Over at Balloon Juice, John Cole wants to see some more regulation in the credit card industry:
My libertarian instincts eschew any regulation whatsoever, but it this show and my own personal experiences with credit card companies (inexplicably having my APR jump from 9.9% to 24.9%, when I have not been late or over my limit or anything) leads me to believe that some severe regulation needs to take place. The interest rates being charged in many cases are akin to loan-sharking, and it needs to be stopped.
Now, there are doubtless some industry shennanigans that need to be stopped. But Mr. Cole should pay heed to his libertarian instincts.
I have enough credit cards to make a fragile scale replica of the White House. Generally, I pay off my purchase balances each month, and I rarely buy something on a card unless I have the cash on hand as well. It wasn't always that way (see Youth, Foolish), but it is now. When I do splurge--say, by buying a complete music studio based on a Mac Mini, along with a flat-panel display, a 120GB external Firewire hard drive, a digital audio interface, and a shiny new synthesizer--a check goes to the credit card company for the purchase amount as soon as the cash is available, before the statement arrives, if possible. That way, the money's gone, which prevents me from spending it more than once.
If I happen to get a late fee (due to absent-mindedness or the pile of bills being scattered behind the television by a marauding housecat), I call up the credit card company, ask that the late fee be removed "as a courtesy"... and they do it. This is because several credit card companies got sued not too long ago for falsifying late charges and lost, which made the rest of the herd a bit skittish. It's also because I have decent credit, and that's because I take responsibility for my finances. If your credit resembles Nigeria's and you're late five months a year, you don't get the "courtesy." You get a faceful of mud and a boot to the head.
Currently, I do carry about $4500 in card debt, which I incurred to pay my self-employment taxes on time last year and avoid nasty Federal Guvmint interest and penalties. However, I carry that debt at 0%. I can pretty much count on being offered a "0%, no-fee balance transfer" offer until I pay it all off. In fact, I just signed up for one that will carry me through until June of 2006. When I transfer the balance, I activate the new card, then cut it up. Why? Because if you use the card for any purchases, the credit card company will apply your payments to the non-interest bearing balance first, which means you have to pay interest on the purchases until you pay off the non-interest bearing balance. That's how they make money on those offers. I know this because I actually read the terms of the credit card offer.
Anyone who signs off on a credit card offer without reading it, no matter how small the print, is just asking to be smacked with some "mysterious" change in the agreement, which they will bemoan while rubbing their puzzled heads with a balled-up fist and an outthrust lower lip.
I'm not rich, or even particularly well off, but I try to live within my means as much as possible. That means resisting credit purchases as often as possible. It means reading what I sign. And it means taking responsibility for my finances.
And--wonder of wonders! I never get mysterious, massive jumps in my APR interest.
I am certainly not saying that Mr. Cole is one of those hapless late-paying pseudo-Nigerians. What I am saying is that the credit card company told him, at some point, exactly what they could and could not do to their agreement, and I would suggest that, in this case, "inexplicable" might not mean quite what he thinks it means. If this happens to you, call up the credit card company, ask why the rate jumped, and if they can't tell you--or if you decide you just don't like the rate--tell them to close your account. They hate that, and if you tell them why you're closing it, they may agree to drop the rate back down. And if they don't, you can probably pick from among the eight billion credit card offers you get every week and get another card.
No one makes anyone sign up for a credit card, and while they may be more of a neccessity of convenience than they used to be, there's no reason that they can't be managed like cash-in-hand. After I did the stupid-twenties thing and incurred debts and had to be bailed out a couple of times by my mother, I didn't have credit cards for several years. And when I did finally get another one, it had a $500 limit and a 24% interest rate--although I did get to use my purchases to build up points towards rebates off of the price of any one of several fine makes of GM automobiles, huzzah! It took me about seven years of regular payments and careful management to build my credit up to the point where I can float several thousands dollars of debt at 0% interest and am worthy of a credit card company's "courtesy."
I'm about to cull my cretin* of cards, because I've got several that I don't use, and they are tempting. I'm putting it off because I hate the conversations that ensue when I cancel a card: "I want to cancel my card... no, the service was fine... I've just got too many... Yes, I'm sure... Yes... No, there's nothing you can do to change my mind... No... Just can--... No... No, not even with pasties... Just--... Look, just cancel the card, or I'm going to show up at the call center and beat you to death with your headset! Yes... Yes, even though you're in India... No, your English is fine... "
Now, if you want to complain about something that does need some regulation, try health insurance, which is much more of a necessity than a line of collateral-free credit. I buy my own, because I'm self-employed, and they change the terms of the agreement more frequently than Darth Vader. Not only that: the law allows them to charge retroactive rate increases. If they go to the State Legislature on May 5 and get approval to hike the rates by 17%, they can send me a bill for the increase as of January 1 of that year.
Now, they can have their rate increase if they want. It's a consequence of the amazing pit of pig feces that is the Modern American Healthcare System. But charging me more for services that have already been provided? That's like getting a bill for another $50 from a meal you ate a month ago.
Forget loan-sharking. It's health-care-leeching that needs to be stopped.
*Credit cards travel in cretins, like a herd of cows or a murder of crows.
