Posted on 11/21/2004 6:56:25 AM PST by A. Pole
When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corporation had a happy and profitable customer.
[...]
Mr. Schwebel, 58, a semiretired software engineer in Gilbert, Ariz., was not pleased that his minimum monthly payment jumped from $502 in June to $895 in July. But what really made him angry, he said, was the sense that he was being punished despite having held up his end of the bargain with MBNA.
[...]
Invoking clauses tucked into the fine print of their contract agreements, lenders are doubling or tripling interest rates with little warning or explanation.
[...]
People like Mr. Schwebel, [...] make up the profitable majority of the 144 million Americans who have general-purpose credit cards. To a degree, they subsidize the 40 percent of credit card customers who pay in full each month without incurring any fees or charges.
[...]
The case that opened up the industry came in 1978 when the Supreme Court decided that a bank could charge its cardholders any rate allowed in the bank's home state. Major banks swiftly moved their credit card operations to places like South Dakota and Delaware that had removed caps on interest rates. There is no federal limit on consumer credit rates.[...]Banks began to innovate and compete. They cut the required minimum monthly payment to 2 percent of the balance, from 5 percent, to encourage customers to borrow more and stretch out the repayment.
[...]
Mr. Gould said. "What are they going to start charging people, 35 percent, 38 percent? [...]"
But Andrew Kahr, a financial services consultant who devised some widely used consumer-lending strategies, including the zero-percent teaser rates, said consumers should be able to recognize that the business is a "game of chance."
[...]
(Excerpt) Read more at nytimes.com ...
Free market/usury bump!
The bank can charge what they like. Moral of the story: pay your credit card in full each month or pay off as much of the balance as you can afford to avoid a sudden spike in the minimum payment amount due.
Pain is only caused to those stupid enough to not pay a credit card off every month.
There's sure a lot of details missing in this story. I'm sceptical, considering the source, NY Times.
Legally, perhaps, but certainly not morally. There's a reason loan shark's practices are illegal, you know. This is certainly on the verge.
I don't want to figure what his debt is from those huge payments.
Its been said recently that with the deficit will come higher interest rates, imagine the many people who bought their homes
under ARM.
Wow, you're just a ray of sunshine aint'cha?
Exactly.
I received a call from Discover. They were offering a low interest rate for balance transfers or some such thing.
I informed the young lady that we hadn't paid interest in many years because we pay our balance monthly. She was shocked, in a bubbly way, and offered her congratulations.
I guess we're in the minority when it comes to credit cards.
"Invoking clauses tucked into the fine print of their contract agreements"
That's why it pays to READ the fine print and try to commit the bank to LOCK your interest rate.
Even tho you may be shut out of future rate reductions, you can be assured that your payments will not rise.
So you believe that usury is a good thing?
"If he beget a son that is a robber, a shedder of blood, and that doeth the like to any one of these things,
And that doeth not any of those duties, but even hath eaten upon the mountains, and defiled his neighbour's wife,
Hath oppressed the poor and needy, hath spoiled by violence, hath not restored the pledge, and hath lifted up his eyes to the idols, hath committed abomination,
Hath given forth upon usury, and hath taken increase: shall he then live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him."
(Ezek:18:10-13)
The credit game is there for the taking but first you must get rid of any assets. I had a Visa Card at 8% with a limit of $10,000, located in Virginia. The were continually pushing life insurance, credit protection, or insurance on the unpaid balance. The last bill I received their interest rate was up to 32%.
But, you're right. Anybody who's stupid enough to trust a bank deserves what they get, right?
Back when my bank handled it's own credit card accounts, this sort of thing never happened.
If you don't think usury is a good thing, don't take out any loans, of any kind, including credit cards.
It's your choice.
Anti-moral: Pay with cash, then you know if you can afford it. Adding 22% annual interest to the purchase cost is ludicrous.
Anybody that carries an unsecured credit card debt and only pays the monthly minimum is at the mercy of those cold, heartless bean counters/grabbers.
And "mercy" is a word that isn't in their vocabulary.
I can not imagine being foolish enough to not lock in at those historically low rates. There must be a reason why adjustable rate mortgages are still out there, but I can't see it.
It's good if you pay the balance due in full each month. If you carry over a large sum on a regular basis, you're paying a ton of interest - whatever the rate.
I agree. The man in the article had to have a good $10,000 on his card to have that kind of minimum monthly payment. And I doubt that's his only credit card. The problem is that he allowed himself to get into that much debt in the first place by purchasing things he couldn't actually pay for at the time.
If you have a very high degree of confidence that you'll be moving within the fixed period, an ARM makes sense. I think the majority of ARMs are for people who are moved around by employers an 2-4 year rotations, and know for certain they'll be selling the home shortly.
Hey, if you do not think mugging is a good thing, do not get mugged.
I'll never get into that kind of debt. Another moral is: if you can only afford to make the minimum monthly payment, you are already in over your head. Don't purchase what you can't afford on your income and what you don't need.
A lot of the clauses in the fine print state that, if a person goes two months past-due, the interest rate goes up until that person can keep their payments current for a certain period of time.
What the article probably left out is that the man didn't pay his bills on time. I highly doubt his APR was just randomly raised without him being delinquent in some way.
Here's a novel idea - don't spend over your income.
A question to all - USA until recently had anti-usury laws. Were those laws bad or unjust? Is America moving in the right direction?
That use to be true. I just got a card recently and I pay it all off each month and they still charge me interest. Their loophole, they apply my payment to the most recent charges, so if I just charged something, they apply the payment to that and not last months bill. So I will be looking for a new card...
I think I will cancel my Discover card since I feel like I got scammed by them. I used what I thought was a balance transfer check to pay another credit card bill. But the check was considered a "cash advance" so I paid a lot more interest. Granted, this apparently was my error. I should have read the fine print closer. But I think they did not make the difference clear enough.
I have been on my own since being 17 years old and if I did not have the money on hand to buy something I did not buy it. I am not talking about large loans such as a house or car. I recently bought a new car and financed it because the rate was 0%. You would have to be a little dumb to take money out of a money making account just to buy a zero interest financed car.
Dumb people get mugged more often. Does it justify mugging?
"imagine the many people who bought their homes under ARM."
Precisely why you buy a house with either a 15yr, 20yr, 25yr or 30yr FIXED rate mortgage.
ARMs are a crap-shoot at best.
In the lending business as well as the economy, what goes down, will most certainly go up again - the ONLY question is the timeing.
We bounced our balance from 0% teaser rate to 0% teaser rate ALL THE TIME to avoid interest rates. When we'd get a teaser rate offer in the mail, we'd keep it until our current teaser rate expired on the card we had (which was usually six months) and then do another transfer.
If I can figure out how to do this, why can't these people?
I'll bet Ed was {temporarily) a happy camper while he was on that spend-a-thon acquiring that mound of debt. Credit is just a tool, and like any other tool, if improperly used it can cause great damage. I wonder how many additional purchases Ed made on his card in June? (This is the NYT, so half the story was probably left out.)
So, the moral of this story is sometimes you can use the ARM loans to your advantage, not the banks.
As an American Express card-holder who pays his card balance in full each month, I find this statement repugnant. Especially since a large chunk of my tax dollars go to subsidize fools who live beyond their means and thus have to go on public assistance.
I'm the one doing the subsidizing here.
IIRC, you can freeze rates and go to a payment only account if you disagree with the new terms. At that point you no longer have a credit card, just a loan. At least it used to be that way.
Actually- you are missing another way credit card companies will jack up your rates - even if you have a perfect payment history with them (I know from personal experience)-
If they check your credit (many do - even if you have a perfect record with them), and find that your debt load (or credit score in some cases) has increased since the account was opened, they will jack up the interest rate. They don't care two beans about your payment history- if they can find a reason to increase the APR, they will.
You are mixing two unrelated things - that you pay taxes to the government with your credit card being subsidized by people in debt. Use little logic please.
I realize that I'm going to get flamed by anyone on this thread who has credit card debt, but I don't care.
I spent some time a few years ago working as a bill collector for a major credit card company. It was the worst job I ever had, but at the time, no one was hiring recent college graduates in my field.
You have no idea the attitude most people have towards their credit cards. They truly think of it as free money. They want to charge as much as they want, and only pay a few dollars on the balance every once and a while when they think they have some money left over after buying cigarettes and DVDs. They have no conception that a credit card is just a loan. I have absolutely no sympathy for people who let their own poor money management ruin their credit rating and finances.
I'm 24, and my husband and I have no debt, save for 1 year worth of payments on a car with 0% interest and my medical school loans (which is a bit different, since the education will allow me to command a salary that will more than pay for the loans in time). Every consumer debt my husband and I had that accrued interest got paid off, ahead of schedule. We wound up having to go without a kitchen table the first year of our marriage, but I think it was worth it. This guy's 58. He's had years to get his finances arranged. He should have taken better care of them.
Do you think that the usury or preying on the weak/less smart is a good thing?
God helps those that help themselves.
Not necessarily.
A few years back I had %9 Fixed rate card with MBNA and a balance of around $8000. Suddenly out of the blue, they jacked up the rate to %17 with no warning or reason that I could discern, and of course they were unwilling to explain their actions.
I simply contacted MBNA customer service and explained to them that if the rate was not immediately returned to the %9 fixed that I signed on for I would take the balance and put it on another card and cancel the MBNA card immediately.
They did as I requested and I had the card paid off in 14 months.
We use credit cards to our advantage.
We use any 0 percent finance offers.
If we need an appliance and Home Depot offers zero percent for a year, that's how we buy it. Same with furniture, etc. If we go on a vacation and need to use a credit card for a car rental, we get a zero percent card and use that.
I haven't used a credit card that charges interest in years, We just make sure we've paid the balance by the time the zero percent deal runs out (lately it's been a year at zero...used to be 6 months).
Frees up other cash for investing and evidently gives you a great credit report too.
And to keep your credit score high, you should never be carrying more than 49% of your credit limit on any given card anyway. Going over 50% gives you a big hit. And of course, the closer you get to the true limit, the bigger the hit.
According to the article, he has $69,000 on that card.
Pole, you're a Pole.
You don't see the difference between choosing to use a credit card and not choosing to get mugged.
You seem to want to be able to use other peoples' money for free.
Make more of your own and stop using other peoples' money.
Dumb people stay dumb because they don't learn from experience.
Holy cannoli! Well, he dug his own grave.
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