Thursday, June 18, 2009

Predatory Lending

My credit is crap, and I'm OK with that. I prefer living in the now on a cash available basis.

It's crap because of choices and decisions I made in the past that don't need to be delved into here. Perhaps another time.

Since my financial reboot, I have been getting lots of offers for credit cards.

Like this one.

"XAVIER ONASSIS,

You have been Pre-Approved for a Platinum Visa card with a credit line up to $1500."

They go on to tell you how fabulous this offer is, how easy it is to apply, all of the additional features they offer, blah, blah, blah.

The average consumer might think "This is my opportunity to rebuild my credit! Here is a company willing to give me a second chance! They've looked at my credit history and pre-approved me! They like me! They really, really like me!"

Umm, no, Sparky. That's not what is going on here.

The very first important piece of information listed is your Annual Percentage Rate.

23.90%

Yeah. You read that right. Seem excessive? Ever wonder why most credit card companies, including this one, have their HQ in Delaware?

It's because Republican Delaware Governor Pierre DuPont led an effort to redraft Delaware's tax laws to allow credit card companies to charge whatever interest rate they wanted to. No caps, no limits, no regulations. Go for it.

They can stick their predatory dicks as far up your ass as they want and you can't even scream for more lube.

So there's that.

Other prominent disclosures at the top are

Cash Advance Transaction Fee - $5.00 or 3% of the advance, whichever is greater

Minimum Finance Charge - $1.00 for any billing cycle in which a billing charge is due

Late Payment Fee - $32

Over Limit Fee - $30

Closed Account Maintenance Fee - $3 per month after account closure until paid in full.

The fine print in reduced font size and conveniently grayed out (as though it's not important) tells the informed consumer (like me) just how badly they can be butt fucked.

First of all, the Minimum Credit Line available is $200. Which is the credit line that people like me will get. People on this mailing list will NOT be getting the $1500 maximum. Don't kid yourself.

Immediately after that is the disclosure for ENROLLMENT AND ANNUAL FEES:

"A one time-only Enrolment Fee of $69 will be billed to your account when it's opened. The Annual Membership Fee of $69 will be billed to your account in monthly installments of $5.75 per month. These fees are not refundable unless you cancel your account within 30 days of the date your account is opened and if you have not used your credit account during this 30-day period."

But wait! It gets better!

"AVAILABLE CREDIT INFORMATION: The above Enrollment Fee and he first installment of he Annual Fee will be billed to your account when it is opened and will reduce the amount of your initial available credit. If your account is established with a $200 credit line, your initial available credit will be $125.25. If you select any optional feature for which a fee is charged, your initial credit will be further reduced."

One of the most prominent "optional features" is the Credit Protection Program.

I'll save you the legalese, but the bottom line is it's a program which, for a small monthly fee, it promises to allow you to cancel the "Payment Due for the Current Month" for up to 6 months and up to a maximum of $10,000.

Sounds good, right! Especially in this economy! You hit some hard times, you can just evoke your Credit Protection Program and not have to make any credit card payments for up to 6 months! Let you get back on your feet! AWESOME CREDIT CARD COMPANY!

Yuh huh.

Lets look at

AMOUNT OF PROGRAM CHARGE: The monthly Program Charge is based on your Account balance each month multiplied by the unit-cost, which is $0.96 (96 cents) per $100, or part thereof.

Alrighty then. Let's recap.

You're an average (stupid) consumer. You get an offer in the mail telling you you are pre-approved for a Visa card with a $1500 credit limit with a Credit Protection Program that will keep you from getting in the sort of problem you had before. They are willing to give you a second chance! Awesome!

You apply for the card and, of course, you get one.

You tuck it away in your wallet, not wanting to get back into debt again, but saving it for future emergency use.

Except.

It comes to you with a $69.00 balance and a guaranteed monthly charge of $5.75. This invokes the minimum finance charge of $1.00 a month in addition to the 23.90% finance charge.

If you went for the Credit Protection Program, there's another $0.96 per month per $100 of balance.

So even if you never swipe the card for a purchase and it just sits in your wallet, charges and interest rates increase without any action on your part.

Your initial $125.25 available credit is quickly overcome by automatic monthly charges and associated interest rates.

This will push you over your $200 credit limit and kick in the $30 Over Limit Fee.

If this gets hard to manage and you get behind, the $32 late payment fee starts to accumulate, adding to your balance to which the 23.90% interest rate is applied.

Get far enough behind that they close your account, and that triggers the $3 per month Closed Account Maintenance Fee.

So, bottom line.

You can optimistically apply for a seemingly generous credit card offer, never charge a dime on it, and immediately find yourself in debt over your head and very, very quickly get yourself in a downward spiral of fees and interest from which you can't escape.

This, my friends, is why unfettered Free Enterprise does not work.

Federal regulations are needed to call Shenanigans and say "No. I don't give a fuck what state you are in. You can't do shit like that in The United States of America, because we don't play that shit."

9 comments:

Joe said...

My interest rates almost doubled in the last few months. I'm paying off all the balances and going cash, just like you.

Capt. Geoffrey Spaulding said...

Great research and post XO.

Thanx!

Cheers-
Groucho

I Travel for JOOLS said...

What Visa did was in my opinion unethical and should be reported to somebody - tv perhaps?

Now, I can't let ya get away on blaming Visa's practices on a Republican. Here's the REAL story on DuPont:

"Du Pont helped establish the credit card industry in Delaware. With the cooperation of the leadership of both parties and many others in state and local government, the Financial Center Development Act was passed, effective June 1, 1981. Intended to attract two New York state banks that would hire at least 1,000 employees, it actually brought over thirty banks to the state and created some 43,000 new finance related jobs. Wilmington, and the rest of New Castle County, were completely transformed. Du Pont's action led the state away from its previous dependence on the chemical industry in general and the Du Pont Company, in particular."

If you can provide any evidence that what he did allowed credit card companies to charge whatever interest rate they wanted, I'll buy you lunch..and a beer.

m.v. said...

When you had your "financial reboot" did you (may be not you personally but people who have bad credit due to bancruptcy)owe any money to credit card companies that you didn't have to repay anymore? you (or many people with bad credit) fucked the credit card companies out of their money and they are trying to fuck you out of yours. seems fair to me. except they just sent you an offer you CAN refuse while you went to court and they couldn't refuse yours. I paid no interest on credit cards in ten years and get $300-500 cash back every year. I can't complain.

emawkc said...

Anyone who accepts the offer you describe is a fool. And you know what happens to a fool's money.

faithstwin said...

You know what m.v.? I can see what you are saying but I have a situation where I have done everything I can to work with the cerdit card companies I fucked myself with in trying to keep my business open a couple years ago and only some of them are working with me. The others CLAIM they want to, so you set up a payment plan and then you know what they do? They fucking fraudulently pull money out of your bank account, strand you in NYC with your children and no cash available, then ask you to please pay more so you can save yourself from going to collections.

Yup, that happened to me and I am now having to consider bankruptcy because I can NOT pay that balance I tried to work with them on. AND that balance exists because of MORE fraud I can't prove on my end.

THEY fucked ME. And my only choice may be to fuck several others just to get this monkey off my back.

m.v. said...

there is no company or a business which I will trust with the access to my accounts. I use online banking but never automatic-withdrawals, etc. when I needed an account for paypal I opened one in a separate bank with 5 bucks in it. sorry you had to learn the hard way.it always suprises me that people somehow think that a huge corporation has a soul. it doesn't, that should be your starting assumption for all business transactions.

Joshua Xalpharis said...

I hope that I never have to sink to the level of paying for the privilege of being raped.

I can go to prison and get that for free. That, or hang out on Castro St.

Stacey K said...

Those card offers are sent to high school seniors and college students too.