Usurious credit card fees are back in the news with feigned shock and outrage about interest rate increases that consumers are getting hit with. Credit companies were testifying before the Homeland Security and Governmental Affairs Investigations Subcommittee on their interest rate practices. This has been a big set up and is what was meant to happen.
There is no federal limit on the interest rate a credit card company can charge.
If you've ever looked at the return address on your statement, you may notice your credit card issuer is located in a state such as South Dakota or Delaware. That's because these are the states that have either weak or no "usury laws" meaning there is no cap on the interest rate that is charged. (View this map that shows the states where the top ten credit card issuers are located.) The federal government once had national usury laws that set a cap on the amount of interest that could be charged on a loan. But after the Great Depression, it repealed them and some states put no new usury laws in place. That's why Citibank, the issuer of MasterCard, moved to South Dakota, which has no cap on interest rates. (For more on the South Dakota story and how the credit card industry took off in the 1980s, read The Ascendancy of the Credit Card Industry.)
Various financial services started implementing higher fees and interest rate hikes. Somewhere along the line, the "universal default" policies came into play. These policies allow a creditor to move a customer to a maximum interest rate for late payment on any reported bill - even if the payments to that creditor have never been late. As this practice started kicking in, consumer bankruptcies started rising. Along the way we started seeing articles like this one from 2004 in the NY Times - Soaring Interest Compounds Credit Card Pain for Millions. The soaring interest was a direct consequence of universal default practices.
We got confirmation of this lucrative practice for through articles such a the 2005 Consumer Affairs report "More Banks Using Universal Default to Hike Interest Rates." This news came after the passage of the new bankruptcy law (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) went into effect on October 17, 2005. This was a legislative change that the companies spent millions to push through. Any efforts to soften the blow of the legislation on consumers was thwarted. To see a list of who voted for BAPCPA check this list
What we largely heard was the company line that looser consumers were bugging out on their credit obligations and that creditors needed to be "protected."
After eight years of trying, Congress next week is expected to pass legislation aimed at a growing problem: Encouraged by mass mailings from the credit-card industry, more and more consumers are taking on more debt than they can handle and ending up in bankruptcy court.
The law, crafted with industry help and backed by President Bush, takes the firm view that this is the borrower's problem, not the industry's. The bill would swing the legal pendulum on this long-running issue in favor of creditors. (WSJ, 4/06/05, embedded article at this link)
Of course, implementation of limitless rates and fees, and then universal default, had nothing to do with bankruptcies. Lost in the entire discussion was the actual purpose of the bankruptcy laws - namely to keep creditors from doing exactly what they were doing. Creditors were luring consumers into debt and then jumping rates outrageously. Implementation of universal default just widened the field of reasons to soak consumers. The strict limitations on consumers filing for bankruptcy have essentially allowed the companies to act with impunity.
As the economy turns downward and costs leap upwards, the issue of extorting consumers arises again. I don't see any reason to hope that controls on the credit industry are going to change in the favor of consumers.
It gripes me no end that both the Senate and the corporate media act as if this is a new issue that came out of nowhere. It is not new, it is intentional. Both the reporters and most of the Senators wringing their hands were there for the 2005 legislation. Why don't they talk about that? Why don't they talk about the abandonment of the populace to no holds barred creditors with dollar signs in their eyes? Give us all a break and report what is really going on.
Testimony of Elizabeth Warren Leo Gottlieb Professor of Law Harvard Law School Before the Committee on Banking, Housing and Urban Affairs of the United States Senate. Hearing: Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers. January 25, 2007.
Someone responded to my article "When Will Lady Justice take off her blindfold" via email and VM the other day. We had a long conversation. She said that while she liked my articles, my writing scares people. I told her it scares only the totally uninformed; that I am mostly preaching to the choir on many of the websites that I submit information to. Americans are digging their own graves because like children who hide under the covers, most of us don't really want to hear the bad stuff, the consequences of our wilfull ignorance.
We mistakenly think the institutions are always what they say they are, that there is neither evil purpose, nor evil doers in those institutionsm, and those who fall afoul of the evil plotters have only themselves to blame because the situation could not possibly have happened the way they say it did.
Farmers for instance, must be lying when they say they are being driven into bankruptcy and their land illegally foreclosed on for loans they never applied for, never received and never cashed checks disbursed for those loans. These guys must be liars or nuts, because, that couldn't possibly have happened. Just like all of the people who have been dunned for bills they already paid off=--or, ever never even made, are lying as well.
What makes one think that if one treats a company, or corporation as an "entity", as an "artificial person", that that entity or "person" could not develop the same traits as their human counterparts--as in theft, corruption, and evil.
The group mind, corporate culture, bureaucratic behavior of an artificial entity derives activity based on a toxic mixture of human traits. Yes, corporations can and do act--just like a group mind.
by
M. Davis (39 articles, 2 quicklinks, 13 diaries, 137 comments)
on Wednesday, December 5, 2007 at 11:11:32 AM
