Integrity Matters
October 8, 2003

Credit card fees preying upon the poor and elderly

Question: (E-070)

Dear Jim:

Bob Herbert of the New York Times writes that our "nation is awash in credit debt" and describes a family trapped in the vicious cycle of escalating costs. They are still paying for groceries they bought years ago.


Unfortunately, the financial institutions that prey upon the poor would appear to be breaking no laws.

But Herbert, in his September 24 column, raises social issues raised that must not be swept under the rug in the name of making a buck.

He tells us people used to be jailed for what credit-card companies now do legally. While banks and money markets are paying little interest to consumers, it is common for the effective annual percentage rate for balances on a friendly credit card to approach 30 percent. In the past this was an illegal practice called usury.

Herbert's statistics present a grim reality for many in our society. Between 1989 and 2001, he writes, "credit-card debt nearly tripled from $238 billion to $692 billion as many people resort to using credit cards to fight the ravages of unemployment and avoid disaster, while others battle the gap between declining real wages and rising home and essential health care costs. The savings rate steadily declined; bankruptcies jumped 125 percent, and the credit-card debt of the average family increased by 53 percent. For middle-class families, the increase was 75 percent. For senior citizens, it was 149 percent; and, families with annual incomes below $10,000 increased a staggering 184 percent."

According the column, credit card companies have leapt gleefully, into an orgy of exploitation, with late fees the fastest-growing source of revenue. This fee category jumped from $1.7 billion in 1996 to $7.3 billion in 2002. Most cards have reduced the late-payment grace period from 14 days to zero days. In addition to charging late fees, the major credit-card companies use the first late payment as an excuse to cancel low, introductory rates, often making a zero percent card jump to between 22 and 29 percent. One ought not to assume that all credit-card institutions behave this way.

The information reported does suggest that increased monitoring might be constructive.

Since high rates are now legal, we must appeal to some sense of fair play, of ethical and moral behavior. Right thinking cannot accept this endless and costly treadmill for the less fortunate. It is not an appropriate dilemma for the poor, the less educated or the elderly.

Something is out of whack when shrewd and financially gifted business decision-makers take advantage of the misery and misfortune of others. If such cruel and heartless business practices continue, free markets will suffer. Trust will deteriorate, even further.

The hope for living the American dream might seem further away, and the children of our grandchildren might only read in history books what could have been their birth right: freedom and free markets!

Here is an instance where there is a real need to balance self-interest with social responsibility. If those who prey upon the less fortunate do not change their ways, our society will wake up and demand even more stifling regulations, adding bureaucracy, with other, unanticipated, consequences. Unless behavior changes, regulation may be the only way out of the current abusive mess. Free markets must regulate themselves, or governments will.

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