The False Morality of Money

The last day of this month will be what used to be called a “red letter day”. To quote one of the ubiquitous online dictionaries, a red letter day is “a day that is pleasantly noteworthy or memorable”. Marking special days in red on the calendar is a practice stretching back to the Roman Republic. What makes August 31, 2016, special for our household is that we will finally pay off our last credit card. In full. But forever? I guess we’ll have to wait and see.

The significance of paying off our credit cards must be clear to every cardholder, so I won’t belabor the obvious; I will make one point, which may not be obvious: we have now fulfilled our moral obligation to business, especially to the financial industry. Morals used to involve a code handed down by God. Today, it’s a code handed down by corporations to keep us consumers in check. As for their own behavior, corporations have no code to check their exploitative conduct toward customers, clients, patients, and so forth. That code is called ethics.

The business world, generally, has found it useful to adopt a moral code as an effective enforcement tool to ensure prompt payment of accounts; no industry has exploited this code with more vigor and self-righteousness than the credit card companies. Since most of us were raised to believe in a moral authority, we automatically internalized the money-lender’s invocation of morality without much thought. What John Ralston Saul, Canadian philosopher, writer, and public intellectual, said of governments applies equally well to corporations, including especially the credit industry: “Whenever governments adopt a moral tone – as opposed to an ethical one – you know something is wrong.” (The Unconscious Civilization)

The credit laws so lopsidedly favor creditors that you might suspect collusion between Congress and the credit industry. And you’d be right. The ironically named Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 managed to do two contradictory things at once. First, it created bankruptcy law that put up new obstacles for consumers trying to crawl out from under oppressive debt; second, it created the Consumer Finance Protection Bureau to shield U. S. consumers from unscrupulous business practices. Lobbying by the credit industry, however, ensured that the power to regulate credit card interest rates was withheld from the Bureau’s brief. Yes, it took the industry eight years and $100 million in lobbying fees to “make it so,” but they got the job done.

Was there ever any doubt?

The industry’s willful ethical violations don’t stop there, either. As enumerated by consumer affairs journalist Chloe Della Costa, writing in the July 4, 2016 issue of the online journal Career & Business Cheat Sheet, “despite increased regulations put in place by the CARD Act of 2009, credit card companies are still doing plenty of shady things you should know about.”

CARD stands for the Credit Card Accountability Responsibility and Disclosure Act. Its “fixes” of problematic (unethical) practices contain enough loopholes to appease the credit industry.

You’d be mollified, too, by such friendly legislation.

These “sweetheart” regulations still provide no real cap on interest rates. Citing a report in the American Bankruptcy Law Journal , Della Costa notes that the earlier 2005 Act led to “increased costs for consumers and soaring profits for credit card companies”. Neither Act protects us from many other classic credit card tactics.

Consider these industry tactics:

Miss a payment or two? A new “penalty interest rate” now applies, affecting not just the credit card you failed to pay on time but potentially ALL of your credit cards. One of the “protections” of the new law also allows credit companies to monitor your credit reports, and certain transactions showing up in those reports—from applying for a new mortgage to obtaining a car loan—can initiate “penalty” interest rates.

“The average interest rate was 14.9% in April 2015, but penalty interest rates typically hover around 30%, and one subprime credit card issuer staunchly defended its 79.9% APR credit card in 2009,” reports Della Costa.

Nor does paying your credit card bill on time guarantee the original interest rate. With 15 days’ notice, the credit companies can jack up your rate on new balances. Don’t like it? Just pay off the entire balance and cancel your account. Nothing could be simpler . . . or more Machiavellian. [On a personal note: I wonder if the lawyer who came up with that provision was grinning wickedly at the time.]

Della Costa also would have her readers Beware the Minimum Payment! Here’s how, in a Frontline interview, Andrew Kahr, the innovator of the 2% minimum payment, described the “benefits” of reducing payments from 5% to 2%: “. . . at the time, the interest rate was 1.5 percent a month, 18 percent a year. So [cardholders] were reducing their balances, even if they made the minimum payment.” [NOTO BENE: “reducing their balances” is – next to defaulting on a loan – the worst thing a cardholder can do!]

Kahr justified the lower rate as giving consumers access to more credit with a minimum payment that remained the same. “So by making possible higher credit lines, it gave the customer more flexibility, and of course the bank has a potentially much more profitable account.” Extra profit seems almost like an unforseen outcome, the way Kahr explains it.

Yes, indeed: much more profitable. Nearly half of cardholders pay only the minimum each month. In 2013, the Federal Reserve reported “The combined total of charge volume and cash advances using these credit cards in 2012 reached $2.31 trillion, up about 8 percent from the 2011 level. In total, these credit cards were used in transactions that involved over $24 trillion dollars in 2012.”

Blogger Christian Hudspeth, editor at Dun & Bradstreet, examined 2014 profits in his April 20, 2015 blog to report “record-high” credit card balances and profits:

“Take Discover Financial Services, which serves more than 25 million cardholders and makes more than 80% of its income from credit card interest payments. Since credit card balances started rising again in late 2010, the 55-year-old company has boosted its revenue by 16% to a record-high $9.61 billion in 2014, while annual profits ballooned to all-time highs as well.

“The same story holds for industry leaders MasterCard, Visa, and American Express, which join Discover as companies that have enjoyed revenue growth for the past several years, along with all-time record profit in 2014.”

Finally (phew!), while credit card legislation has reduced the number and amount of credit card fees, it remains true that 46% of the fees card companies do collect come from subprime cardholders, those least able to pay. These cardholder accounts, you may have guessed, tend to be the most profitable.

Ooops! I almost forgot to mention one particularly nefarious practice but fortuitously and serendipitously [c’mon, how often does the opportunity arise to use these two words – together?!] ran across this April 7, 2015, piece by Forbes contributor Nick Clements (“Exponential Growth of Online Loans Threatens Credit Card Profits”). Cautioned Clements: “Even if you pay just $1 less than the statement balance, you will be charged interest on the average daily balance during the entire billing period.”

Nice work if you can get it. : {

More anon.

SUGGESTED READING

John Ralston Saul. On Equilibrium: Six Qualities of the New Humanism

_____________. The Unconscious Civilization

_____________. The Collapse of Globalism and the Reinvention of the World

_____________. Voltaire’s Bastards: The Dictatorship of Reason in the West

 

Published by: DeanHove

Married, children, grands and great-grands. I have 3 sisters, all living in different states from each other and me. A couple of college degrees. Jobs all involved writing. I've counted them all up, the jobs I've held since I first bussed tables at 15: there were three in my teen years. Since then, I have held 8 full-time jobs, plus one long-term part-time job teaching college writing classes post-retirement. Haved lived in 8 states--I know, it does seem excessive. The relationship between jobs held and states lived in pretty much explains itself. If my cv seems vague/sketchy, it's because my blog is very much a creation of my critical faculties and my imagination--such as they are. If my writing seems "old-fashioned," it's because I learned . . . well, I'm in my 70s, a fact that pretty much explains everything. Except, perhaps, my progressive views. I'm with Elizabeth Cady Stanton, who wrote: "I will not grow conservative with age." I also believe you shouldn't grow stupid with age. I think I live in the past mostly in my dreams, where I'm always late for class or with a work assignment. Which is odd, because I am punctual to a fault and cannot even imagine how people can procrastinate. Those two things aside, I have few virtues.

Leave a comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s