Sunday, March 29, 2009

Doing The Credit Card Fees Limit Dirty Boogie

The Senate Judiciary Subcommittee, which is at last considering an intervention on behalf of debt-hobbled consumers, finally put in play a debate on a measure that would wipe out credit card debt for people in bankruptcy. Yesterday’s opening rhetoric was mostly concerned with the fact that, as the law currently stands, those who  file for chapters 7 or 13 bankruptcy are committed to not only pay off credit card balances in full, but to also be responsible for every penny of secured debt, such as automobile and house loans. This new measure is meant to punish credit card companies who have raised their interest rates to a usuriously high level and offer help for consumers, many of whom are flirting with bankruptcy, so that they may own more leverage when attempting to negotiate better deals with lenders.

This bill, introduced in January by the Democratic Senators Dick Durbin of Illinois and the ever-slick Sheldon Whitehouse of Rhode Island is seen as gratuitous by certain hard-core, born-again fiscally responsible Republicans. After all, say the likes of Florida’s Mitch McConnell, new regulations issued by the Federal Reserve targeting predatory lending practices are scheduled to go into effect next year. Pretty tough meat for your constituents to marinate, Mitch! A lot of people will go bankrupt between now and next January, however, so to most consumers, the bill is needed urgently now!

"The standard credit card agreement gives the lender the power to bleed their customer through evolving, ever more crafty tricks and traps," Whitehouse told  the hearing. "Under this business model, the lender focuses on squeezing out as much revenue as possible in penalty rates and fees, pushing the customer closer and closer to the edge of bankruptcy."
Consequently, the bill would apply to companies that raise rates to a higher level than 15 percent, plus the current yield on the 30-year Treasury bond. Currently this rate sits at 18.5 percent.

A good example of this would be my business associate, Aaron Phipps of Glen Ellyn, Illinois, a technical writer. When most of his clientele recently dried up due to a massive corporate layoff, Phipps was forced to pay slightly less than the required minimum on his balance for the first time ever. The thirteen years Phipps has been an on-time payer means nothing to Bank of America, Mr. Phipps believes. Bank of America have increased his rate to 29 percent from 13 percent. Phipps’ interest payments skyrocketed from $350 to $790 a month.

As I write, talking to the bank is no help for consumers. There is no chance of rolling back the rates, Phipps was cheerily informed in a conversation with customer service, although they happily offered him loans and substantially more credit, which, of course, would only have served to push him into even deeper debt.

“Lookit!” he said to me, “I know that I’m like a lot of people who’ve gone way beyond their budget. There’s not a lot of sympathy for you when you don’t make your agreed-upon payments on time. I used to be one of those people. I don't believe in government handouts. But the fact is... you know, really, they moved the goal post. It ain’t right!”

Well, no, it isn’t right! Something smells, Mr. Obama! I don’t care if it’s the fault of your predecessor. I don’t care if it’s Andrea Mitchell’s fault because she wouldn’t give her ugly husband any. I don’t care if it’s AIG or the IMF, Bernie Madoff or an insidious plot hatched by Putin and the Chinese: Something still smells!!!

How is it that Bank of America can kneel before you, asking cheerily for your monetary help, and you and yours just as happily give it to them? You offer up rhetoric about personal responsibility and our good angels, yet when consumers go to these institutions looking for the same kind of help and understanding, there is no compassion. There is simply nada for consumers: Nothing!

The American Bankers Association fanatically opposes the measure. Should this “dangerous bill pass, " Kenneth J. Clayton the, senior vice president and general counsel of the ABA's Card Policy Council Market responded in a letter to the subcommittee, “It would simply serve to restrict credit, raise interest rates and fees or both. This would significantly hurt tens of millions of Americans at the very time they can least afford it."

Another expert, David C. John, a senior research fellow at the Heritage Foundation, agreed. "Lenders will raise credit standards so that fewer and fewer people will qualify for those credit products," he told the panel. And in a strange caveat, Mr. John pointed out that such dodgy ex-bank clientele will then be forced to do business with "disreputable lenders who will charge even higher interest rates." A very strange bit of grandstanding there, especially as Mr. John seems to be shilling for a lobby of loan shark shylocks with such scare-tactic comments.

Grandstanding for the Outfit issues aside, consumer bankruptcies rose nearly 33 percent in 2008, more than 1 million filings, according to the American Bankruptcy Institute. Such filings are up a shocking 29 percent this February, compared with the same period a year ago. The aforementioned regulations issued by the Fed, the Office of Thrift Supervision and the National Credit Union Administration, will, come December, ban any unfair and deceptive practices. These rules will ultimately prevent banks from raising rates on existing balances unless a payment is more than 30 days late, charging late fees without giving a borrower a reasonable amount of time to pay, and applying payments so that debts with higher interest rates are repaid last.

In the mean time, between now and December, possibly tens of thousands of American consumers will file for bankruptcy, while the banks and their allies in the Hard Right will have won their pyrrhic little victory!

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