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Credit cards evil by nature?
Several features of credit cards make them different from traditional forms of lending and encourage high levels of consumer debt by taking advantage of "consumers' cognitive and behavioral vulnerabilities," Adam J. Goldstein wrote in the latest issue of the University of Illinois Law Review. Goldstein is a former editor at the review who now works for a Chicago law firm.
When issuing loans for cars, home mortgages and other forms of debt, banks conduct a thorough credit screening of applicants. But when the same banks issue loans in the form of credit cards, "people with bad credit histories, as well as those who have declared bankruptcy or who have an income level that is too low to justify the credit lines that they are given, all receive high-interest credit," Goldstein wrote.
Credit-card debt also differs from more standard credit arrangements in the assessment of late fees and interest rates. This is largely a result of the National Bank Act of 1864, which exempts national banks from state consumer-protection laws that can limit the rate of interest charged to a state resident, and regulate debt-collecting and credit-reporting standards.
What's more, according to Goldstein, the marketing techniques and incentive programs used by credit-card companies induce consumers to overspend and amass debt. A 2002 medical paper described in the article links credit-card debt to various health and social problems, including insomnia, anxiety, marital breakdowns and depression.
Goldstein cited evidence that college students, inundated with direct-mail appeals by card issuers, are especially vulnerable to credit-card debt. This can lead to low grades, withdrawal from school and difficulty in finding future employment because credit checks are becoming a common feature of job applications.
The rapid increase in consumer indebtedness in the U.S. has been largely confined to credit cards and has not characterized other types of consumer credit. "This indicates that there is something singular about the design of credit cards that uniquely causes people to accumulate too much debt," Goldstein wrote.
A key principle of product liability is that the design of a product is defective and that safer alternative designs are available. A unique feature of credit cards is that "they allow debt to be incurred bit by bit, in a series of charges, none of which exceed $20 or $30 each, that can amass quickly into thousands of dollars," Goldstein noted.
In addition, by grouping payments into a single transaction every month, credit cards reduce a consumer's sensitivity to price and promote impulse buying, a fact that credit-card issuers encourage through tug-at-your-heart commercials and other advertising.
"People tend to underestimate future borrowing and correspondingly overestimate or be overly optimistic about their future ability to pay off whatever balances they may accrue," Goldstein wrote. "This causes people to be more responsive to short-term factors, such as annual fees, and less sensitive to the long-term elements of credit-card price."
Visa is the largest credit-card company, with about 1 billion cards in circulation. It is a private corporation owned by 21,000 banks, each of which issues and markets its own Visa products. The second largest issuer, MasterCard International, is an association of 22,000 member banks.
Goldstein is critical of low introductory interest rates offered to new card owners that go up dramatically after six or 18 months. "It is these high, long-term interest rates that result in faster debt growth and accelerate negative social and individual consequences of such debt," he wrote.
Between 1993 and 2000, consumer credit lines tripled from $777 billion to more than $3 trillion. The amount of credit-card debt held by Americans has grown by an equal amount, with the average adult today using six card accounts and the average household card debt conservatively estimated at $12,000.
A case of products liability could be grounded in legal theories of defective design, according to the article. One aspect of credit-card design – the minimum monthly payment feature – accelerates a consumer's overall indebtedness and benefits banks through the high interest assessed on the outstanding debt.
"Because the goal of products liability is to force manufacturers to internalize the costs associated with product risks, it follows that credit-card features that have minimum payment structures should be recognized as defects," Goldstein concluded.
His article is titled, "Why 'It Pays' to 'Leave Home Without It': Examining the Legal Culpability of Credit Card Issuers Under Tort Principles of Products Liability."
Submitted by BJS on Fri, 2006-10-27 05:47.
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Living in a Credit Poor world
Predatory lending and consumer credit card debt are burying people so much that they can't dig themselves out. With the banks changing the rules when they want to, it's just too easy to get in over your head. The ezine article from David Galler about compounding economic problems in 2008 says a lot. It kind of summed it up as to how bad things really are nowadays.
Forced to use consumer credit , like it or not
For many years I refused to keep a credit card because I knew without a doubt that they are inherently evil, but now I have a few cards because I was discriminated against for not having a credit history when I tried to buy homeowners' insurance a few years ago. It seems the state (FL) regulators are permitting the insurance companies to use one's credit rating as a criterion for evaluating the risk of loss on homeowners' policies, even though there's no causal relationship between the two figures. So if you don't have a record at Equifax you can't buy insurance! No matter that your retirement income is guaranteed by Uncle for the rest of your life, you own the home free and clear and likewise for your second home, and also for your business, and have plenty of other assets to boot: none of that matters if you haven't kissed Equifax's ass by keeping a consumer credit account.
Greed
It is about greed. I have a friend who borowed 2k on a card to repair his home. After making regular on-time payments for over a year, Hurricane Katrina hit. They told him "we understand, you can skip your payments until January" Yet Jan. rolled around and they tagged him with interest payments and other fees on top of his regular resumed payment. The problem is, it was too much for him to handle at once. He fell behind and was bombarded with late fees and all sorts of things. He is now tagged with "broken promises" and owes nearly twice as much as he borrowed.
Adding up his payments - he has paid them over $7200.00 yet still owes them about 3k -lol- that is unbelievable.
Yes they are evil - sorry this type of usery can not be justified.
Merchant Agreements, not State or Federal Law
I believe that it is not a law that merchants must charge the same price, but instead part of the agreement that the merchant signs with the card processor.
Great Read
Great article credit cards are definitely a work of the devil and can lead to many many bad things. I feel especially for college students who are out on their own for the first time and then just get bombarded with credti card offers, these card companies are setting up their victims for the long run. I really feel it would be a great help to college students to have a class offered by their high school their senior years to really educate them on debt and credit so that they do not make a huge mistake and rack up massive amounts of credit card debt while trying to get an education.
I think it is crazy that
I think it is crazy that credit card companies bombard their customers with such a mass of advertising. But it seems to work out for them!! I hear of people who overestimate their spending power all the time.
I found a good article about the tricks that credit card companies use. Sometimes they are so obvious - think it is incredible that people still walk into their traps.
Before I got my last credit card I tried to be informed as well as possible. There are some nice comparison tools for credit cards online that you can use and I asked friends and family about their experiences. I am very happy with my credit card now and don’t have any financial problems.
If you are informed well enough the credit card companies won’t be able to take advantage of you!
I gotta agree that credit
I gotta agree that credit card companies are evil. They encourage reckless spending and offer zero help for those of us that have fallen behind on our payments. I finally sought the help of a debt relief company, creditsolutions.com, to help me reduce payments. Screw the credit card companies!!!!
All too eager - what about your blatant fraud?
The anonymous writer of the "All too egar" posting is amazingly able to ignore the fact that he/she committed blatant fraud and lied on the application for credit (a legal, binding contract) but focuses on the issuer's irresponsibility for not assuming that the applicant was lying. Where is the personal responsibility in society today? Do we want to live in a society where everyone is assumed to be lying before being proved innocent? I'd love to see this person's tax return and resume.
Spend less than you make. If you don't, you're responsible for your actions. It's as simple as that.
Financial Irresponsibility - The True Problem
Re: Go Darwin! --> The "Non-Suckers" Maximize their Card Rewards
Go Darwin!
Capitalism relies on there being a certain number of suckers. My advice; DON’T BE A SUCKER! If you can’t pay off what you charge every month then using a credit card makes you a sucker.
Ads for Credit Cards
What I find rather amusing is the fact that there are 8 Google supplied ads on this page. All 8 of which are for sites which allow you to apply for credit cards. There are also 4 small google search ads which also link to sites whilch will supply credit.
human nature again
All too egar
I applied for an American Express Blue card online last year and after I filled everything out, it rejected my application because it said I made less than the minimum income per year. So I pressed the back button, changed my income to what it said was the minimum and Boom, I was approved. 2 weeks later I had a shiny new Blue card in the mail. Now, unlike most people, I am good with my finances and don't have crazy debt, and only needed this card to make a few purchases while I was short on cash. But the ease with which I was able to just change my income, to several thousand more than I actually make, and still receive the card is just irresponsible on the card issuer's behalf.
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