The GAO report of this fall is overdue and welcome. It shines a bright light on banking practices of preying on credit card holders, raising fees, and jacking up interest rates. Banks say that what they do is legal. Technically this might be so, but it is also outrageous.
The GAO report has stimulated articles in the popular media. Both USA Today and The New York Times cited the study in righteous indignation. Others are fed up, too. BusinessWeek ran a long article about CapitalOne abuses, and USBanker wrote a story about how Discover is trying to point out that other cards are not as consumer-friendly as it is.
The big providers, such as CapitalOne, have become increasingly brazen in their shenanigans for picking consumer pockets. CapitalOne has been issuing multiple low-limit (several hundred dollars) cards to individual sub-prime borrowers, expecting that before a year is out many of those borrowers will forget about one of the cards and pay late, or go over limit. Either transgression triggers exorbitant fees. In addition, the big card issuers often shift a card holder to a higher risk bracket with an attendant higher interest rate should that holder miss a payment on another card. They print their terms on tissue-paper booklets in legalese that has even lawyers scratching their heads and which consumers don’t read anyway. By one report, 60% of cardholders don’t understand the terms of the cards they hold. Fees have increased 26 times over the last 25 years.
Working families are being milked for fees, charges, unconscionable interest rates, and the like that boost bank profits while leading those families spiraling toward bankruptcy. Everyone is becoming disgusted.
The abuses have become as bad as in the times before the government made lenders state APRs. Yet regulators are allowing bankers to get away with a great deal. The big six card issuers don’t have to tell the whole truth, and what they do tell doesn’t have to be reported in understandable English.
Students have traditionally been the most abused by card issuers, who understand that students need money and often can’t make their payments on time or go over their limit. Some students have reacted by trying to get back by ordering as many cards as they can, then charging to the max all the while knowing they will later file for bankruptcy.
Unfortunately, this kind of reaction is mere cynicism and blind to the fact that there are decent card issuers (credit unions) and sleazy ones. This kind of activity is bad for everyone.
Wear the White Hats and Let Everyone Know It
Again we see the difference between credit union and bank philosophies. Banks try to make as much money off each transaction as they can. Credit unions try to help a member and help the members’ community.
It’s vitally important to keep emphasizing this. We need to keep broadcasting that we see our role as improving member financial lives. And that means delivering credit in a way that is simple, understandable, fair and above all not predatory.
The first word in our name is “credit.” We need to make the granting of credit a reliable and trustworthy experience for a member and one that is helpful and empowering. Little is better for a person than receiving money for something he could not otherwise have afforded along with a reasonable schedule for paying back the loan. Credit unions have made loans that do not charge teachers during the summer and to some Alaskans that do not charge during their non-earning months of January-March.
Credit unions have to be the ordinary American’s trusted advisor — in savings as well as in loans. People have to know instinctively that the credit union deal is the best deal possible. And even if that deal is not the lowest in price, then it will be in the whole package of service, terms, conditions, and fees.