how they might do that. You just resort to insults.
Look, I agree with you that it’s a raw deal for consumers that CC companies can change your interest rate whenever they want, and retroactively apply it to the whole balance. You are absolutely right that carrying a balance that you cannot pay off immediately leaves you very vulnerable to this sort of thing. The correct conclusion to draw, then, is “Don’t carry a balance, and if you cannot trust yourself not to carry a balance, don’t have a credit card.” Not “Credit cards are EEEEEEEEEEEEVIL and if you disagree with me you’re a moron.”
@Rob – I am kind of with you on Kevin’s attitude. Closed minded sells I guess.
@Kevin – Thanks for opening my eyes to something I was not aware of before although it would have been nice to know which cards had employed these tactics AND what original source you were quoting there in the green? Maybe suggesting a ban of the known offenders would do some good. The tactics the card companies used when business was booming to make it so easy to get in over your head are just as despicable as the ones you cite here as they try to recoup their losses. To use your financial planner analogy, you wouldn’t stop going to any financial planner ever just because one steered you into a bad investment once? This is more of a buyer beware post… except without enough detail to be truly useful.
Unfortunately for me I DO fall under the playing with snakes category right now so I will be watching out for these behaviors in my credit card issuers.
I am working towards being debt free and make use of the many 0% balance transfer offers we get from existing cards to help our payments go farther to reduce our debt. Currently we have only 3 cards with balances. They each have offers that expire in March, May and August of next year and only 1 of them will not be paid off before the deal expires. If they change the terms then we will change our strategy.
I don’t think anyone that pays off their card each month is in bondage to anyone. They could just as easily live without a credit card if the issuer made the terms undesirable.
@ Johanna,
If you look back, you’ll see that you are putting words in my mouth. I never said you were a moron.
It was you that originally attacked my article saying that it was “Full of sound and fury, signifying nothing”. And you based that opinion on the fact that it doesn’t apply to you because you’re an expert credit card user.
That’s great if the article doesn’t apply to you, but don’t say that my content signifies nothing when I know for a fact that it has the potential to help a lot of people who aren’t expert credit card users.
The CC companies might not find a way to screw you over, but that doesn’t mean they aren’t trying. I guess my question is, why would you want to do business with a company that is known to be fraudulent and who actively tries to extract money dishonestly from clients?
Again, my article wasn’t attacking you. You read it, it didn’t apply to you, and you still chose to leave a comment attacking the article. That’s why I took offense. If it doesn’t apply to you, it doesn’t mean it’s irrelevant to others, so just move along.
@ Danielle,
Sorry to hear about your situation; keep working hard – it pays off.
Unfortunately, this isn’t an article about isolated incidents. It’s pretty much across-the-board behavior. The larger the company (Amex, Bank America, etc.) the worse the behavior it seems.
Just keep a watchful eye and get them paid off as fast as possible!
As a side comment here I had 2 credit card companies make changes in the last few months that were not negative for me.
Capital One reduced their minimum payment from 2% of the outstanding balance to 1%. It seems they were trying to help people who were having a hard time paying, even though this benefits them in the long run with interest charges, it would allow someone to avoid late payment fees if they were in hard financial times.
Citi, who I have 2 cards with (AT&T Universal and a Citi) changed their balance transfer fee’s BACK from 3% with no maximum, to 3% with a maximum of $99. This benefited me on my most recent balance transfer, and is in fact the only reason why I took the deal with that card. I had written to them to complain about this policy change and indicate that I will not use the cards for balance transfers or anything else because of that change.
Aside from the ones Kevin listed (Amex and Bank of America) anyone have credit card companies they avoid?
The only card I feel like I should avoid is Capital One. The reason being is that I have heard that their credit reporting method is inaccurate and incorrectly calculated. However I learned this after I already had the card, and to date I haven’t had any problems with my credit. Perhaps that’s because I always pay it off before I get a statement.
I also have a AmEx for my Costco purchases, Restaurants, and Gas. (Hey,.. 3-5% cash back isn’t too bad for purchases I’m already going to make). So far they’ve treated me very well. In fact, I totaled a rental car in Europe about 8 years ago that I had put on my AmEx. My insurance only wanted to cover half for some stupid reason, but thankfully AmEx covered the other half. As far as I’m concerned, AmEx is a Godsend.
The online system for the Chase Credit card even has an option to automatically pay the minimum payment each due date. I still get paranoid and double check it goes through on the day it says (and wonder if the due date is on a Sunday how that works).. but it is a great feature!
“There’s lots of people here who haven’t been bitten yet. Whether you think you’re using the cards responsibly or not has no bearing on the situation, these companies are crooks and they find ways to make you pay.”
Well, I assume you are honest person who would never behave in the way credit cards do. Would you be willing to lend people you own money under the same conditions as credit cards do: no collateral, no interest to those who pay balances in full , average credit card interest to those who obviously don’t have money and are obviously irresponsible (or they wouldn’t carry interest in the first place)? Think about it without emotions. What are the conditions under which you’d be willing to lend your own money? What kind of rewards in your mind would justify the risks?
Keep in mind that people who have money and don’t spend more that they can repay in full at the end of the month are those who are obviously good with money; those who cannot repay they are balances in full are those that a) overspend b) don’t have enough in savings to repay the debt. I.e. it’s high risk. Wouldn’t you want your rewards i.e. profit to justify this risk? Would you be interested to know if the person you are lending money to defaulted somewhere else? If this person suddenly became a riskier customer would you want to have higher rewards?
“I guess my question is, why would you want to do business with a company that is known to be fraudulent and who actively tries to extract money dishonestly from clients?”
You mean a company like your bank? All lending policies for Visa and Master Card branded cards are set by banks, not Visa or Master Card. Visa and Master Card get their profits entirely from merchants whether you use credit or debit. Interest and fees go to banks that issue these cards. The lending policies like the interest rate, universal default, double cycle billing, etc. for all Visa and Master Card branded cards are set by banks. Same banks that you deal with everyday for your deposits. So if you don’t want to do business with “these companies” then you should take your money from the bank and put it under the pillow. After all the banks use your deposits to lend money to others. This is why they can pay you interest. So you are indirectly profitting from loans and credit cards too – you lend your money to banks, banks lend your money to others, then pay you some of the profits back as interest.
“And the comment about using credit cards to invest in the market is the dumbest thing I’ve ever heard. There went all your credibility out the window.”
If this was what the poster above suggeste it would’ve indeed been stupid. However, I’ve not seen anything about investing in the market anywhere in this post. What people who play credit card arbitrage normally do is to put money in high yield FDIC insured saving account. This way they earn interest and have the money handy to repay the full balance at the moment’s notice.
“The online system for the Chase Credit card even has an option to automatically pay the minimum payment each due date. ”
It also has an option to automatically pay the full balance each due date.
I’d love Kevin to explain to me how one can get bitten if one uses this feature to pay the balance in full. Oh, and if credit card issuers are so crooked why they are even offering this option. Also, Kevin, since I have about 120K in liquid savings alone (cash/CDs) which is more than total credit limit on all credit cards combined, I sure am at risk… NOT.
BTW – I’ve used credit cards for over 25 years, have never carried a balance, and now have a paid off mortgage and savings too. Oh yes, I am sleeping with snakes and I am likely to get bitten. Yes, my net worth has fallen from 7 to 6 digits this year, but this has nothing to do with my using or not using credit cards. Oh, and guess what – I grew up in the Soviet Union. If I and especially my parents, who were 40-something when they came to the US with no English and no money, were able to figure out how to use credit cards without “getting bitten”, how come so many Americans who have no English problems can’t?
Bravo Kitty – WELL SAID!