MotherJones Blog: The Next Financial Crisis: Credit Cards

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The Next Financial Crisis: Credit Cards

The next step in the growing financial squeeze—what the banking community likes to call the "soft landing"—is coming down in credit cards. Take a look at those offers you're getting in the mail. Gone are the promises of permanent low APRs on purchases or balance transfers. Instead, the companies are offering a low rate for 6 or maybe 12 months, and then it shoots up to 15 or 20 percent or higher. And there's usually a 5 percent transfer fee on your whole balance—the ceilings on transfer fees are disappearing. So even if you get, say, a 4.9 percent APR for 12 months, it's really 9.9 percent.

This week, the Senate Homeland Security and Governmental Affairs Subcommittee, chaired by Michigan's Carl Levin, held hearings with representatives of several large credit card lenders on an even more devious practice: Consumers whose credit scores fall even slightly—due to a single late payment, or a problem that has nothing to do with their credit cards—can have their APRs jacked up without warning. The credit card companies can even apply this high interest rate retroactively to already accumulated debt.

"Interest rates are going up, low teaser rates are disappearing, and the credit squeeze is going to get a lot tighter," Elizabeth Warren, the Harvard law professor and expert on credit card debt and personal bankruptcy, told Mother Jones this morning. She is an advisor to the campaign of John Edwards, who has made an issue of predatory lending practices and proposed a commission to regulate credit card rates.

What happens, I asked Warren, when people struggling to pay their mortgages go deep into credit card debt, and then can't pay? Do the credit card companies get to take their assets, including their homes? "Here's the deal: A credit card company can't seize your bank account or grab your car without going to court,'' she said. "BUT most credit card companies have put arbitration clauses into the fine print of your agreement, so they can go to arbitration, where they know the arbitrators and where they win more than percent of the time. They then take the arbitration award to a court and get a judgment on it, and the consumer can't do anything about it. If the arbitration was unfair, that's too bad—the credit card company wins. It is a scandal." (For another angle on this little-known scam, see my colleague Stephanie Mencimer's recent piece on car loans.)

Warren continues, "Alternatively, credit card companies can go directly to court and they often get a default judgment because the customer didn't receive adequate notice, didn't understand what the notice said, couldn't appear at that time, etc. Many credit card companies have figured out how to turn the court system into a cheap tool to collect from people in financial trouble.'"

So as the subprime crisis deepens, this other crisis is just waiting in the wings. And the new bankruptcy law passed in 2005 serves the interests of credit card companies and other lenders while screwing consumers in additional ways, leaving them no way out of the debt trap.

Comments

Is there anyone around who doesn't concede that this whole big financial debaucle was created, was planned and conspired by the ruling House and Senate. First with the gift to all the corporations so they could move off shore, the downing of the towers and the persuant war fit right in, it created jobs in the military for all the poorer classes. Then the neo-cons not only advocated but encouraged everyone to take second morgages to help see them thru the rough times, and never admitting for a minute that we had anything less then a SOUND and GROWING economy. They forgot to tell you the growth was only for the well off, it really did not include the peons.
The next move by the house and senate was to pass the new bankruptcy bill which would have a hard hitting effect on all you who were still under the Bush illusion that the economy and job market were thriving. He (GWB) meant on Wallstreet!
Well if you haven't learned much else out of all this, you certainly can take with you that you should never look to government to inspire you or to tell you the truth!
Chavez and Putin do more for their working classes then the neo-cons.

Posted by: Norman on 12/08/07 at 10:30 AM Respond

credit cards are just a drop in the bucket to what's gonna take place in the next few years...
http://www.freewebs.com/rumorsconspiracybooks/Folder1/The%20Federal%20Reserve%20is%20PRIVATELY%20OWNED%20by%20Thomas%20D%20Schauf.pdf

http://www.globalfirepower.com/list_gold_reserves.asp

http://www.inflationdata.com/Inflation/Inflation_Rate/InflationCalculator.asp

http://mwhodges.home.att.net/

http://atimes01.atimes.com/atimes/Global_Economy/IK03Dj03.html

gonna be a bumpy ride!

Posted by: madmilker on 12/08/07 at 1:02 PM Respond

Saw the writing on the wall when Bush pushed for the revision of the credit card business and forced banks to increase the minimum payment. That's why,reluctantly,I filed for bankruptcy before the new bill went into effect.
Now credit card holders are swinging in the wind and have no possibility of relieve comming out of Washington.

Posted by: wlgriffi on 12/09/07 at 8:01 AM Respond

As brilliant as everyone thinks Rove is you would think he could have planned the downfall for 12 mo. later,
you know, after Bush got the hell out of Dodge. Then they could have said it was caused by the democrats or by Clinton.

Posted by: Norman on 12/09/07 at 12:32 PM Respond

I wish I had Jenna Bush's credit cards, so I could charge up a bunch of worthless crap on her credit cards that her dad would have to pay off, the way her dad charged up trillions of dollars on my kid's credit cards, to pay for his war of revenge against Saddam Hussein.

Posted by: The Conservative Deflator on 12/11/07 at 10:10 AM Respond

I think the situation in the US is very dangerous for the moment. We have huge problems in housing and creadit card loans, not to say the huge national dept.

This country is going into dept ratios we have nerver seen before.

Posted by: Tower Defence on 05/11/08 at 6:22 AM Respond