Saturday, May 16, 2009

The Real Problem with Credit Cards: Cardholders

Credit-card companies, though, may not be the only ones we need to be protected from. Every penny of Americans' nearly $1 trillion in revolving debt started with someone — some individual person — whipping out a piece of plastic and making a decision to use it. We could consider that free will and just call it a day, but there's plenty of reason to believe the story isn't so simple. There are piles of evidence that people are bad decision makers when it comes to how they use credit cards. Even when presented with full and fair information, they often make decisions that are not in their own economic best interest — a reality only partly taken into account by the new rules and pending legislation.

~Time Magazine

13 Comments:

At 5/16/2009 4:08 PM, Anonymous Anonymous said...

Exactly.

Many people (individual citizens, members of Congress, et al.) are unwilling to take responsibility for their own actions. If you're an adult, act like one and take responsibility for your actions...including your spending.

-John

 
At 5/16/2009 5:49 PM, Anonymous NY said...

Buy today and pay tomorrow isn't that our motto? Insatiable appetites to prove we are somebody or something. Wouldn't it be great if we all lived below our means! Instead of a BMW a VW--- demonstrating financial responsiblilty. Yes even saving the extra for retirement or whatever.

 
At 5/16/2009 6:04 PM, Anonymous Anonymous said...

As my wife used to say, "Put it on plastic, that way you don't have to pay for it"

Hydra

 
At 5/16/2009 6:06 PM, Blogger Robert Miller said...

The 2004 PBS Frontline episode about credit cards was a hatchet job against the industry, barely placing any blame on the people who misuse credit cards. It portrayed the unscrupulous actions by a few banks as representative of the whole industry. It showed absolutely no understanding of credit risk.

The episode featured Elizabeth Warren, the moron Harvard Law professor who claims she can't understand a credit card agreement. Then there was Chris Dodd who took two sweetheart mortgages from Countrywide as a Friend of Angelo. It also starred Elliot Spitzer who used credit cards, wire transfers, and public funds to procure prostitution services.

Warren is now Obama's chief adviser on credit card reform. Maybe she ought to go back to law school and retake contract law. Dodd is still dodging punishment for the bribes he took.

I'm not saying the actions of banks are pristine, but borrowers are culpably ignorant. Maybe we ought to require people to get a financial literacy license prior to allowing them to get a credit card, car loan, or mortgage.

 
At 5/16/2009 6:07 PM, Anonymous Anonymous said...

My goal in life is to manage my credit such that my last check bounces.

That way, I win.

Name withheld from creditors

 
At 5/16/2009 6:19 PM, Blogger The Chinese Capitalist said...

Are people irrational? When those who save and spend wisely are vilified as part of the "rich", and are order to pay "their fair share" while those who spend everything and save nothing are treated with kindness and showered with government programs, who are the irrational ones?

Now that Social Security might be means tested, I think it's pretty clear. The stupid and irrational people are the ones who save, the geniuses of our society are the ones who borrow and spend as much as their credit will allow. They get to enjoy what they've spent while someone else pays. It is simply irrational to save.

 
At 5/16/2009 11:23 PM, Blogger sethstorm said...

That doesn't excuse their actions, however. It sounds like a defense of it, though.

While there are bad apples amongst cardholders, card companies are worse. Given even the most dutiful citizen, they're only going to try to trip them up.

Even when presented with full and fair information,
That hasn't existed, ever.

few banks as representative of the whole industry.
If they control the industry, that's an accurate example.

It also starred Elliot Spitzer
...victim of a Wall Street hit job.

 
At 5/17/2009 12:32 AM, Blogger bobble said...

"There are piles of evidence that people are bad decision makers when it comes to how they use credit cards."

i suppose the "good decision makers" are the ones that have been filling my mailbox for the last 10 years with pre-approved credit card offers for my cat?

boo hoo, the poor CC companies!

deadbeats are nothing new. it's not like the CC companies don't know precisely how many people will pay and not pay. they make a calculated decision to issue cards to unqualified consumers because they know, even when some default, they'll take in more money overall from these dopes.

the proposed rule changes are nothing more than requiring CC companies to clearly spell out terms, and preventing CC companies from inserting a clause that allows them to change terms whenever they feel like it.

sorry, no sympathy here.

 
At 5/17/2009 3:42 AM, Blogger Robert Miller said...

@Seth: Spitzer's fling with a prostitute was a "Wall Street hit job"? You are mentally ill.

@Bobble: Pre-approved does NOT mean approved. The bank can still decline credit, offer a low credit limit, offer only a high interest rate, or issue a secured card.

Some banks do cast a wide net counting on interest payments to overcome defaults. That's an issue of concern to bank stockholders and regulators, NOT borrowers. It's a favor to borrowers, not a basis for complaint, to receive credit. Being given a credit line doesn't entitle you to borrow beyond your means any more than issuing you a drivers license entitles you to drive your car as fast as you want.

For the sake of protecting our banking system, the practice of issuing credit to the uncreditworthy should be corrected, but the proposed legislation does nothing to address that. It is removing the safeguards banks have to raise interest rates when they determine that a person presents a higher credit risk by virtue of late payments and other credit defaults. You are beating the same straw man that Elizabeth Warren, Obama, Dodd and others are beating. You all either have a complete lack of understanding or are in denial about what a "revolving line of credit" really is. You don't understand the concept of credit risk.

As for bailing out these risk-taking credit card banks, no one is more livid than I am. For the record, 100% of Republicans in the House voted against the bailouts and all but 3 in the Senate did. So now you know who to blame.

 
At 5/17/2009 5:25 AM, Blogger sethstorm said...

@Seth: Spitzer's fling with a prostitute was a "Wall Street hit job"?
The way it was handled, yes. He was just too effective.

Wasn't he acquitted of at least one of the more serious charges?

Back to topic:

You would be excused if those "bad apple" cardholders were without counterparts in the banking realm. The only difference is that the banks get bailouts that only considered "socialist" when someone wants them in Main Street.

 
At 5/17/2009 6:53 AM, Blogger Jeff Herron said...

I always thought the credit card was a great thing, managed correctly. Pay it off in full each month, and it was like a free short-term loan every month.

But when the bailouts happened, we ditched our one credit card with Capital One. I don't want to have any business dealings whatsoever with banks involved in theft from the taxpayer. (I'm letting the FDIC thing slide for now, since I don't know of a bank that *isn't* FDIC insured.)

At any rate, if people budgeted, overspending would not be such a great concern. But budgets aren't nearly as sexy as new federal legislation!

 
At 5/17/2009 7:19 AM, Blogger 1 said...

sethstorm says: "While there are bad apples amongst cardholders, card companies are worse. Given even the most dutiful citizen, they're only going to try to trip them up"...

LOL! You mean 'trip up' citizens who apparently after years of taxpayer funded education in the government run madrassas still can't read and understand the contract that goes with the credit card or can't ask someone who does understand it? Oh please!

BTW your use of Elliot Spitzer wasn't your best choice...

bobble says: "deadbeats are nothing new. it's not like the CC companies don't know precisely how many people will pay and not pay. they make a calculated decision to issue cards to unqualified consumers because they know, even when some default, they'll take in more money overall from these dopes"...

So that's reason enough for people who can't afford to go crazy with plastic to do it?

 
At 5/18/2009 11:15 AM, Blogger misterjosh said...

I think it's definitely a team effort. Unscrupulous CC banks on the one side, and incompetent cardholders on the other. I've definitely been an incompetent cardholder in the past.

I do think that it's particularly sucky that the CC Banks can ratchet up the interest rate on a whim.

One spot where I think CC banks could improve is that there needs to be clear "punishment schedule" for infractions aside from the fine print pamphlet.

 

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