Monday, March 1, 2010

The Great Credit Crunch

The Great Credit Crunch

This week we finally get to the start of the new Credit Card laws. I'm pretty sure very little of you actually care about what this is, but if you ever owned a credit card or have any amount of debt I would say that you need to watch this PBS special about the whole mess. Yes, it's a mess. It's also a trap. Haven't you ever heard of the Card Game?

I really implore you to watch the Front line episode with this simple click.

If you don't have the time to view that, I would suggest you do so. You'll be thankful that the new credit card rules came into effect. Stuff like Ex-CEO of Providian saying things like "The banks were charging borrowers a higher interest rate to give the wealthy a better rate.

Basically nothing you didn't know if you were an informed consumer, but let's face it, your average consumer is NOT informed about all this. Why else would we have to have new Credit Card laws enacted? It's worth watching, if only to know full well that there's no a regulatory agency in the Federal government that cares about helping you.

Apparently, of all people, Timothy Geithner had to yell at the regulators to start worrying about consumers. The problem, as the program details, is that the regulators are in the business of keeping the banks solvent while supposedly protecting consumers, and anything that gouges consumers helps the banks, now guess which has bigger/better lobbyists (and is discussed in the episode)?

The whole episode is nothing but a bunch of finance people saying that everything they're doing is right, correct, and at the end the Ex-CEO guy says that no matter what law you come up with "bankers will find it out" in order to get around it and make money. And even with the new Credit Card laws, the last nine months have been nothing but the CC companies trying to skirt the law and sneak in last minute increases.

There's even one asshole, the guy who came up with and holds close to his chest the ubiquitous overdraft "non-contractual courtesy" (that's important btw) to make sure it doesn't fall under Truth In Lending Act, goes on after wards to say that the federal government should stay out of the banks entirely to let the free market reign. He seriously dead pans this in such a way to make it sound like this whole recession and TARP never happened in any way whatsoever.

While you may say that more risk = higher rate off the bat, it never works like that, and the rates escalate the second you make a mistake. A debt of a few hundred dollars balloons into thousands, and the company complains that it can't make money, when really they make the people so in debt that they have to declare bankruptcy.

At one point there's even an interviewee that states the entire system is hurting so badly right now that the banks are trying hard to charge the people who are still paying as much as possible in order to get money while they can. The idea of high interest makes sense if consumers are deterred by it, but they aren't, as the US Military proved by prohibiting soldiers from being able to use Payday loan centers.

People are dumb, bankers know this, and they exploit it to levels of systemic risk. This episode just shows how the home equity / refinancing thing exploded so big for normal non-subprime people who needed to get out of their credit card debt that resulted from living beyond their means. The bankers are resisting anything that might limit the size of the overall lending, but as the Center for Responsible Lending guy put it, that's the whole idea. As Michael Ruppert put it, the entire system is premised on infinite growth, it's a giant ponzi scheme. Things don't work that way.

Again, the whole more risk = higher rates thing is utter bullshit. That just isn't how it works and all you guys paying off your credit cards each month aren't helping your credit rating in the slightest. You're definitely doing the 'right' thing. You're being responsible and showing you're a low credit risk, but banks give no fucks about that stuff anymore.

If you want lower rates and higher limits, leave a small balance on your card each month. It's the traditionally irresponsible thing to do but if you don't mind paying small finance charges it can work to your advantage, especially if you're trying to build your credit rating.

look how happy she is

I once had a BOA card with a fairly high limit and just leaving a few hundred bucks on the balance each month, I've seen 2 small rate drops and 20% limit increase within a year of having it that I didn't even ask for. What does this mean? They saw that I was being irresponsible and wasn't paying in full and they wanted to give me more credit so that I could amass more debt and have to pay them more interest. See how this is working out?

It's a backwards system that rewards bad habits but those bad habits make banks more. So of course they'll encourage them. Don't worry, once they figure out that you're above your limit or getting close, before this new credit card law the banks were able to just randomly slash their limits. Even if they always paid on time every month they were able to do this and since the balance is higher than the credit limit, the banks were able to charge a fee on top of that.

In the interviews PBS talks to the guy who came up with the entire idea, and he flat out admits that the only way "free checking" can work is with the "non-contractual courtesy" (overdraft) fees. They were specifically engineered to be outside the Truth In Lending Act, and they're part of your checking account agreement. The entire thing is a courtesy, and courtesies can be charged at any rate they want. Theoretically, if you went over by one cent, they could charge you $1 million and not break any law (though you might have an unconscionably argument, so they try to keep it "reasonable").

He goes on to admit that free checking wouldn't exist if it weren't for these fees, but that the free checking gimmick is hilarious successful. Americans, in his words, love nothing more than "free" and "all-you-can-eat". I got a call from my credit card company a couple of months ago when they first announced the CC law changes. The company wanted to know if I still wanted to be able to charge over my limit, you know, in case of emergencies. Did I want to keep this useful privilege or did I want to have my card publicly and embarrassingly declined once my limit was reached? Are you sure you want your card to be declined?

My answer: "Actually, now that you mention it, I barely use this card as it is, what's the process for canceling the card? Can you initiate it on your end? He stuttered and eventually told me to call a 1-800 number to cancel the card then hung-up. Also, the question "Will that be debit or credit" just gets me to shutter. I mean, I like to pay everything in cash. I really do carry cash, in case you ever wanted to rob me, It's really a matter of not trusting the credit card industry in the slightest because of their practices.

My rate was jacked up on my AmEx card for no reason other than "we're losing money so we need yours". I never had a late payment and paid it off every month. You know what I was? I was a banks worse nightmare. How did I sleep at night knowing that I was denying them some sweet sweet profits by not being late and incurring surcharges? Much like American Express, if you're banking with Bank of America you are supporting one of the shittiest, shadiest and most awful institutions in modern finance

I have stopped banking with Bank of America, as should you. But when I realized that they and other banks like Chase were bending the fundamental laws of time and space in order to charge me extra in overdraft fees, I decided that I did not want to bank with any bank that existed in 5 dimensions. So I went with a local credit union. They handle my money and even provide me with other services with a smile that those big banks couldn't. Frankly I'm much happier today because of it.

Just think about the whole bail out. The banks borrowed the money from the tressureary at 0% apr, they turn around and lend it to you at 30%... how is this not completely wrong in every possible way? I have credit cards, but I would rather not touch them and usually keep them out of my wallet and in a desk. I really don't want to pay for borrowed money. Especially when the American public is getting fucked so badly in this exchange.

You currently stuck in credit card woes? Here's some Money tips!

Tip 1: A good way to get collection agencies off your back is to move without setting a forwarding address. Sick of constant phone calls from them? Try allowing the phone company to shut off your service for a week. They'll call, get a dead line and take it off their systems.

Tip 2: Sick of being treated like a second class citizen by your bank? Worry yourself no more! With this one easy tip, you'll start receiving great customer service from a savings institution that works for you rather than against y'all! So: the next time you find yourself frustrated, simply try this: earn over $100K a month and put most of it in your bank

We should abolish all private banks (but allow credit unions to continue operation), establish not-for-profit national banks, which will still make money, but that is not the objective. Everyone wins. Well, except bankers, but fuck them.

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