Tuesday, 21 April 2009
A Nasty Little Credit Card Surprise
UPDATE: From The Washington Post this morning:
"The heads of the credit card divisions at 14 major banks are set to meet with the president and his top economic officials at the White House on Thursday, administration aides confirmed yesterday. They are bracing for a warning that the president will join the chorus of condemnation if they resist efforts to protect their credit card customers from unfair practices."
Read more here under the headline, "Card Issuers Brace for Stern Warning."
Crabby Old Lady never carries a balance on her credit cards. They are paid off each month except in extraordinary circumstances.
Ollie the cat's veterinary care for a life-threatening condition over Thanksgiving weekend was one of those extraordinary circumstances - thousands of dollars. Last month, Crabby finally paid the remainder on her Citi credit card - $310.43.
This last payment was made before the due date and Crabby has not used that credit card since Ollie's illness, so she was surprised Saturday morning when an electronic bill from Citi arrived. The balance should be zero and therefore no statement, but to her astonishment, there was a charge for $3.06.
Perhaps, thought Crabby, she had mis-typed the amount when she paid electronically. A check of her bank statement showed she had paid the correct amount. Crabby was puzzled. She pays off her main credit card from Chase every month without additional charges. What could this be? Then she read some fine print on the statement:
“We calculated the finance charges you owe us by using the Previous Balance shown on this billing statement. You owe us these finance charges because we assess finance charges daily on all your balances (including your finance charge balances) until we receive payment in full.”
In other words, it is not possible to pay off a balance on a Citi credit card – there is no such thing as payment in full.
Yes, Crabby knows the amount in this case is minuscule, but that is not the point. Calculate such additional fees from millions of customers over a year and you get a pretty good idea of where the cash comes from for those executive bonuses.
Crabby is wondering now if, after she pays the $3.06, there will be a bill next month for three cents. She would almost have been better off borrowing money from the local loan shark – which is a pretty good description of the consumer business practices of big-bank credit card issuers.
Credit card horror stories abound. In addition to interest rates jacked up to as high as 29 percent with or without a default, there are huge over-limit charges, phone payment fees, cash advance fees, sky-high late payment penalties. On the other end of transactions, credit card issuers charge many fees to merchants, ranging from one to six percent, for the privilege of accepting their credit cards.
Some might call all these fees gouging and in fact, as Congress gets going this week after their two-week vacation, both the House and Senate are considering a credit card bill of rights to require greater disclosure and to limit the banks' ability to raise interest rates on existing balances.
Too little, too late, as far as Crabby Old Lady is concerned, and one more instance of big banks enriching themselves on the backs of taxpayers.
As to the bigger economic picture (all this is related), the parent company of Crabby's credit card issuer, Citigroup, has received $50 billion in bailout cash and guarantees over four separate payments from the federal government (you and me) since last fall.
During this period, Citi almost purchased a $50 million private jet until a phone call from President Obama put the kibosh on that. But they did pay out, with no White House objection, eight times as much for naming rights to the New York Mets new ball park. In the current circumstance, that appears a tad excessive to Crabby.
Aside from deregulation over the past 20-odd years, one of the reasons banks are allowed to charge usury rates, of which Crabby's $3.06 is a part, is that the government is filled with former banking executives who are protecting their own, just as many bank executives are former high-level government officials. And that is affecting how the economic crisis is being handled in Washington.
In a disturbing story in the May issue of The Atlantic, Simon Johnson, a former chief economist for the International Monetary Fund (IMF), explains how the banking industry has taken over government and why the recovery, as it is currently operating, cannot succeed. He writes:
”...the government's velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of the financial sector accustomed to doing business on it own terms, at a time when that behavior must change. “As an unnamed senior bank official said to The New York Times last fall, 'It doesn't matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns.' But there's the rub: the economy can't recover until the banks are healthy and willing to lend.”
I urge you to read the entire story. It is complex, but Johnson is a good writer and it's not hard to follow. For some lighter and shorter reading on bankers' arrogance, try The Wall Street Whine: Goldman Sachs Edition from Dean Baker.
As to Crabby Old Lady's minor $3.06 issue, she considered not paying it, but a black mark on her credit history is not worth so small an amount. Then she thought to have a phone conversation with Citicard customer service, but you know how that goes. Crabby's time is worth more than $3.06 for a long wait on hold followed by someone reading from a script about “company policy." So she will pay the fee.
Of course, that's always been part of corporate standard operating procedure – make it too hard to complain - so consumers must rely on the government which, in a massive Catch-22, is owned lock, stock and barrel by the banks. Crabby is not holding her breath for that congressional credit card bill of rights.
[At The Elder Storytelling Place today, Fred First ruminates on Rites of Passage: Growing Down.]