Thursday, January 25, 2007

Credit Card Companies Are Under Congressional Microscope

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I was crusing through Fark.com, minding my own business, when I discovered something cool. It seems that members of congress have issues with credit cards just like you and me.

Fark revealed an article from Yahoo! News that says that the rules and practices of credit card companies were under attack during a Senate Banking Committee meeting. Democrat members of the committee want to create laws that urges companies to "provide more details to consumers on how long it will take them to pay off their debts if they make minimum monthly payments, and to rein in solicitations of college students." Bankers say that (surprise, surprise) their practices are fine, but critics believe that credit card company fees are excessive and their terms confuse customers. A study by congressional investigators, for instance, says that the average late fees for credit card bills have increased from $13 (in 1995) to $34 (today).

In a press release of the Senate Banking Committee, during his opening statement, Chairman Sen. Christopher Dodd (D-Conn.) said:
At the outset of this hearing, let me say this about credit cards: I support them. I strongly believe in the product and its potential to give consumers greater convenience and access to capital. I oppose any efforts to ban their use. They are an important component of a financial services industry that is the most dynamic and innovative in the world. And I support the notion that consumers must share the responsibility to better in understanding the terms and conditions of their card agreements, and take personal responsibility for their financial decisions.
However, some serious information makes his question the tactics of these companines, here's some of them:
  • The total consumer debt in America is nearly $2.4 trillion. Out of that, $872 billion is revolving debt, which is essentially credit card debt.
  • The average American household has over $9,300 worth of credit card debt. In comparison, the median household income was about $46,000 in 2005.
  • Americans have never paid more in interest, paying nearly 15 percent of their disposable income on interest payments alone, despite the current historically low interest rate environment.
  • Banks are expected to collect a record $17.1 billion from credit card penalty fees from 2006, a 15.5% rise from 2004 (according to R.K. Hammer, a bank-advisory firm, as cited in USA Today). This is a tenfold increase from 1996, when card companies raised $1.7 billion in revenues from fees.

Why do you think that there's a huge increase in fees? Inflation? To persuade customers to pay their bills on time? I wish I knew. But I know one good way to handle late fees: don't be late. I used to do that, you know. Once in a while, I somehow tripped up on my payments and ended up paying a $39 late fee. It was extremely high, but to be perfectly honest, I kind of deserved it. Believe me, I know it's not easy to keep up with this stuff. But when you don't live up to your responsiblities, you get punished. But then again, banks gathering $17.1 billion in fees does bother me quite a bit.

What are your thoughts?

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