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Wednesday, September 17th, 2008

by Theodore Sliwinski, Esq.

 Credit Card Sharks

Many consumers might still be much better off owing money to a loan shark money than a credit card company. Credit card companies are ruthless organizations. Their own lawyers basically wrote the current landmark new Bankruptcy Code called the BAPCPA. It absolutely amazes me that Congress passed the new Bankruptcy Code but did not limit the outrageously higah interest rates of 25% to 30% that credit cards now charge. Recently, there have been several proposals made in Congress to limit the interest rates and late fees that credit card companies charge. However, the credit card companies have a tremendous war chest of lobbying funds. Thus, it is very unlikely that any of these proposals will become law.

Here are seven ruthless practices that credit card issuers engage in and loan sharks don’t:

1. Loan sharks don’t raise your interest rate if you’re late paying a bill to another creditor. Most of credit card agreements contain a universal default penalty, which allows the issuer to increase the borrower’s rate if a payment to another creditor is missed or late. Here is an example from Chase Manhattan Bank’s cardholder agreement as reported in the 2004 New York Times series on credit cards: “The highest rate (28.49 percent) may be charged if the cardholder is late making a payment to any creditor; this can include phone and utility bills, car payments and the like ‑‑ even if credit card payments are made on time.” So if you agree to accept a credit card with an 8 percent interest rate, and you make your payments on time for several years, your rate can suddenly jump to 28.49%. All you have to do is misplace your gas bill for a couple of days and be late on your payment.

2. Loan sharks don’t solicit. The credit card industry sends out 5 billion solicitations a year in the United States alone, according to cardweb.com. Many of these solicitations are sent  to people who don’t even have jobs. Many college students who also do not have a regular employment, routinely receive at least one credit card offer a day. As far as I know, these college students have never been approached by a loan shark.

3. Loan sharks don’t change the terms whenever they want. And if they do, they aren’t bold enough to put it into print, as Bank One does on its Visa Card term sheet. Of course the print is quite fine. It reads: “We reserve the right to change the terms at any time for any reason.” I assume “any reason” includes, “We’d just like to increase our profits.” Or “We don’t like your last name.” Or “Let’s raise the rates of everyone who has an odd‑numbered address.”

4. Loan sharks don’t penalize you for paying off your debt. Many credit card agreements contain a no‑balance fee. Basically, the credit card companies can still charge you a fee when your balance reaches zero. This is utterly ridiculous. The credit card companies are charging you high fees for simply being a responsible credit card user. This type of insanity must be stopped.

5. Loan sharks don’t charge you for not borrowing more money. Some credit card issuers actually charge a $15 monthly fee if your card remains inactive for more than six months.

6. Loan sharks don’t make you sign a document that says that you can’t sue them. Granted, they have their ways to encourage you to avoid this step. But Chase Manhattan Bank’s cardholder agreement plainly and clearly makes you agree to give up your constitutional right to sue: “The cardholder cannot take the issuer to court or be included in a class‑action suit against the company.”

7. Loan sharks don’t lobby the government to make it harder for you to go bankrupt. Banks and credit card issuers spent millions of dollars lobbying Congress in favor of the 2005 bankruptcy bill. The last time I checked, loan sharking was still illegal in the United States. The banking industry’s questionable practices are fully protected under the law. If ever an industry needed to be more tightly regulated, it is credit card lending. A shark is still a shark, even if it wears a suit and works in a building with marble floors.