Perfect Credit? You're Screwed.
Imagine going into your favorite retailer and when you're checking out, the clerk asks if you want to apply for their in-store credit card to save 10% on your purchase. Why not, you think, and you quickly submit the application. It comes back declined. That's not possible, you explain, I have perfect credit. Sorry sir, the clerk apologizes, that's why you were declined.
This very thing happened to customers of outdoors retailer Gander Mountain, spurring a recent lawsuit. Gander Mountain's credit card partner, World Financial Network, claimed that customers who manage their credit responsibly aren't profitable, and the company therefore wasn't interested in their business.
"The only true deadbeat customer is someone who has a card and never uses it," said Curtis Arnold, who runs the credit comparison site CardRatings.com. "Just having good credit alone in today's market is not enough for that customer to be profitable."
The banks are losing an estimated $12 billion per year in credit card fees that recent regulations have curtailed. Now they're scrambling to make up the difference any way they can, from charging annual fees where they didn't exist before to enticing customers to use their cards in financially irresponsible ways.
Add to that the fact that credit card agreements are unreadable to the vast majority of the American population. Since only 20% of Americans read at the 12th grade level the agreements are written in, 80% of credit card customers don't even know what they're signing.
Now, you guys know how I feel about debt and personal responsibility. For the longest time I was happy to blame consumers for the dire financial straits they encountered. But the banks have gotten out of hand, and the government has helped them along the way.
Remember my piece on debt in the Sell Your Options Dearly series? An older buddy of mine read it recently and he reminded me of something I'd completely forgotten (mostly because taxes weren't yet the bane of my existence in 1986). I pointed out in the article that credit cards were a relatively new phenomenon in the mid-70's, and he reminded me that credit card interest was tax deductible until the tax reform of 1986. So for over a decade the government was at least passively complicit in getting America hooked on revolving credit.
Can someone please explain to me how you can borrow money at near zero interest and then lend it out at up to 35% interest (which would have been a violation of usury laws in every state just a few years ago) and still struggle to keep the lights on? How is it that the banks can't make credit cards work within the established framework? And to now punish those consumers who use credit wisely is beyond the pale.
We're all up in arms about the financial reforms and who's going to run the new consumer protection agency, but am I alone in thinking that ridiculous abuses like those above warrant a crackdown? Tell me if I'm wrong.