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This Is What Democracy Looks Like

www.NationalView.org's Note From a Madman

June 29, 2008


The Credit Card Crunch

So what does your credit card's annual percentage rate have to do with inflation? Not a darn thing. Credit card companies, many of them the same banks you put your money into for safe keeping, make a lot of money on the interest payments, late fees and other surprises they throw your way to keep themselves in business. With lowered interest rates, why is it that credit card companies charge astronomical usury rates for their credit cards?

Because they can. Thee is no regulation stopping them.

In the old days, a bank would take your money and lend it to people buying a house or financing a business. They would charge that person or company interest while at the same time offering you a few points of interest for their borrowing your money.

However, a funny thing happened on the way to fair play - the banks found other uses for, and other ways of obtaining your money without the usual quid-pro-quo. One of the main ways they "earn" your money is by charging you inflated fees, increasing the APR (annual percentage rate) and anything else they can think of.

In a recent bank commercial, a man and a woman are climbing a mountain when the woman's cell phone rings. You hear only her side of the conversation, which goes something like this:

WOMAN ON MOUNTAIN: I'm overdrawn... Okay... thanks.
MAN ON MOUNTAIN: Who was that?
WOMAN (as she accesses her Internet banking account via her cell phone-PDA): That was my bank. They told me I was overdrawn. I'm transferring money into my checking account from my savings account.
MAN: Overdrawn?
WOMAN: Yeah. (the camera pans out showing the couple alone high on the face of the mountain) Now that's scary.
VOICE OVER ANNOUNCER: Avoid overdrawn fees with a bank that cares.

Okay, so it's not verbatim. Hey, I'm a busy guy. But you get the gist. Doesn't the bank own the bank? Isn't it their self-defined policy that causes the giant fees you have to pay if you're late with a payment or overdrawn a few dollars in your checking account? They make it sound as if they have no choice but to charge you the sixty bucks a pop for each and every check you bounce.

In the spirit of fair play, I decided to check out the website of one of the biggest banks in the US - Bank of America. With an advertising budget somewhere in the tens, if not the hundreds of millions of dollars, surely a visit to their website as a snapshot of the banking industry would be worth the time. Here are some of the highlights (or is that lowlights?) of their Credit Card Interest Rate web page:

BOA: The amount of interest, or finance charge, you pay is largely determined by your interest rate, also referred to as your Annual Percentage Rate, or APR. The APR on your account can adjust up or down over time from its initial point for a number of reasons:
MADMAN: Of course, the big reason banks raise interest rates is "because they can". In all the time, however, that I've had credit cards, I've never had a credit card company call me, send me a letter or make a phone call to tell me that they're going to lower my interest rate. As a matter of fact, just the opposite is true. With about $800 on a GM MasterCard. our next bill came with the notice that I was having my interest rate raised to 39.5 percent. Although I pay my bills on time and have a credit rating in excess of 700 (I also have a credit service which keeps me informed of these things, thanks to another bank who accidentally allowed my personal information to be stolen), they decided I was a higher risk factor and should pay more. I called them, cancelled the card and sent them a check for the $800 which ended my relationship with them. During the phone call, they said "WAIT! Maybe we can work something out? How does 29.5 percent sound instead?"

BOA: Everything that affects the larger economy can also affect your credit card rate. For instance, if the interest rate banks pay to borrow money changes, it may have an impact on your APR. APRs on a variable rate account will fluctuate with the index to which they are tied. Most commonly, the prime rate.
MADMAN: As of April 30 of this year, the prime rate stood at 5.00 percent. So if banks, such as the Bank of America, were lending money on credit cards based on this rate, one has to ask just where the reasoning of interest rates as much as eight times the prime rate came from.
Additionally, I find it funny (as in ironic) that they charge us figures such as 39.5 percent. I guess it sounds more official than 40 percent, huh?

BOA: Changes in your personal financial situation, including changes in your income, your amount of debt, your overall credit history and how you use and maintain your Credit Card account with us can all affect your interest rate.
MADMAN: No doubt that "change" which BOA is referring to is a downward "change". Consider this: If you have a credit card with a balance and you run into some sort of bad luck (loss of a job; medical bills due to illness, a large deductible or co-pay; personal property damage due to a natural disaster not covered by your insurance company; etc), the credit card company has the unfettered right to change the amount of money you owe them. Since you already owe them a decent sum of money, they can now charge you a higher interest rate while you get back on your financial feet.
In other words, the credit card company makes you pay them more when you have less. Must be a part of that compassionate conservatism I hear so much about.

BOA: Over the life of your account, Bank of America may also make periodic changes to your Credit Card Agreement. Any changes to the rates or fees on your account will be fully disclosed to you before the changes are effective, and if an increase to your APR is included, you'll be given an opportunity to reject that portion of the amendment. Should you decide to reject the change, you will probably lose future charging privileges with your card but will be given the opportunity to payoff your existing balance at the current rate.
MADMAN: Now there's a rule which I have never seen. That one must be in the really, really, really fine print. Anyone have a magnifying glass?

BOA: Avoiding Default Rate Increases
You can avoid automatic triggering of a higher default rate on your Credit Card by following two simple rules:
-Pay at least the minimum monthly amount by the payment due date.
-Never exceed your credit limit.
* Note that Bank of America will not automatically increase your APRs without notice based on your account performance with another creditor, including if you make a late payment to, exceed your credit limit with, close your account with or have a payment returned from that party.
* Note by MADMAN: So even if you follow all of their rules, someone else has the ability to screw up your deal with just about anyone else, including your current bank. Simply closing your account with another credit card company allows your current credit card company the right to change their deal with you. Sounds like a sweet deal - for them, that is.

On June 29, 2006, the prime rate (the rate banks get to borrow our middle class tax dollars from the Federal Reserve Bank) stood at a whopping (by today's standards) 6.25 percent. Ben Bernanke, Alan Greenspan's replacement at the Fed, and his band of compassionate conservative commissioners have since lowered that rate to the 2.25 percent. That's where it stands today. How much has your credit card bill - by lowering your APR - been lowered as a result, I wonder? My bet is that it went the other way - up.

WE are the Fed. The money the banks borrow at that very favorable 2.25 percent rate is coming from us, the US middle class taxpayer. And while we're lending these institutions such enormous sums at very favorable rates, we get bigger and bigger fees, larger interest rates and nothing much else in return. And, somehow, the Bush administration, John McCain and all of the Wall Street Big Money McBush experts say that it's going to, somehow, save the US economy.

It hasn't and it won't. But it will make the McBush "base of haves and have mores" the "have so much mores."

-Noah Greenberg

In response to "On Health Care", Robert Scardapane writes:

McBush's plan is one heckofa of a "plan" ... for the insurance companies that is who will make even more money once everyone is forced to buy individual insurance policies. That's why McCain's staff is nothing but industry lobbyists. What really galls me is that Ms. Outsourcing herself - Carly Fiorina (the failed and ousted former CEO of Hewlett-Packard) - is his chief economic advisor.

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-Noah Greenberg