Credit Card Blame

07/06/2009 3:06 pm EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

Who is to blame for rising credit card interest rates and fees? The fingers of blame are pointing in every direction. Talk radio is filled with angry voices demanding to know why the banks keep raising rates after they’ve taken taxpayer bailout money. The latest target is Citi, which reportedly raised rates of 15 million cardholders, mostly those who have accounts that are co-branded with merchants.

But should we really blame the banks? We’ve just given them a stern lecture about not making any more bad loans! They’re looking at nearly $1 trillion in unsecured consumer debt—and a growing default rate, not to mention soaring bankruptcies. Should they stand by and wait for more losses? Do we want them to do that?

Maybe it’s the consumer’s fault. After all, everyone knows you can’t finance your lifestyle on your credit card forever. But can we blame consumers who, having lost their jobs, and maybe even their homes, are now charging food and essentials on their credit cards. After all, it was the banks who gave them the “line of credit” in the first place.

STOP. Has anyone pointed a finger at Congress! We know that Congress can pass a law and have it go into effect instantly. So why did Congress pass a credit card reform bill that goes into effect ONE FULL YEAR after passage? Do you think they might have received some contributions from the financial services industry, incentivizing them to forestall the inevitable?

Meanwhile, since the new law doesn’t go into effect for months, card issuers can operate under existing contracts, allowing them to reach more deeply into the pockets of those who can least afford it. Why would they court such adverse publicity? The numbers speak for themselves: The credit card “charge-off” rate is now at 10.6 percent—an unprecedented level. And it may go to 12 percent or even higher, according to credit experts.

So should the banks stand by and watch this disaster coming? Are they precipitating it by raising minimum monthly payments? Have your say . . .

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