Wednesday, February 11, 2009

Credit Card Companies - Legal Loan Sharking?

The last post discussed the Debt Collection practices of many credit card companies. As the economy tightens even more, many people will turn to their credit cards as a last resort to buy necessities, like food, medicine, and gasoline (to get to work if they still have jobs). An earlier post discussed the companies raising interest rates for no other reason than they can.

The majority of the card companies are owned by banks In some cases these are the same banks which are trying to recover losses incurred in bad loans; often, improper mortgage lending practice results. So, "Let it go forth throughout the land that WE, who can offer 0% financing and raise the rate the next day, have determined that NOW is the time to strike. The masses need us more than ever and we can cash-in".


Cynical - no - realistic. I was in the business and know how it used to work. Consequently, I understand all to well the need for a profitable business line in the Bank to offset losses. Citibank, as an example, has let business many customers know, that at the expiration of the current card, the interest rate will go to the prime rate (the rate the best businesses get from banks) PLUS 18.99%. Even now, with the prime rate extremely low, the effective interest factor on one of those business cards would be 22.24%. And that is for business which pay every month, and pay more than the minimum. Others are being told that they are no longer welcome, and to find another lender.

What makes this difficult is that the same approach is being taken in the retail side, with ordinary people who pay every month, with maybe a late payment (5-10 days) once in a while. They get charged a late fee of $29-$39 depending on the card, and then, if they are late at all, the card issuer raises the rate to the "Default Rate" which is between 24.99% and 31.99%. Further, in all of the card agreements the issuers state that they have the right to raise the rate to the Default Rate if, in the opinion of the issuer, the card holder has a change in financial circumstances. This translates to "if you are late on any card, even once, we can jump your rate from 6.99% to the Default Rate. The term for this provision and practice is the "Universal Default Provision".

Delinquencies are rising quickly, not because people do not want to pay, but because of a late payment the interest rate has jumped 400%, and the card holder can no longer make even the minimum payment. If he/she has more than one card, the effect is multiplied by the number of cards. Now come the collectors!


Most collectors receive a commission on what they collect. Some collectors are paid strictly on a commission basis. To make a living, the collectors will lie, insult, threaten, call family members, neighbors, ask for post-dated checks, and do many of the things that are illegal under federal or state laws, or both. (see the post dated February 8, 2009 for details).

If you get behind and the calls start "when will you be sending in you payment? If I don't get it by then I will repossess your dentures", do not panic. Keep track of who call, when the call takes place, and the basic content of the call. Again, please refer the the Feb. 8th posting for details.

Try to determine if you can enter a payment arrangement, not with an individual creditor if you have multiple cards, but with all of them. Contact "Consumer Credit Counseling Services", or "Money Management International". They are the only 2 true non-profit organizations that have good relationships with most card issuers and which charge a nominal fee for services. They DO NOT charge a large up-front fee. Run from places that do.


Author's Copyright by Richard I. Isacoff, Esq, February, 2009

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