The Demonization of Credit Card Companies

by Kevin on May 21, 2009

(Photo by Omar Omar)

Yesterday both houses of Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD). It will soon be sent to the desk of the President for his approval.

I said yesterday that I’m all for regulating abusive practices in any industry. Yet it does make me wary that the government wants to get involved with literally everything. I still believe in personal responsibility.

Which brings me to today’s topic. I’m hoping I don’t get burned at the stake. I read this amazing article over at brip blap and was inspired.

Why Are We Focusing Only On Credit Card Companies?

Credit cards are just like any other business operating in America today. They are profit-maximizing entities designed to provide income and profits to their shareholders (owners). They provide jobs for thousands of workers across the nation.

Oh, and until recently, it was seen as a good thing to be financing your life, career, or small business on a credit card. Funny how quickly things change.

Have some credit card companies used deceptive and abusive practices to increase profits?

Of course. Have some college students cheated on exams? Of course. Have some baseball players used illegal substances? Of course.

It is really easy to use one or two examples in an industry to point the finger and bring the mob of angry protesters to a company’s door. Again, I’m not saying it isn’t deserved in some cases.

Call me naive, but I just don’t believe that every single person with credit card debt was a victim. There are some individuals with piles of credit card debt that are also surrounded by new televisions, new computers, new clothes, and new kitchen appliances. They made choices. Debt today, stuff today.

Let’s Lynch Other Industries While We Are At It

So if we’re going to purge America of all things “evil” let’s take a look at some other industries:

  • soda companies
  • alcohol companies
  • cigarette companies
  • unhealthy snack food companies
  • gambling organizations

Hopefully you understand where I’m going with this.

Why not soda companies? I am surrounded by people at work that start drinking “Diet” Coke and Dr. Pepper at 7:30 in the morning. They equate it to coffee. Yet sodas (along with many other factors) have led to an increase in diabetes in this country — and we’re addicted to it. Carbonated water with sugar syrup in it. Mmmmm.

Don’t get me wrong, I love a good Coke or Barq’s root beer. But these things are bad for me. So why doesn’t the government shut them down, too?

Beer isn’t terribly good for you either and has been implicated in thousands of DUI instances across the country. Drivers that drive under the influence can kill innocent people. We should ban beer and wine, too.

I Don’t Want the Government to Protect Me from Everything

Here’s the kicker: I’m responsible for myself. It all goes back to personal responsibility. If I use credit cards in a dumb way, then I deserve to pay interest on the purchase. If I use soda the wrong way then I had best understand I’m facing diabetes and being unhealthy squarely in the face. If I use cigarettes I must understand that I am increasing my chances of lung cancer.

What’s odd is that in some instances instead of banishing the industry entirely our government decides to profit from it as well! Let’s just throw a hefty tax on every pack of cigarettes and ignore the other consequences of allowing them to exist. Where there is high tax revenue the government usually opts to look the other way. I’m sort of surprised it didn’t happen in this case as well.

I use credit cards every day. I carry absolutely no cash with me. I also don’t overspend and we stick to our budget.

What’s the key for me? Personal responsibility – a dying concept in America.


Bob K May 21, 2009 at 7:12 am

Bravo! I’ve been in over my head with credit cards and of course felt angry at credit card companies, but deep down I knew the problem was not them, but me and my spending habits. Credit cards provide a lot of value and convenience, but they are a tool, and a fool with a tool is still a fool.

While credit card companies have been pushing the edge of reasonable practices and some stricter regulations may be needed, it really is up to each of us to manage our finances (and other aspects of our life) in a responsible way. We need to own up to our part in our credit excesses rather than look to the government to mandate a top-down, one-size-fits-all solution. We might not like the solution we get (don’t touch my beer!).

Katie Wettstein May 21, 2009 at 7:22 am

I totally agree with you with the personal responsibility thing. I think the main thing that I see that doesn’t really work with your comparison to other types of companies is that if you smoke a cigarette, it doesn’t all of a sudden become more carcinogenic in the midst of smoking it like rate changes might occur with credit card companies. If you slip up and drink a “non-diet” soda, the other brands of diet sodas you subsequently drink will not then become the caloric equivalents of non-diet sodas (universal default). Just throwing some stuff out there; I am nowhere near being an expert on this stuff! I do think there needs to be more ownership of individuals’ actions – ownership by said individuals, not the government. I think something needed to be done about the unethical practices of the cc companies, but I don’t know how it would have happened without government intervention.

[email protected] May 21, 2009 at 7:42 am

Yeah! I like it. I mean sure, the credit card companies did some shady things to maximize their chances at a profit, but even if they’re doing those things they don’t make any money if we’re all responsible and pay the balance in full every month. I’m also frustrated with people who can’t take responsibility for their own mistakes and have to find someone else to blame it on. When did we become a nation of people entitled to everything and responsible for nothing?

Kip Nickell May 21, 2009 at 7:54 am

I read through the changes and I agree that they should all be “best practices.”

As opposed to big government regulating the industry, I think a better solution would be for a private oversight company. Much like Underwriters Laboratories certifies pretty much any electronic device (UL symbol on all electronics – flip around that LCD monitor to check… then look at your toaster at home to verify), if a company would sponser and promote credit card companies that have fair policies, I think there would be more trust in the regulations. Look at how powerful the Fair Trade symbols have become on groceries. This isnt a government policy, but it has massive impact on the sales of products.

That said, I think laws should only be made to keep one man from infringing on another man’s rights. Are the credit card companies infringing on my rights by doing these underhanded maneuvers to try and maximize profit? I haven’t made up my decision yet on this. Are the companies who call old people and tell them they have won cruises infringing on the suckers’ rights? I think everyone has the right to say “no” which is why I think these laws are ridiculous.

B7 May 21, 2009 at 8:32 am

Great post. I agree 100%.

Sure, it’s true that credit card companies will do anything they can to encourage people to spend and then pay it back as slowly as possible. But is this evil? No, they are simply trying to make as much money as possible. It’s called capitalism.

Just because most people are perfectly happy to buy now and pay later does not make the credit card companies bad. Each person gets to take responsibility for their own spending, borrowing and financial future. People are already too dependent on the goverment to take care of them financially.

MoneyEnergy May 21, 2009 at 9:33 am

(I want to be mostly responsible for myself too, but there are a few places where I can’t be, like under anaesthesia and in the good graces of medical technicians, etc..) But I agree with the overall argument here: it’s why I don’t want my investment dollars going towards soda and alchohol and smoking companies – to me, that’s being responsible. I don’t drink soda and don’t want to invest in it either, etc. The credit card companies are of course trying to make a profit, that’s what all companies must be about… anyone and anything can start up a company: so of course, it’s up to us to “vote” as consumers of their products and services – buy it or not, use it or not. I guess I’d want to find a middle road where everyone considers themself personally responsible, yet there is also room for social systems to prevent and protect people from other harms. One doesn’t have to exclude the other. We should be as responsible as possible.

Brian DR1665 May 21, 2009 at 9:44 am

I agree wholeheartedly with the personal responsibility vibe here, but I have to ask, doesn’t card companies reducing credit limits or otherwise altering rates on those members who have been responsible also play into this equation?

Don’t get me wrong, the devil’s in the details and there’s probably something in the fine print allowing them to do so (a blanket “We can change anything we want at any time with no notice to you” clause, perhaps), but I’ve been hearing numerous stories from financially responsible friends about how the card company just slashed their limit by 50%, changing what had been a less than 30% balance into well above 50%. Doesn’t seem right.

Just a thought. Dealing in sweeping generalizations is best left to the mainstream media. I hate to see the government getting involved in industry after industry, but if mindless, irresponsible media puppets will cry out for help by the millions, then we’re going to get more and more of this sort of thing.

Meh. I’m gonna go buy a pack of smokes. Since they cut education spending to balance the state budget, the kids need all the tax revenues they can get these days…

PT Money May 21, 2009 at 2:13 pm

I agree completely. Too much govt. The CC companies will find a way to either work around the regulation or get the same results with different means. Govt regulation can’t keep up, or be effiient enough to do a quality job of watching the regs.

Corporate Barbarian May 21, 2009 at 4:09 pm

Personal accountability is a dying virtue. Everyone is looking for a bailout, and the government is all too happy to step in with new legislation. I don’t want to live in a world like 1984 with Big Brother taking care of my every need. I can fend for myself, thank you.

michele May 21, 2009 at 7:19 pm

I just want to be able to pay my cc balance at the agreed upon rate. I held up my end of the contract. I’m glad that when I played softball while growing up the foul lines didn’t move in the middle of the game.

Suzie May 21, 2009 at 11:31 pm

The difference is that drinking too much soda (or caffeine, or smoking) damages yourself. You will incur the health issues and the hospitals will take your money.

Abusing credit cards, however, affects the economy. Which affects everyone. And thus needs to be better regulated. Personal responsibility is a fine thing, but not everyone has it, and the government has to (try!) and prevent large scale credit abuse.

Todd May 23, 2009 at 5:16 am

I hate government intervention, but no one else would step up and stop the abuse.

If I’m late on one credit payment, do I really deserve for all of them to double their rates (or more) overnight? Happened to me. One card went from 9% to 29% when I missed a payment on another card.

I deserved to pay the late charge, and did. That should be the end of the punishment.

In addition to personal responsibility, we should also be talking about usury. A generation or two ago (back when personal responsibility was still alive and kicking) usury was illegal. Now I have a hard time finding anyone who knows what it means…;-)

Abigail May 26, 2009 at 3:00 am

Yeah I have to agree with some of these later comments.

I agree that we all have to be responsible individuals. This government coddling isn’t great. BUT…

Credit card companies being able to change contracts at a moment’s notice is a little sketchy. Still, I was willing to say to people, “Hey, you signed the contract. Suck it up or deal only in cash!” (I’m beholden to some credit card debt, incidentally, so I’m not speaking from a lofty position of being debt-free and able to do without credit cards completely.)

But things like applying interest rates to PAST balances because the person missed a payment or was late with it in the present?! That’s a little terrifying. And when savings rates are at 0 percent, I would love to know why credit card’s lowest general rates are still 9.99% plus prime.

Again, I signed on for this when I took on the card. So, to a certain extent, I think we all need to stop crying to mommy.

But I think mandating the time between statement and due date is a good move. As is barring the company from charging for internet payments. (I’d never even heard of this!) Otherwise, the company could just claim not to have gotten the payment. One time, my payment just never showed up. The post office won’t do anything about it unless you insure the letter. So I coughed up $30 because the post office made a mistake. Fun.

Also, NDP, I have to take issue with some of your examples. Because the government DOES attempt to regulate several of those industries because of their harm to individuals. I’m not so sure about some of them. (Soda? Really? I don’t drink the stuff but for cryin’ out loud!)

On the other hand, cigarettes SHOULD be taxed. Because there are plenty of folks depending on the government for help paying medical bills from lung cancer or emphysema. (Some of these folks have never smoked a day in their lives. So I definitely consider that a fair way to protect us.) If it helps deter smokers, so much the better.

Alcohol is also taxed at a pretty decent rate.

Snack foods? They have to disclose all this health info and the FDA decides what items they can and can’t have. Recall the trans-fat debacle of late? How about the uproar about corn syrup? Here in Washington, all fast food joints have to display full nutritional information some place easy for customers to see (and hard for them to ignore).

Gambling? Uh, the government does protect us from gambling. Most states only have gambling on Native American reservations, which is outside the government’s purview. Meanwhile, all lottery ads now end with information about how to get help for a problem with gambling. (Similarly, you won’t see any cigarette ads on TV. Another way the government legislates. To protect kids from being swayed, I suppose. Oh and don’t forget how some communities are banning snack foods and sodas from schools to combat obesity/diabetes in kids. Another way our government is actively working in those fields.)

So, NDP, I think most of your arguments are for naught. The government is already in our lives in many ways. Being a knee-jerk Democrat/liberal, I’m relatively okay with this. I think it can go too far, to be sure. But the thing about sin taxes is, well, people won’t give them up. Find a way to tax toilet paper, people will find a way to make do with less. Find a way to tax alcohol, people will grumble… then buy alcohol. Strangely, it’s the luxuries that can stand to have higher prices.

That said, I think this government plan is both long overdue and also too coddling. It definitely reinforces the idea to the American consumer that he’s not responsible for his own actions. That we can cry “redo” and it’s all good. Whether it’s people’s lax attitudes about bankruptcy or, in this case, complaining when a credit company does exactly what it says it could do. (Mainly because, like most of us, the American consumer didn’t read the booklet full of fine print that was sent with the card.) I think that many of the practices were not somewhat sleazy. But so are plenty of business practices. It’s the nature of capitalism. Businesses will get away with exactly as much as they can.

Still, some good comes out of this law. Like the ability to get a statement in the mail and have a reasonable amount of time to pay it before being slammed with fees and higher interest rates. Like not having a higher interest rate applied to past balances because you screwed up in the present.

Like most legal things, it’s a mixed bag. Which may be as good as we can hope to get.

Kevin May 27, 2009 at 8:00 pm

@Bob K: At least you’re honest! Don’t touch my beer, either.

@Katie: Yea the analogy was a stretch… but it was the best I had.

@Jeff: I think the answer to your question is long and complicated. Not sure when America as a society gave up personal responsibility, but I definitely think it has happened.

@Kip: I like the best practices idea, but it is too late for now…

@B7: It is called capitalism. That’s why it bothers me. People made purchases of their own will and power… not many were “tricked” into this. It really irritates me.

@MoneyEnergy: Interesting point on socially responsible investing. That’s the kicker with capitalism… I would invest in a soda company because I know people are going to continue to use it despite what might be best for them. Same thing with credit cards. Of course people could use these firms’ products responsibly (or in moderation), yet they choose not to.

@Brian: You are right that they have made changes, but it is in the fine print of the card agreement that they can essentially change whatever they want. That having been said you shouldn’t be running a balance on a card, and if you didn’t, the rate changes wouldn’t do much to you. The credit limits definitely could especially on the small business side. Good point.

@PT Money: That’s the trouble. There are some things that I think do need to be regulated — and the shadiest of shady credit card practices belong in that. But how about… I don’t know, some of the things that got us into the financial crisis like allowing “banks” to leverage to 30x assets, or the credit derivatives market, or… of course, I could go on and on.

@Corporate Barbarian: Yea, just grab your big club and attack them! 🙂 But I concur.. sadly.. it is a dying virtue. But we incentivize people to now want a bailout. I could stop paying on my mortgage, adjust my income, and say hey I need to adjust my mortgage interest rate down through one of the government programs. But I won’t — I’m going to hold up my end of the bargain.

@Michele: While true, and I can see the benefit here, I’d have to ask you why you have a credit card balance in the first place. Using your analogy, you shouldn’t even be in the batter’s box.

@Suzie: Ehhh… I think that’s a bit of a stretch, but I’ll go along with your point for now. I believe in capitalism. Sure you might be able to get $30,000 in credit and just go blow it without paying a cent back — file for bankruptcy, etc. But then you’re pretty much screwed (and not just in finances since many firms now look at your credit score when they go to employ you, or your car insurance, or…)

@Todd: As I said I think the purely insane practices should be curbed, but as with anything with the government I think it is REALLY easy for them to hop, skip, and jump past the line. Once the government has a beachhead on something it isn’t going to go away — agencies are created, jobs filled, papers printed, etc.

@Abigail: You can read my responses to all of the others for most of your points, but to respond to some things you said.

RE: regulating some of those industries, you’ll note that in smoking the government could just say wow, smoking is terrible, and ban it. But they’d rather earn the tax revenue off of it. Why should the government wanthere that is not the case. Most lotteries only send 30-40% of their net revenues to education programs all the way taxing the dumb and poor who play it.

I could care less if you are liberal or conservative, but I can see how that would make you more comfortable with more government. I, on the other hand, am not a fan of more government. I believe in the market and individuals (or groups of individuals in non-profits or churches) rather than government.

I would hope we would wish for more than a mixed bag, but I suppose that is the best we can expect from our political system that is dominated by sound bytes, media spin, and lobbyists.

And that, my friends, makes me the most sad of all.

Steve @ brip blap May 28, 2009 at 7:42 pm

I’m a bit late to the party here, but thanks for referencing my article and -obviously – I agree with you 100%. I don’t think that the credit card companies are blameless, per se – no more than the tobacco companies are – but you are right that at some point we do have to take personal responsibility for our actions. Expecting the government to regulate everything will eventually lead to a ban on sleeping late, etc.

I’ll also add that I’m a fan of more government interference but less government regulation. Banning smoking? No. Taxing the hell out of it? Yes. Let the government manage through penalty and rewards. Credit cards with horrible APRs and fees? Ban them, no. Make a billion disclosures required before granting them? Yes.

Kevin June 5, 2009 at 8:28 pm

@Steve: I wonder if the American populous would really put up with something like a ban on sleeping late. A part of me says they just migh take it in stride.

I still think the line with government interference is really thin… so easy to jump into regulation. Plus the ability to tax heavily just to dissuade use of a product… unless it is really, really bad… doesn’t sound like solid capitalism to me. But that’s just the tax issue.

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