Credit Cards at the Co-op
05/22/2008 - 1:18 pm
Great news from Americans for Fairness in Lending!
The Federal Reserve Board and two other federal banking agencies have released a proposed rule that aims to reform some of the most unfair credit card tricks. But the banks are fighting hard to weaken the rule before it becomes final.
The proposed rule, Regulation AA – Unfair or Deceptive Acts or Practices, includes these important credit card reforms:
— Gives you more time to pay. A payment can’t be treated as late for fees or negative credit reporting unless the bill was mailed or delivered to you at least 21 days before the due date. This helps end card companies’ ever-shrinking repayment periods.
— Ends tricks that increase your finance charges. Card companies routinely require you to pay off low-interest balances (like transfer balances at teaser rates) before allowing you to touch higher-interest debt (like new purchases.) That’s never in your best interest. The rule requires that your payments must be allocated to give you the full benefit of a discounted promotional rate.
— Prohibits rate increases on your existing balance. Today, when a card company jacks up your interest rate, for whatever reason, it applies that rate hike to your current balance. Under the new rule, rate increases can be applied to your prior balance only if you have a variable rate card, your promotional rate expires or is lost, or you pay your bill more than 30 days late. However, if the bank raises the rate on a category of transactions for everyone holding the card, they can raise your minimum payment slightly so that you will pay the balance more quickly, in about 5 years.
— Eliminates hidden interest charges. Today, some card companies charge interest even on debt repaid during the grace period. The proposed rule would end that.
File comments with: regs.comments@federalreserve.gov
And be sure to reference Docket No. R-1314
06/04/2008 - 10:48 am
Where’s the incentive not to use credit cards? If I pay with my credit card I get frequent flyer miles. I suspect a lot of people pay with a credit card for a similar reason.
How about offering a discount to folks who pay cash?
How about the co-op creating its own credit card with better than industry-average terms?
Or a debit card that provides some member perk while reducing co-op bank fees?
I share a distaste for banks skimming profits from merchants.
06/04/2008 - 10:52 am
Sorry – I didn’t mean to post anonymously. That last comment was from me, Dwight Aspinwall.
06/07/2008 - 8:28 am
Hi Dwight! Thanks for posting!
I agree there is no incentive to eschew the use of credit cards — and, for that reason, I do not think it would be useful for the Co-op to be emitting moralistic pronouncements discouraging their use. I would be hypocritical if I suggested otherwise, since I generally brandish my plastic when shopping at the Co-op and other places. Moreover the relevant market research suggests that people who shop at the Co-op, member and non-member alike, do not like being walloped with a lot of “shoulds” while at one of the stores — it feels too much like they are being judged.
There are two things wrong with offering a discount for people who pay cash. First, it would violate the Co-op’s contracts with the credit card companies. Second, such a discount ignores the reality that every kind of transaction imposes costs on the Co-op.
The “let’s create our own credit card” idea is one I have long thought has considerable promise. The Hanover Consumer Co-op is not a financial institution, however, so it would need a partner or partners in order to do that. I find myself puzzled about why the Upper Valley Community Credit Union, which was founded at the Co-op, isn’t asking us about that possibility. If you look on their web site, you quickly see that the credit cards they offer are actually issued by some bank in South Dakota, which is one of those “credit card haven” states with banking laws designed to make it easier for financial institutions to have their way with consumers. I’m not trying to pick on the credit union — my puzzlement is, I assume, significantly driven by ignorance.
In a way, the Co-op DOES offer its own credit card, at least for Co-op purchases. If you meet the Co-op’s credit terms, it will send you a monthly bill for your purchases rather than require you to pay for them at the front end.
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Credit Cards at the Co-op
From the organization Americans for Fairness in Lending (www.affil.org):
Ten Reasons Why You Should Care About Predatory Lending
1. Your lender wants you to pay late.
Did you know your credit card company can change your payment due date each month hoping you’ll miss your payment? And lenders can charge that $39 late fee even if you’re only an hour late.
2. You can’t win.
If you have a problem with your credit card company (imagine that), you cannotsue them in court. Instead, you have to take your complaint to an “arbitrator” – who, 95% of the time, will rule in favor of the credit card company.
3. Banks donate more money to politicians than the oil industry.
Clearly, they’re up to something.
4. There are more Payday Loan outlets in the United States than McDonalds restaurants.
And you’ll never guess where they all are: in low-income and minority neighborhoods.
5. People can’t choose the careers they want.
In 2001 the average college grad with loans had $20,402 in debt, and young people are taking on higher-paying but less meaningful work because of the debt albatross.
6. Abuse is their business.
The more we pay in interest and fees, the higher their profits, so the credit card companies are always looking for excuses to add new fees or jack up interest rates on our debts.
7. All those credit card offers that come in the mail are bad for the environment.
Enough said.
8. The poor pay the most.
23% of low-income families don’t have a checking account, so they rely on expensive financial services instead. Payday lending and Tax Refund Anticipation Loans alone drain $5 billion from families each year.
9. Discrimination.
Anyone smell racism in the mortgage market? If not, read the stats: over 70% of high-income African American homebuyers in Boston received a subprime mortgage in 2006. Over half of African American homebuyers and over one third of Latino homebuyers nationwide received a subprime loan in 2006, as compared to one in five white homebuyers.
10. The subprime mortgage scandal.
Over two million families who received subprime mortgages since 1998 will end up losing their homes to foreclosure. Many already have. This will cost Americans as much as $164 billion.