Thursday, March 27, 2008

Creditcard Issued to a Tree

With all the talk these days about how irresponsible creditcard holders are with their irresponsible spending, running up large balances and tripping the "universal default" clause, we don't often hear about how irresponsible the banks are, and how we are manipulated by the system. There is a new documentary film out you should see about this.

A story confirmed on Snopes tells us about how a creditcard was issued to a tree called "Don't Waste A Tree". How does the creditcard company screen applicants? Or do they? As a parent, it is vital that we monitor our children's credit reports to make sure they aren't issued a creditcard. There have been cases, cited in Robert Manning's book "Credit Card Nation", where creditcard companies have attempted to sue parents for their children's debt when the parents were completely unaware of the account. He also tells of a case where a law student committed suicide because of the pressures of his creditcard debt, and complaints to colleges and legislators for the numerous documented cases like this are ignored.

Tuesday, March 18, 2008

Some of the Tricks and Deceptions You'll Find in Creditcard Agreements

You have read about the tricks creditcard issuers play, here is a list of some of them:

  1. Constantly advancing due dates each month and other due date tricks. ( survey found nearly half of all credit card holders missed payments in 2006, the latest info available.)
  2. Double-cycle billing, collecting interest on balances already paid
  3. imposition of repeated fees for one single credit limit violation
  4. Always applying payments to lower interest balances first, regardless of what came first.
  5. Disclosure requirements are used to obfuscate, not to inform.
  6. The typical agreement is over 30 pages of incomprehensible text, to discourage anyone from reading it, or understanding it.
  7. Referencing complex and technical terms referring to interest rate calculations for pages, only to conclude that they reserve to change the terms at any time for any reason.
  8. Bank of America, Capital One, Citibank, and J.P. Morgan Chase have all testified before congress that they will not engage in universal default, yet in Feb. 2008 issue of Money magazine observed the five major issuers (80% of the market) officially practiced it.

The agreements violate basic contract law, yet the courts will still enforce these provisions.

  1. Using universal default and any-time, any-reason re-pricing.
  2. Not giving fair notice of interest rate increases
  3. Refusing to let card applicants read the terms of the agreement before the card is issued, and hiding material terms from the language of the agreement through open ended clauses.
  4. Redefining the ordinary meaning of terms such as "fixed rate" and "prime rate" to deceive cardholders with hidden meanings.
  5. Unlimited ability to change the credit limit without the consent of the customer.

(Most of this data is taken from Elizabeth Warren's Testimony before the House Representatives March 13, 2008.)

Sound reasonable enough to carry a credit card? Think they'll never enforce those terms? Think again. These companies will charge a late fee for a payment that is one day late, default the account under universal default terms, and raise the interest to the default terms. If that puts the account over its credit limit, they charge over limit fees - all for a payment that is credited to the account one day late, sometimes at the negligence of the creditcard company themselves.

Friday, March 14, 2008

Consumers Are Denied A Hearing in Congress

There was a recent hearing in congress about credit card abuse, to talk about a bill for additional consumer protection. It would be very educational to read Elizabeth Warren's testimony. (Adobe Reader required) This was in the House, it is just as bad in the Senate. A number of years ago Louis Freeh lied about MBNA's universal default policy in his sworn testimony before the Senators, acting as the General Counsel for them, and no one cared. See a previous post on this blog about it.

The surprising thing about this hearing (or maybe not if you realize how corrupt congress is) is that there were consumers there who flew to Washington to testify at the hearing about the abuses of the credit card companies. They were not allowed to testify without providing unlimited disclosure of their account activity with the credit card company. That might seem fair on the surface, but the request to ask the credit card companies to back up their claims with documentation was denied. Elizabeth Warren writes about it here.

Are you sure you want to do business with these guys? Are you sure that credit card agreement is not a threat to your financial and legal security?