Here is a short film from 1960 to teach about the wise use of credit. (Windows Media File) It seems that things have changed a bit. Banks don't rely on Character, Capacity, and Capital anymore. They issue creditcards to anyone who will have them. They now target those who have just filed bankruptcy - not to help them, but because they know they can't file bankruptcy again for a long while.
The movie suggests that wise consumers read the fine print. We simply don't do that anymore. Creditcards are issued based on signing the disclosure, which serves as the contract. Creditcards have a clause that says you agree to the terms of their contract that will be forwarded after the account is opened, with the creditcards in the mail. If you ask to see it before you open the account, they will refuse to disclosue it. So a wise consumer, according to this movie, would refuse to open the account.
The movie suggests that we borrow to make large purchases instead of saving for them first, but acknowledges that some people do. It is funny how they didn't even mention creditcards. It is also interesting that mortgage terms were as much as 25 years! Today, they can be interest only - or perpetual for a lifetime. It is easy to see that our standards have deteriorated. Lending has become predatory, because the banking industry can't be profitable unless it makes more money off the loans it makes. Creditcards have become the cashcow of banking. That means making riskier loans to justify higher charges, in combination with changing laws to boost collection power. Creditcards are the key today for banks.
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The role of credit counseling in the nation's financial system deserves a look. The industry was created in the 1950s, by the banks and for the banks, and it is still controlled and funded by the banks to this day. Recent action by the FTC and IRS, while generally good, does nothing to address the root causes of the problem -- causes that involve predatory lending by bankcard companies and their stealth control of credit counselors. There's a story to this, and the BR legislation that needs to be told. Consider the fact that the BR legislation is now dumping distressed consumers on a dysfunctional industry that is in crisis and is under attack from multiple state and federal regulators. How can this make sense?
Kevin Fortuna
Dedalus Capital, Ltd.
Kevin Fortuna
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