Credit Card Crunch

Out of work? Trying to make ends meet? Using too much plastic?

The federales are in session and determined to protect public morality by keeping your friendly, neighborhood credit-card abuser from welshing on his debts.

On March 10, the Senate passed S.256, the charmingly named "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," sending it on to the House.  The House is expected to pass it quickly, and the Criminal in Chief is just ahankerin' to sign it.  Time for Republicans to compensate the poor, downtrodden $30 billion/year credit-card industry for its $30 million in campaign largesse.

What does this mean for ordinary Joe Slabotsky?

Basically, Joe, do not be young and foolish.  Do not succumb to the dozens of easy credit offers from the plastic peddlers to teens and college students, just so you can play big spender on Spring Break.  After a few such sprees, you're likely to fall into a cycle of unsecured debt growing faster than your income, which debt can fester into a gaping wound until you die and waft upward in a state of grace unto that debtor's prison in the sky.

Until this act (and for a grace period of 180 days after passage), if your debt situation became totally hopeless with medical bills, family emergencies, military service, identity theft, and whatnot, you could file under Chapter 7 of the bankruptcy code and erase almost all your debt.  The new bill requires that most people filing for bankruptcy do so under Chapter 13, where you have to pay most of your debt under a court schedule.

Note  -  It occurs to me to ask why the federales are making financial law.  Isn't this a state function, according to that barbarous relic we call the US Constitution?  Really, fellas, I don't see that you have any authority here.  Now I'm asking you nicely, put down your guns and walk away.

Other provisions abandon any caps on interest rates.

We used to have a concept known as usury, which was an illegally high interest rate—I remember a number like 8%!  To discourage loansharking (i.e. unsavory competition), they'd toss you in the pokey for charging 9%.  Usury is roundly condemned in the Old Testament, just as the Bible declares debts are to be forgiven after seven years.  This didn't stop red-state Bible thumper Charles Grassley (R-Iowa) from being point man for the banks.

Some other provisions, according to LA Times columnist, Robert Scheer "place mothers and their children behind credit card companies in the line for a bankrupt ex-husband's paycheck, for example, which is positively Dickensian."

The new bankruptcy bill does seem to make it harder for the well-to-do to shelter assets from creditors.  But the moneymaker is the millions of Joe Slabotskys who can now remain in perpetual debt addiction to the debt pushers.

An appropriate image:

The debt pushers don't want to let their debt junkies get off the hook by going straight.  It doesn't matter record numbers of bankruptcies haven't dented the pushers' profits at all: they bitch about deadbeats bailing, but credit card companies' annual pretax profits have grown 250% in the last decade.  In the previous 15 years, 2004 was the industry's most profitable.

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Let me tell you my own personal story about credit card companies.  In the old days I sinned and was a plastic junkie of distinction.  Fortunately, I made a lot of money doing contract work in IT during the 90s.  (President Bill, to his everlasting shame, was more interested in diddling Monica et al than the economy.)  So, thankfully, I was able to pay off the principal.

Nowadays, I maintain a credit card for convenience and keep the principal below $500, generally paying it off every month.  It's a MasterCard through a bank that contracts its card processing to the giant MBNA.

A few months ago, while documenting my expenses, I noticed that during two billing periods in a row MBNA nicked me for late fees of $39.00.  Each time, the payment was received a day late.  I also noticed the due date for payment on these statements had steadily crept downward over the past year and a half.  Say, in July 2003 the bill was due on the 25^th.  Late in 2004, the due dates had moved all the way to the 17^th!

Okay, I know you're supposed to go over these statements with a fine-toothed comb.  I should have noticed the descending due date and sent my payment in on time.  But I naively thought these due dates move only a day or two from the original.

So I called MBNA and after some trouble got both of the late fees reversed.

Then this year, February, same thing.  Only they'd moved the due date all the way to the 14^th!  (My payment arrived on the 15^th.)  Again, late fee, 39 bucks.  I call, this time I have to go to the supervisor.  I stay cool and persistent, and they relent one more time.  Basically, I gave him the following argument:

"Hey, dude, this descending due date is a pretty sneaky way to do business.  Who's an accountant?  If I didn't know any better, the intent of the descending due date is to generate outrageous late fees.  You multiply $39 times, what, a few million customers, pretty soon you're talking 'yachts all around' for the board of directors.  It ain't right."

I doubt many customers have the time to persuade the MBNA company guys of the virtues of fair play.  So the injustices, at least shoddy business practices, continue.  You know what, I'll bet the people who get snared by this corporate chicanery are the least able to pay.

Let's see, nope, nothing in the new bankruptcy bill to prevent sneaky billing practices and exorbitant penalty fees—not to mention any provisions banning penalty increments to usurious levels of interest rates on remaining balances.

Seeing as the ruling class is so friendly to the debt recovery process, one would expect they'd insist that corporations declaring bankruptcy pay back their shareholders on some schedule.  Oddly this doesn't appear to happen.  A few years ago, recognizing the retail giant Kmart was in trouble, I bought a few hundred shares of its stock at approximately $5/share, taking the risk based on civic pride.

Kmart went through a reorg thingie, with gurus going to and fro, and an occasional criminal prosecution.  Still nobody could stop it from going belly up.  During which time I checked on my broker account, and sure enough, goose eggs beside the Kmart symbol.  EKG went flat.  Patient expired.  Fair enough, I gambled and lost.

Then why is it the value of Kmart stock is now ~$120 per share?!  Shouldn't that be my stock?  I don't remember selling my stock.  Let's see, I have 300 shares at $120 = $36,000.  Not quite enough for a nice BMW, but still a decent return on investment.  Why doesn't the new bankruptcy bill figure out a way for Kmart to pay me something with their newfound booty?

And why don't our Senate and Congressional Representatives answer these kinds of questions?