Anybody who has spent his whole adult life looking at credit card statements and marveling at the business arrangement in which he finds himself trapped must wonder: what’s the difference between this and a con game?
The answer is, there aint’ no diff, except what the finance industry does is permitted by law. Regulation is not poison to the financial industry; it depends on it. The finance business couldn’t live without law: they depend on the sheriff and the courts to enforce their terms of payment. I don’t think it would be harmful to the industry if we enforced, by law, a little more transparency and fair dealing. So, I’ve got two proposals.
You remember 20 years ago when you got credit card offers, there was this tiny spreadsheet included in the offer that showed you all the essential terms in simplified form in large type, and to compare two offers all you had to do was hold them side by side? The spreadsheets looked the same except for the numbers in the boxes, because that was the law, and the consumer was thereby protected against trickery in finance. That was instituted in the 1970s, because government saw that dirty tricks were going on, and decreed that the terms had to be explained in a standardized format so obvious that a near moron could tell what he was buying into. In the 80s and 90s the rules were relaxed, I guess because the Republicans took pity on the heartbroken bankers who felt locked out of easy profits, and today, it takes an accountant and a lawyer to explain you the rules of a credit card. My proposal: bring that simple spreadsheet back. Give me clarity again.
The second proposal concerns the flexibility the cards have to adjust your interest rate. If you borrow too much money from other people, they can raise your rate. If you fail to make on-time payments to your electric company, your credit card company can raise your rates. That’s fair as far as extending you new credit goes, but they can raise the rates on money you already owe. That’s not pricing the cost of doing new business according to risk… that’s restating the terms of doing old business! And, you don’t even have to harm your credit card company to be robbed this way… if anybody in the financial universe got a late payment from you, they get to reprice your old loan! So, my other proposal is this: when you borrow money from a credit card, the prevailing rate when you borrow will stay the same for that piece of debt until you pay it off. And, the creditor will apply payments against your debts in the order they were incurred. If you borrow $2000 at 10%, then $1000 at 7%, your first payments go against the first $2000. And if you default on some other bill, they can raise your rates on new loans to 20% or even cut you off, but that original money stays at 10% and 7%.
This won’t force lenders to subsidize bad customers. It’ll just force them to be clear-eyed about the business they take on. It’s an honest deal for the lenders and borrowers alike. It’s needed, because the only thing that keeps finance indistinguishable from three-card-monte is law and regulation.
