Whose Credit Problem Is It—Really?

08/24/2009 12:01 am EST


Terry Savage

Author, The Savage Truth on Money

Now we know why there was a rash of credit card rate increases over the summer! Card issuers were planning well in advance of the Credit CARD Act, which had provisions that went into effect last week (August 20th).

Now bills must be mailed 21 days in advance of the date payment is due. That will help consumers avoid late fees. But the big change now in effect is that card issuers must give you 45 days advance notice of any rate increase, instead of the previous 15 days’ notice.

Knowing that these provisions would start on August 20th, card issuers have mailed notices of rate increases throughout the summer. That led to consumer complaints that even those with good payment records were being targeted.

The outrage was palpable. Why me? It was a common question from those who paid their bills on time and who always paid at least the minimum. Low-interest credit was a “right” they deserved.  They had “counted on” being able to borrow with ease using their credit card.

Never mind that the “too fine print” had allowed card issuers to raise rates. 

Never mind that the card issuers have their own problems—with default rates rising to 10% or more for most major issuers.
Never mind that there are radio advertisements everywhere advising consumers on how to “negotiate” with card issuers to pay less than the full balance owed.

Never mind that the bankruptcy rate is up 36% for the first half of 2009, and most of the charge-offs in bankruptcy revolve around credit card debt.

The American public is demanding the right to use credit on its own terms. But the American public is also demanding that the government stop bailing out the banks.

Well, which is it? Do we want the banks to keep extending credit, even while they know that defaults are rising? Do we want the banks to run the risk of even more bad loans, possibly requiring another taxpayer bailout?

I thought not. But you’re still angry that they raised your interest rate?

I know just how you can get back at them: pay off your balance! Then you can keep using your card for convenience, pay in full every month—and never pay a penny of interest. In fact, you’ll cost them money for sending you a bill every month!

Wait: You can’t pay off your balance in full right now? Then you’re at their mercy: Whose fault is that? 

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