Even now as we hear about banks not wanting to lend, I am still getting numerous solicitations for “pre-approved’ credit cards, with teaser rates of 0%, offers of cash advances with blank checks enclosed, and invitations to transfer my debt from other banks. All I have to do is sign an agreement that sets forth the terms and conditions in multi-page small print documents, that I have neither the patience nor the time to read, and besides, even though I am a lawyer, am unable to comprehend. In addition the department stores, at the behest of the banks, offer me discounts or free shipping, etc., if I will just sign up to another credit card. (Just sign here to the terms and conditions.) The banks that issue these credit cards don’t care if the lenders have no income or have not nearly enough income to pay their debt. In fact they don’t want them to pay off their debt. They just want them to pay a “minimum amount” each month, which is a fraction of the debt, to keep them indebted and pay ever-increasing interest, and they want them to be late with a payment, because that triggers penalties and increases interest charges.
Kids in their teens get solicitations and are signed up without their parent’s knowledge or consent. Even though this had been going on for some time, awareness of it only really surfaced in 2006, even though identity theft seemed to make better copy. Thus in an article in the November 13,2006 issue of the New York Times, entitled “Identity Thief Is Often Found in Family Photo,” the Times wrote, “Mr. Wagenhauser’s former wife, Ivy Ash, began applying for credit cards in the children’s names soon after the divorce. She ran up about $200 in unpaid bills, he said, which grew to about $1,000 with late fees and interest penalties.”
I reacted instantly with a letter to the Times, which was not published, as follows:
Your article about identity theft (p.1, November 13) misses the mark. Your casual reference to a credit card debt of $200 having turned into one of $1,000 “with late fees and interest penalties” strikes me as far more shocking. This sounds more like Mafia loan sharking than what should be legal banking practice. Until our government puts a reasonable cap on interest rates and penalties, this kind of outrage continues to haunt the unsuspecting, naïve, and in many cases poor victims of this kind of banking outrage. It is to be hoped that the new Democratic Congress will make outlawing usury one of its top priorities.
However, I discovered later that the Times had in fact dealt with the issue, two years earlier, on November 21, 2004 with an article entitled, “Soaring Interest Compounds Credit Card Pain for Millions," where the article referred to an anecdotal incident, but typical of untold others.
When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corporation had a happy and profitable customer. But this summer... MBNA suddenly doubled the rate on his account.
Mr. Schwebel, 58, a semiretired software engineer in Gilbert, Ariz., was not pleased that his minimum monthly payment jumped from $502 in June to $895 in July. But what really made him angry, he said, was the sense that he was being punished despite having held up his end of the bargain with MBNA.
"I paid the bills the minute the envelope hit the desk," said Mr. Schwebel, who had accumulated $69,000 in debt over five years before the rate increase. "All of a sudden in July, they swapped it to 18 percent. No warning. No reason. It was like I was blindsided."
Then Rep. Sanders (Independent) Vermont (now a Senator) reacted with a Letter to the Editor, which said in part, “Last year, I offered an amendment in Congress to prohibit the credit-card interest rate bait and switch that received 142 votes. But it was defeated because of the enormous influence of the banking and credit card industry on Capitol Hill. The only way we will be successful in abolishing this predatory lending tactic is if American consumers fight back and make it very clear to their representatives that they want decisive action from Congress to end this modern-day loan-sharking.”
Mr. Schwebel in fact was lucky.
CNN Money, in an article dated December 17, 2008, reported the experience of one Owen Kusolpaisit, of Southhaven, Miss. who wrote to them, “I have a very small business and most of our debt is on credit cards. We had a 0% annual percentage rate until January 2009 that would go up to 7.99% thereafter. A few months ago my check got there a day late. The credit card company, Advanta, increased my APR to 7.99%. I just received my current statement and the APR jumped to 25.39%. When I called, a supervisor said it was done for economic reasons. How can they do that? Is it illegal? Can I report them?
CNN Money advised that it is perfectly legal.
In fact the Banking Industry successfully opposed a bill introduced by Senator Durbin, on July 17, 2008 to create a national usury law that would cap consumer credit rates at 36 percent. A 36% cap, which most would consider a Mafia rate, is opposed by the banking industry. How much more are they charging or want to charge? Sen. Durbin’s website explains his reasons for introducing the bill, “Within blocks of my home in Springfield, Illinois, there are payday lenders charging interest rates of two and three hundred percent of the value of the loan,” Durbin said. “These excessive rates are often hidden and can have crippling effects on those individuals who can afford it least. Congress must enact protections against predatory lending. America’s working families depend on it.” And he quotes the Chicago Tribune as having reported, “…the story of 66 year-old Rosa Mobley, who lives on Social Security and a small pension. Ms. Mobley took out a car title loan of $1,000 and was charged 300% interest. She wound up paying more than $4,000 over 28 months and is struggling to get by. Under Durbin’s legislation, the most Ms. Mobley would have paid was $60, in interest, per month or $1,680 for 28 months. As indicated the bill has not passed Congress.
In introducing his bill Senator Durbin pointed out that individual state usury laws are still on the books, but effectively have been rendered moot by a 1978 Supreme Court decision. That decision lets states "export" the law from the state where a credit card issuer is headquartered to apply to the rest of the country. As a result, credit card issuers placed their headquarters in states such as Delaware and South Dakota, which have no usury laws or very lax ones.
Hopefully, this is an opportunity to get Republican Evangelicals on board, for the image of Christ driving the moneylenders from the temple is one of the prominent images in Christianity.
In my next exposition I will address other bills on this subject, including ones that have compounded the problem, and ones that addressed the problem, but died in the last Congress, with heavy Republican opposition.
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