Credit Card Crisis: The Consumer Prospective
Credit card debt has been a huge problem in America for many years, with current years being the worst in history. Americans’ are now feeling the pain of mounting bills, higher interest rates, growing fees, and less money to pay them, while credit card companies are earning record profits. The problem has gotten so out of control, that in 2009 President Obama passed a bill in hopes of making credit card companies accountable and consumers happy. “On May 22, President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure, or Credit Card, Act of 2009 into law” (McFadden, 2009). Some of the laws began taking effect in August of 2009, while others did not become effective until February. Though well intended, this law has made little difference in a plight that seems unfixable.
This new consumer protection bill dictates at least eight major codes credit card companies must follow, or face penalties. In an article by Leslie McFadden, she breaks down these regulations for better understanding:
“Retroactive rate increases: Issuers can’t raise rates on an existing balance unless a promotional rate expired, the variable indexed rate increased or you paid late by 60 days or more. No longer will they be able to punish barrows for late payments on unrelated accounts under the practice of universal default or due to “anytime’ any “reason” clauses” (McFadden, 2009).
More advanced notice of rate hikes: Consumers get 45 days’ notice before key contract changes take effect, including rate increases” (McFadden, 2009).
Fee restrictions: Cardholders will not face overlimit fees unless they elect to allow the creditor to approve overlimit transactions. Issuers can’t charge more than one overlimit fee per billing cycle” (McFadden, 2009).
“Restricts card issuance to students: Consumers under age 21 who can’t prove an independent means of income or provide the signature of a co-signer aged 21 or older won’t get approved for credit cards” (McFadden, 2009).
“Ends double-cycle billing: The new law bans double-cycle billing, the practice of basing finance charges on the current and previous balance” (McFadden, 2009).
“Fairer payment allocation: A close look at your card agreement will likely reveal a clause that payments will be applied to lower-rate balances first. Not so anymore. The Credit Card Act requires above-the-minimum payments to be applied first to the credit card balance with the highest interest rate” (McFadden, 2009).
“More Time To Pay: Card companies must send statements 21 days before a payment is due” (McFadden, 2009).
“Gift card protections: The legislation includes protections for gift cardholders. The new law prohibits gift cards from expiring for at least five years. Issuer cannot access inactivity fees unless the card has gone unused for 12 months” (McFadden, 2009).
While these new laws and restrictions are helpful in protecting us consumers, there are steps that we must take to protect ourselves against high credit card debt. The government cannot protect us from bad spending habits and us; we must monitor and control these personality challenges on our own. If you cannot afford to pay for bills already, getting a credit card will not make this better- no matter how much we lie to ourselves. Additionally, ladies, if you want a new dress, or a new pair of shoes, do not buy them unless you can pay it off when the bill arrives. The key thing for cardholders’ to remember is, when buying an item on credit, we pay twice what the item would cost if paid with cash.
In addition to controlling spending habits and paying off purchases right away to prevent paying interest, cardholders must also read the companies “Terms and Agreements” with due vigilance. Skipping over the fine print can result in consequences and terms that the cardholder did not expect: these contracts (no matter how ridiculous), are indeed binding, while being costly to break. If something sounds too good to be true, it usually is. And paying off a credit card with another credit card will always end in disaster- advertisements lie. It is the consumer’s obligation to get out the magnifying glass and read the fine print, if we fail- we pay. Reading a contract thoroughly is always the responsibility of the purchaser, if it is not completely understood; wait to sign it until you speak with an attorney.
Although these precautions are great for us as consumers’ because we save money, it is harmful to the credit card companies and their profits. When we pay our credit card bills on time, or spend less, credit card companies make less money. When consumers find ways to stop the unfair practices of these companies, the companies find more ways to trick us into paying more fees, and higher interest rates, with shady advertising practices. And, while some of the new regulations help, the credit card companies find ways to retrieve the losses in other areas. The conflict between company and consumer will never be completely fixed, but there are ways that we can protect ourselves from unfair practices from unethical companies. There are three reasons why this conflict will always exist: money, money, and, wait for it…money. The credit card companies are in the business to make money, if profits fail in one area, it will be made up in other areas- this is a fact.
The credit card companies make the largest portion of their profits off those who do not pay their bill on time, and those who only pay the minimum balance. Deadbeat is a term usually associated with those who do not pay their bills on time, but, in the world of credit card companies, a deadbeat is defined as one who pays off their purchases on time. A person would never imagine that paying on time is a bad thing. In the end, our financial security is up to us, if we as consumers do not protect ourselves and are not vigilant about our financial future, no one is to blame except ourselves.
However, the issue as a whole is a collective fault, the consumer, the credit card companies, and the government. Consumers neglect their credit and finances, spending money they do not have, the credit card companies drain consumers with interest, fees and enabling the credit challenged, and finally, the government needs to set the example and penalize the credit card companies for wrongful behavior. Will this issue ever be fixed? No. Just as with any other issue, unless all parties are in agreement on the solution, no solution will be satisfactory. It seems that no matter which side does what, the other is not happy- there are no victors’. The only thing consumers can do is control spending, be card smart, read carefully, and do not use credit cards for non-emergency purchases or transferring balances.
In conclusion, the issues of America, whether credit card or otherwise, is a collective problem, and moreover, a collective solution. What one of us does effects the other, no matter how small the action; we must remember this when making choices, these choices will affect others. We consumers must be aware of our own financial matters and do not spend money we do not have. In business, each party has its own responsibility and must take the responsibility very seriously. Finally, all of us must work as a collective to combat unethical behavior on each other’s part, and keep the American economy from ruin. If America fails, it is a collective effort.
McFadden, Leslie. (2009, August 20). 8 Major benefits of new credit card law. Bankrate.com.