Tuesday, May 05, 2009

J.D. The "Money Scold" Chides Us Again

Much like he did in two highly misinformed columns on what he considers to be a supposed lack of suffering in “the Great Recession” here, J.D. Mullane of the Bucks County Courier Times has spent his last two columns conducting some truly threadbare “research” into another root cause of our economic difficulty, and that is consumer credit card debt.

See, J.D. claims here and here (with the help of some individuals who, in a con-vee-nient circumstance, turn out to be highly sympathetic to his point of view) that those carrying excessive card balances have only themselves to blame for “(spending) way over their means” (the quote comes from a Mullane interviewee who manages a collection agency – uh, can someone please explain to me why he would have a different point of view from Bucks County’s resident big mouth? And "Middle America"? Could we be more jingoistic?)

I’m sure there are individuals who fall into the category Mullane describes, but as usual in columns like these where a clueless pundit tries to weave his ideological dross into gold, the most interesting remarks are in the comments (in this case, buried beneath some other truly hideous ramblings), and here is a noteworthy one…

If I took the time to do some homework, I could find plenty of examples of waste under Reagan (J.D.’s hero – ed.). Waste doesn't respect political boundaries. Never has. Never will.

As for JD's premise, methinks he's focusing on the exceptions rather than the rule. The Credit Card Bill of Rights isn't intended to protect deadbeats (although certainly they may benefit). I don't know anyone who has much sympathy for those in trouble because they spent much more than they are able to repay. But double cycle billing is a sham, pure and simple. My credit card company pulled that garbage on me once, simply because one month right after Christmas I didn't pay my balance in full, which I usually do, and instead paid about 75% of the full amount due, but still much more than the minimum.

Also, a year or so ago Citi tried to raise my interest rate without notifying me. Huh? I've never once been late with a payment in 22 years. My FICO score is over 800. Yet they slipped that little tidbit in my bill without any type of heads-up. That's duplicitous at best. If I hadn't read some fine print, I never would have noticed. All it took to get my prior interest rate restored was a phone call threatening to cancel my account. But I shouldn't have had to do that. How many people don't read the fine print on their bills?

I would advise anyone who really thinks the Credit Card Bill of Rights is a problem to read Bob Sullivan's Red Tape consumer advocate columns on msnbc.com.
I reject Mullane’s argument here for the same reason that I reject the arguments of those who opposed the recent “cramdown” legislation that died in the Senate, despite Dick Durbin’s heroic efforts; yes, there are people out there who bought houses to “flip” them only or those who walked away from homes for which they had no business even qualifying for a mortgage (and how exactly does the lender get punished in a situation like that?), just like there are those who abused their plastic beyond all reason.

But the housing “bubble” was purposely inflated by bad financial and government actors who took many consumers down with them who sought nothing except the benefit of home ownership that they expected to support through their hard work. And then they lost their jobs, so they had to borrow against their cards to pay for it (or for their health insurance, which is a whole other story).

Or, as note here (in an October 2008 post concerning the infamous 2005 Bankruptcy Law)…

As the law moves into its fourth year of implementation, critics are clamoring louder than ever for a do-over on bankruptcy laws -- or at least a patch to fix problems that have come to light in the three years since its inception.

"There's a fair amount of pent up anger over the impact of the bankruptcy law on consumer debtors," says Sam Gerdano, executive director of the American Bankruptcy Institute, a nonpartisan bankruptcy information and education group.

"Three years later, the law did nothing to fix the underlying problem. There's still the same amount of distress in the American middle class," says Bob Lawless, a bankruptcy expert and University of Illinois law professor. Lawless has analyzed bankruptcy filing data and predicts, at the current pace of nearly 4,500 filings per business day in September 2008, the total number of filings will reach 1.2 million in 2009 (See chart). "That doesn't account for the economic conditions we're having and we all know we're in bad shape."

Key reasons for concern about rising bankruptcy trends include:

  • The economy. Rising job loss as the economy spirals into what economists currently call a "mild recession" will almost certainly nudge bankruptcies upward.

  • Declining home values. For many years, consumers relied on home equity lines of credit (or HELOCs) to pay down credit card debt. But declining home values have nearly wiped out equity in millions of homes and closed the door on a key alternative to bankruptcy.

  • The credit crunch. Wall Street's financial woes and bank failures have already started to trickle down to Main Street as bankers have tightened credit standards for all forms of borrowing, including credit cards. Banks typically charge off unpaid credit card debts after 180 days of nonpayment. However, they must write off the debts much sooner (after only 60 days) when borrowers file for bankruptcy. Because bankruptcies are trending upward, Innovest, a New York-based investment research firm, is projecting higher than normal charge-off rates (as much as 10 percent compared to 5 percent or 6 percent) come the first quarter of 2009. In addition, the banking industry has said credit card regulation expected by year's end from the Federal Reserve may lead to higher interest rates and less credit available for credit card users.

  • Credit cards as family lifeline. Higher food, gas, health care and utility costs have forced many families and people on fixed incomes to put basic living expenses on credit cards that they aren't paying off each month. This trend, say financial planners and credit counselors, is a train wreck waiting to happen with bankruptcy as the most likely conclusion.

  • "A 'perfect storm' has occurred," notes Todd Ossenfort, chief operating officer for Pioneer Credit Counseling, a national credit counseling service based in Rapid City, S.D. "Now the house of cards is coming tumbling down."
    Hey, if Mullane can quote a collection agent on other people’s supposed financial irresponsibility, the least I can do in response is quote a credit counselor telling us that many people did the right thing, but got screwed over anyway.

    All of this ultimately has to do with the Credit Card “Bill of Rights,” as alluded to in the prior comment on the Mullane column, which, as noted here…

    ...would level the playing field between card issuers and cardholders by applying common-sense regulations to ban retroactive interest rate hikes on existing balances, double-cycle billing, and due-date gimmicks. It would also improve the advance notice of impending rate hikes, giving cardholders the information they need and rights to make decisions about their financial lives.

    According to a recent Pew study, 100 percent of the 400 types of credit cards reviewed contained in its terms at least one of the practices that have been found by the Federal Reserve to be unfair and deceptive. And 93 percent of the cards studied by Pew allowed for any-time, any-reason repricing, allowing an issuer to hike up the APR on a consumer's credit card even if they've never missed a payment.
    And just to tell you how much our supposed financial geniuses still call the shots on Capitol Hill despite their epochal blundering, someone trying to do the right thing in our name (Dick Durbin, again) can only try to get a ceiling of credit card interest rates at no less 36 percent.

    But I’m sure this is still too much for J.D.’s brand of penury. I can hardly wait for future columns in which he’ll call for a return to the stockade for “deadbeats” (and let’s not forget “hippie protestors” too, another fave Mullane target – wonder if he thinks thumbscrews are enough of a punishment?).

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