money on my mind
by arlene winkler

I almost threw the envelopes into the trash when I saw they were from Visa and MasterCard. But at the last minute I opened the identical notices, and learned that due to the merger between BankOne and JPMorgan Chase, the interest rate on my balances would be going from merely outrageous to astronomical. In addition, the cost of late fees and penalties would now hover in the area of nothing-less-than-amazing.

In the last eight years, the major card companies have increased the late fees they impose on us from $10 or less, to $39. More recently, they have been changing the terms of our accounts at a historically high rate, invoking clauses from the fine print of the contract, that any dummy could see with a strong enough magnifying glass, enabling them to double or triple our interest rates without warning or explanation. Here’s a direct quote from the notices I mentioned “We reserve the right to change the terms at any time for any reason.” And by the way, there’s a $15 fee for making a last minute payment over the phone. Mind you, we’re talking Visa and MasterCard, not Joe’s Easy Credit and Check Cashing.

What’s more, under a system called Universal Default the card companies have the right to track your payments on your other debt, and raise their rates yet again should they discover you’re consistently late paying your utilities. In fact, Discover Card recently raised their interest rate to 19.99 percent for a single late payment. Not only that, the raise doesn’t have to follow an event, they reserve the right to look back 11 months for a late payment that could justify the increase.

Universal Default was launched in the 1990s after a steep rise in bankruptcy filings and stayed to become an industry standard. The credit card lobby got congress to enact it so they could watch for signs of trouble and protect themselves with preemptive action. In other words, they were handed a legal right to either call the loan on your entire credit card balance, or raise your rate to the level they deem appropriate.But in the words of Gilbert and Sullivan, “does the punishment fit the crime” – indeed, is there a crime – or was I asleep when they passed legislation that said it’s all right to punish someone who might rob a bank or kill her mother-in-law?

But don’t bother wondering why Federal bank regulators aren’t revisiting Universal Default, to keep it from becoming an excuse for usury. Consumer spending is what fuels America’s economic engine and credit cards are what make it possible. It’s what pulled this country through the last economic downturn, to the tune of $2 trillion.

The way it works:

The typical household now has eight cards carrying about $7,500. That’s about 85 million people the industry calls “revolvers”, because they roll their balances over from month to month and never pay them in full. Without them, credit card issuers would be like any other publicly held company – struggling to please their investors. But with hefty finance charges, that accrue from the moment of the card swipe, the industry is reaping record gains. Last year it was $2.5 billion a month in profit before taxes. No wonder the industry refers to the revolvers as the “sweet spot.” But it gets even more cynical. People who pay their cards off in full each month are known as deadbeats, because they only make 2 ½% a month on them from the merchants. Take my word for it, compounded on an annualized basis that’s some serious money.

The good news is, there’s been a surge in complaints and lawsuits and even a warning from the primary regulator of national banks. But my advice is – 1) Don’t hold your breath waiting for economic justice. 2) Complain loud and complain often, to the bank that issued your credit card, to Visa and Master Card directly, and most important, to John (Jerry) Hawke, the Federal Comptroller of the Currency. His purported mission is to insure a safe and sound and competitive national banking system, but in actuality he has pushed through sweeping new regulations to further preempt state law enforcement authority and to nullify virtually all state laws for national banks and their subsidiaries. 3) Beg or borrow enough to pay down your cards, and then give them the scissors treatment – and be sure to hide the one that you keep for emergencies.

Office of the Comptroller of the Currency (OCC) website: www.occ.treas.gov/mail1.htm

Complaints about regulation: Regs.Comments@occ.treas.gov

Arlene Winkler is a freelance financial writer, specializing in institutional finance. She and her husband use their credit cards for almost everything – from groceries and haircuts to lumber and hardware purchases – and pay them off completely (almost) every month.

Her articles are published in financial trade journals all over the world. But don’t bother to GOOGLE her, they’re all credited to the executives who employ her. A former ad agency president and enthusiastic participant of life on the New York fast track, she moved to Asheville in 2002 with her sculptor husband, Robert Winkler. A mother of three, a grandmother of four, and the author of three screenplays she is dealing with her culture shock by writing a North/South novel under her own name.