Third World America - Arianna Huffington [29]
The arrival of nationwide banking, combined with bank deregulation and the tech revolution, sealed the deal. It also opened the floodgates on banks soliciting our credit card business, and the creation of all manner of tricks and traps designed to separate consumers from their hard-earned money. “In 1980, the typical credit card contract was a page and a half long,” Elizabeth Warren says.118 “Today, the typical credit card contract is about thirty-one pages long. The other twenty-nine and a half pages are the tricks and traps. I teach contract law at Harvard Law School,” she continues, “and I can’t understand my credit card contract. It’s just not designed to be read.”
As a result, for years the credit card companies have been fattening their bottom lines with an ever-widening array of fees: late fees, cash-advance fees, balance-transfer fees, over-the-limit fees. Fees now account for 39 percent of card issuers’ revenue.119 In fact, last year, lenders collected more than $20 billion in penalties and fees.120 And even with the passage of the new credit card regulations that took effect in early 2010, banks are coming up with sneaky new ways to soak customers, including (if you can believe it) an “inactivity fee” for not using their card!
One of the best things the new credit card regulations do is make it harder for credit card companies to go after customers under the age of twenty-one. For years, the companies have aggressively, recklessly, and successfully targeted young consumers.121 As a result, according to CreditCards.com, 76 percent of all undergraduates now have credit cards: “Undergraduates are carrying record-high credit card balances.122 The average (mean) balance grew to $3,173, the highest in the years the study has been conducted.… Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, also up from the last study.” Half of all college undergraduates have more than four credit cards, and more than a third of them are unable to pay their balance in full.123 And, of course, this credit card debt is piled on top of their student loans. According to FinAid, 66 percent of college graduates ended their four-year bachelor’s degree in debt—owing an average of $23,186 in student loans.124 These middle-class students—young, educated, and maxed out—will have a difficult time getting out from under the crushing debt as they start their careers. Priceless.
Our country now stands on the verge of a major credit card crisis. Every day, Americans, faced with layoffs and tough economic times, are forced to use their credit cards to pay for essentials such as food, housing, and medical care—the costs of which continue to escalate. But, as their debt rises, they find it harder to keep up with their payments. When they don’t, banks, trying to offset losses in other areas, turn around, hike interest rates, and impose all manner of fees and penalties—all of which makes it even less likely consumers will be able to pay off their mounting debts. It’s a vicious cycle, as Janet H. recounted:
“Back in 2008,” she told me, “we had just a few minor credit card balances less than $1,000, which we would pay off within a couple of months. It was what we used for vacations or maybe for an extra Christmas splurge.
“When I lost my job as an office manager, however, we came to live off of credit cards—we had no other choice. Gas and groceries were a large portion of that, as gas was almost $4 per gallon and my husband commuted 50 minutes each way to work.
“Now our interest rates, which a couple of years ago ranged from 2.9 percent to 12 percent, have risen as high as 29.9 percent, even though we continued to make credit card payments.
“At the same time, each credit card decided to lower our credit limit and that, in turn, gave us a higher debt-to-available-credit ratio. A couple of months later, another credit card company would see the higher percentage