"The Credit Card Sinkhole" (or how the CC companies screw us)

[ailsagirl]

It didn't matter that the World Trade Center towers had just fallen or that her soldier husband was facing combat in Afghanistan or that the anthrax scare had slowed the mail. The punishment for the California resident's late credit card payment: an interest rate increase to 27 percent, which added $300 per month in fees to an already hefty balance.

Nor did it matter when the payment of an other California cardholder arrived on the due date-- but after the hour his card issuer had set as a deadline. He, too, got late penalties.

=snip=

The latest punishment--known as "universal default"--allows for virtually any late payment to trigger interest hikes and additional fees on other loans. Heather McGhee of Demos, a New York public policy research group, says, "Today, with universal default, if you're late paying your credit card bill, your insurance, mortgage, or car loan rates can also increase."

=snip=

Not that card issuers make it easy for customers to pay on time. In addition to strict hour deadlines, bills are now mailed closer to the due date, leaving customers with one week less to submit payment than a decade ago.

From AARP Bulletin, April 2005, pg. 30

[Warpy]

1. Yeppers, and that plasma TV that looked like a great deal

at 6.9% is going to go up to 29.9% really fast.

Don't expect any help from the bunch in power in either party, either

[Mnemosyne]

2. I have a friend that this happened to and she is a very hard working woman

but couldn't feed her kids or pay for health insurance. So she ended up using her card for food and medical bills. Now she's filing for bankruptcy. Hope she beats the new law. She didn't buy plasma tv's or fancy clothes or $80 sneakers for her children. She's hardworking woman and the daughter of a WW11 POW from the Battle of the Bulge. I believe this is the case more than you would think.

[gizmo1979]

4. I can relate to your friend.

Been there doing that.

[Mnemosyne]

6. I'm sorry you're having it rough. I know too.

The ones who say money doesn't buy happiness are usually not worried about how to keep the heat on!

[hfojvt]

3. I do not trust AARP

They have never caught a rabbit, they ain't no friends of mine.

I was in customer service training for a CC company on 911. Late payments due to 911 were cancelled for anyone who asked. Also I believe there was a payment deferment program for active soldiers.

As far as "universal default" that seems to involve other companies besides CCCs. It is hard for me to see how insurance rates would be affected by a credit score, but I suppose stranger things have happened.

There are enough real problems with credit cards so that hype should not be necessary. Nor is it fair to blame an entire industry for the behaviour of its worst member.

[w4rma]

5. Naive. Research. (nt)

[ailsagirl]

7. "universal default" is real alright... I just googled it

I had never heard of it until I read about it in AARP. I have no reason to mistrust them. It's the damn cc companies we have to watch!!! They're worse than I thought!!

Pay one bill late, get punished by many
By Bill Burt • Bankrate.com

A record number of credit card companies have built "universal default" clauses into their agreements, which allow them to raise your interest rate if you're late making a payment -- even to someone else!

The provision, generally buried in the fine print of your credit card agreement, basically says that if you are more than 30 days late on any payment to anyone, the interest rate on your credit card could shoot up and your credit score may be damaged.

The problem has reached an all-time high, say consumer credit experts.

"Universal default complaints are definitely on the increase -- at a disturbing rate," says Paul Richard, executive director of the San Diego-based non-profit Institute of Consumer Financial Education. "More than one-third of major credit card issuers now say they act on these clauses regularly." A recent survey found that a staggering 39 percent of credit card issuers said they apply the rule to customers, even if they had no late payments on their own card.

http://www.bankrate.com/brm/news/credit-management/20040120a1.asp

Here are a few more:

http://www.fool.com/news/mft/2005/mft05012604.htm?logvisit=y&source=eptyholnk403200&bounce=y&bounce2=y

http://credit.about.com/b/a/040551.htm

http://www.financial-education-icfe.org/financial_education_published_articles/the_peoples_money/universal_default_traps_consumers_who_pay_late.htm

[hfojvt]

8. AARP is not a friend of working people

They are all about "senior benefits". They do nothing for a 19 year old minimum wage worker, or a 29 year old temp, or a 39 year old in a no benefits job, except perhaps increase his/her taxes so the government can pay more benefits to elderly people, regardless of how wealthy those elderly people are.

Anyway, what you described is not new to me, since I worked for a credit card company. In the card agreement it says they can hit you with default rates if you are late on just one payment.

The AARP statement said that if you were late on a credit card payment, that would (or could) lead to increases in your mortgage rates, insurance rates, car loan rates. I just find that hard to believe, although I cannot remember all the details of my mortgage contract or car loan. I would be surprised if there was that much flexibility on rates for a secured long-term loan. Nor does it seem logical to tie insurance rates to a credit score, but who ever said the insurance industry was logical?

I might be surprised if I re-read my mortgage contract, but sometimes things are in contracts, like the CC user agreement, but they are almost never done (like going to default pricing after one late payment. The contract says they can, but they almost never will.)

[DavidFL]

9. Although you don't seem entirely willing to believe it...

not simply default rate, but universal default exists. That is, a consumer's default on one credit account is viewed by their creditors who practice it as a default on all the consumer's accounts. It doesn't matter if the consumer has only fallen behind on one account and is current with the others. I have seen it happen to people. Some clients from where I work got behind on one credit card because of unexpected medical bills and not too long after that, they received a letter from another of their credit cards -- completely different company by the way, and an account they were current on -- stating they were closing the account to prohibit further charges being made because of the default on the other card.

How did they know? Because Congress thought creditors should have the right to pull customers' credit reports periodically and review them without having to tell their customers that they did so. Next time anyone gets a copy of their credit report, check at the end where it lists who's been looking at it and you'll probably see regular inquiries by many of your creditors. Sometimes you'll see regular inquiries by companies who want to be your creditor too.

Anyway, not all companies have universal default clauses in their member agreements, but many do and others have added them, so also check the amendment notices they send sometimes.

And no, there is no connection between a person's credit rating and how good or bad of a driver they are. Insurance companies tie rates to credit scores because they learned its an easy way to make money. I remember a couple years ago NY State was drafting legislation to stop this practice, if they haven't passed such a law already, because there was no legitimate purpose for it other than helping insurance companies increase their bottom line.

[elare]

10. I would assume

... that any group called the American Association for Retired People would quite obviously be all about "senior benefits".

[rman]

13. AARP is no friend of capitlist exploiters

Working people become seniors.
You will some time be a senior.

[hfojvt]

19. not everyone lives that long

An unfair system is not any less unfair just because some people live long enough to be exploiters (or beneficiaries). And what I have been hearing since I was 20 is that when I get to fifty I will hear "oops, there are too many boomers and Xers so now we cannot afford to let people retire or give elderly people any benefits."

The principle behind exploitation is basically "you work, I eat". Retired people are eaters, not workers. In the sense that they are living off the fruits of their previous work, there is nothing unfair or exploitive about it, but to a large extent they are living off the fruits of current workers. Because AARP gives them the political clout to tilt the system in their favor, and maybe also because about 80% of Congress is over the age of 60.

[rman]

22. You misunderstood me

The capitalist exploiters i mentioned are the owners of big corporations who benefit from Bush's "steal from the poor, give to the rich" sceme (ie the taxcuts, intended privitization of SS). The elederly who benefit from SS and the likes have worked and payed taxes for most of their lives in order to be able to benefit from it - what's unfair about that?

[rman]

12. I don't trust CC corporations

-

[QC]

16. "insurance rates would be affected by a credit score"

My car insurance rates more than doubled after my bankruptcy--and that's with the very few companies willing to issue me a policy at all. Most turned me down.

[rman]

11. Frontline/NYT docu: "Secret History of the Credit Card"

In "Secret History of the Credit Card," FRONTLINE and The New York Times join forces to investigate an industry few Americans fully understand. In this one-hour report, correspondent Lowell Bergman uncovers the techniques used by the industry to earn record profits and get consumers to take on more debt.

http://mysite.verizon.net/res7dhyg/slaverevolt_finance.html
(at the bottom of the left column)

[Vinca]

14. My Credit Card Pledge.

I WILL NOT use the damn thing unless it's a dire emergency and each and every week I will send them an extra $100 until it's paid off. I will never be a right wing cash machine again.

[hfojvt]

17. sounds like a good plan

but consider taking advantage of a balance transfer too. If you are getting offers in the mail, taking advantage of one could mean that part of your balance is charged a lower rate. Be aware of the catches on some of those offers though. Do not use the card which has a balance on it or you will soon be paying the "purchase rate" on the entire balance. I always say the rate is 0% if you pay the balance in full every month.

[ailsagirl]

20. Don't the vultures get $$ even if you pay your balance off

every month? It must be the merchants who have to pay whether or not you pay off your balance. So the cc companies get $$ regardless. But at least they won't be getting interest-- not if I pay mine off every month. I'm not at that point quite yet but that's my goal.

I wonder about American Express-- don't you have to pay off the balance every month? Perhaps it's worth looking into.

To those of you who can get by without these cards, my hat's off to you!!

[H2O Man]

15. I've never had one.

I have never had a credit card, and have no plans to ever get one. When I applied for a bank loan a decade ago in order to buy my house, the fellow at the bank acted as if I were from another planet. He asked me how I survive without credit cards, and I said quite well. I paid off the loan in ten years, as opposed to the thirty the loan was for.

While money is not a central interest in my life, I try not to go into debt, especially to those who charge outrageous interest rates. I view credit card debts as a lack of discipline.

[hfojvt]

18. very sensible

but it can make it harder to get a loan. I started with a gas credit card. It is nice to make trips without carrying alot of cash. I would not have wanted to goto Europe without my credit cards, although I ended up in one podunk town in Deutschland where they would not take it at the Bahnhof. And I also happened to not have enough Deutschmarks for the train ticket to Amsterdam, and podunk town would not exchange dollars either.
Also, I do not own a car, but I rent one when I need one. You cannot do that without a credit card. So far my platinum card has saved me $25 because it has auto rental insurance as a benefit so I can refuste the insurance from the rental company.

[amazona]

21. I question that anthrax example

When we had a serious flood that disrupted the mail, we were allowed a month for mailed-in payments past the normal due date. Even the IRS announced that they would allow several weeks grace period. This was in the mid 1990s but I don't remember it being any different here during the anthrax scare. The whole country knew the mail was slowed at that time.

The conservation movement is a breeding ground of communists
and other subversives. We intend to clean them out,
even if it means rounding up every birdwatcher in the country.
--John Mitchell, US Attorney General 1969-72

[CAMANY]

23. Do everything online

Solves this problem instantly.