Saturday, January 27, 2007

Consumers And Credit Card Practices Finally Get A Fair Hearing In New Congress

One major sea change in the new Democratic Congress is that consumers can finally get a fair hearing compared to the last 12 years of Republican rule since the 1994 "Newt Gingrich revolution". As late as 2005 the big credit card companies helped to write that year's "bankruptcy reform" bill. This past week, the same big credit companies were put under the microscope of the Senate's Banking Committee, chaired by ranking Democrat, Christopher Dodd(D-CT).

Testimony indicated that while credit companies earned about $79 billion in interest in the last calendar year, nearly $17 billion of this total was unfair and excessive late fees to consumers. In fact, the credit card companies really earn nothing from those who pay off their credit card bills in less than 30 days, really constituting little more than a short term interest-free loan for these persons and clearly acting as an encouragement for credit card companies to encourage persons who cannot pay debts off in 30 days or less, or who are likely to pay off late, but not default to be recruited by the credit card companies. In other words, persons with some risk, but not to the level of bankruptcy, are the best financial payoffs for the credit card industry.

The question for the Senate Banking Committee will be how to best protect consumers from unfair late fees and also to prevent consumers from allowing themselves to fall into credit card debt holes. But credit card companies will not want to give up their vast incomes that thrive on wall to wall TV ads that ask the question, "What's in your wallet?'. Chances are that many users of this and other credit card services may have a nearly empty wallet, but a mailbox full of monthly credit card bills to pay, and trapped in years of debt at steep interest rates.


At 3:13 PM, Blogger Rolfe said...

Paul, I agree that this will be a tough and interesting fight. Thankfully though, Senator Dodd isn't wasting any time in going after the credit card companies for their abusive and greedy practices.

I was particularly interested to hear about interchange fees. This is the biggest fee of all and the credit card companies prohibit merchants from telling us what it is and how much it costs us. Credit card companies raked in more than $30 billion in interchange fees last year.

Dodd said that he will look into this further, "These opaque fees, assessed on merchants, are passed on, in part or whole, to consumers who have no knowledge or understanding that a fee is even a part of the cost of bread or milk, or any other consumer product. I believe that this is another area that this Committee should examine,"

Bottom line, this is absurd that the credit card companies are passing this surcharge on to us and nobody has a clue it is happening.

At 1:06 PM, Blogger Paul Hooson said...

Thanks for the comment. I'm especially concerned with financial issues and their impact on the average American. It's too bad the way that credit cards work is that financial problems for users such as getting seriously in debt or late payments becomes a cash bonanza for these companies. Good financial behavior such as paying off debts in 28 days or so makes these companies no real money, and if anything is like a free loan. Even worse is the payday loan companies for persons stuck in even worse financial straits. There is a whole financial industry built on exploitation of persons with financial problems.


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