Credit Card Companies Are as Abusive As Ever! Be Careful.
Consumer credit is booming. The consumer is loading up on credit cards at unsustainable levels and getting ready to set a new record for credit card debt. The irony is that you don’t see that charge card debt reflected in the consumer spending numbers. At best, consumer spending has been weak. So, it begs the question whether consumers are using credit cards for pleasure or survivor? Apparently credit card companies don’t care. They are doing their best to lure in unsuspecting consumers into abusive credit card agreements. First, let’s take a look at the stats.
According to CardHub.com, $900 billion is the level that total credit card debt becomes unsustainable. The record for credit card debt reached a peak of $973.6 billion in August 2008.
Fast forward 8 years later, we are just north of $946 billion dollars and closing in on record consumer credit card debt.
The irony is that credit card companies are as abusive today as they were pre-financial crisis in 2008. Further, they are still as abusive even after the politicians passed the Card Act in 2009 which was designed to get rid of the abuse. That is another show of how ineffective the politicians are at curbing consumer abuse.
There were several abuses that the politicians were trying to curb. First is the universal default clause. This is a clause where a credit card company could look at your credit score and your standing with other credit cards and if they thought you were a risk they would raise your interest rates to penalty rates. Today, you will see this language:
“Your account will be in default if you fail to comply with this or other agreements with us or one of our related banks or we believe you may be unwilling or unable to pay your debts on time.”
Basically, you give them the right to practice the universal default clause if they think you have become a risk. They just don’t call it the universal default clause.
Second, is penalty rates. These were the rates they could charge you if you violate any part of the agreement. They were looked upon as excessive at around 27%. Today they can charge you as much as 25% from day one if they don’t like your credit rating. Once again, they just don’t call them penalty rates.
Finally, they had an “abuse clause” where they could change any part of the contract for any reason. Today, they call it “amendments.” You will see this language:
“We may change the terms of this agreement including APR’s and fees from time to time. We may also add new terms or delete terms.”
So as you can tell, the politicians passed the Card Act for show. It has done virtually nothing that it was intended to do.
It is tough to tell whether consumers are actually buying things or living off their credit cards. Regardless, the credit card game is dangerous today and the credit card companies I would argue are more abusive than ever. Be very careful taking on any of these new credit card offers. The agreements you sign are loaded with “Gotchas.”