With Congress in the process of making it more difficult for credit card companies to totally fleece cardholders, the credit card companies are shifting their profit model slightly. Where it has been “find a smaller percentage of people to take for everything you can because they’re vulnerable,” now that that’s becoming less legal (and a PR nightmare), the model is going to be “put the screws to more people because you can’t squeeze as much out of the unfortunate few.” And of course, they’re trying to do it ahead of the law changes going into effect:
On Monday, the Federal Reserve provided new evidence of the banks’ actions. About 50 percent of the banks responding to the Fed’s survey said they were increasing interest rates and reducing credit lines on borrowers with good credit scores. About 40 percent said they were imposing higher fees.
The banks also said they were demanding higher minimum credit scores and tightening other requirements.
A study by the Pew Charitable Trusts, released late last month, concluded that the 12 largest banks, issuing more than 80 percent of the credit cards, were continuing to use practices that the Fed concluded were “unfair or deceptive” and that in many instances had been outlawed by Congress.
The House of Representatives has voted to make the new laws effective immediately, but of course the Senate is lagging behind.
In the “good move, but where were you before” category, banks are also making it more difficult to get new credit cards, and are even taking away the accounts of risky customers. That is, customers who really shouldn’t have gotten credit in the first place because they couldn’t afford it. But that was when banks were all about risky credit—for themselves, for customers, for your neighbor’s dog—and now that that strategy has turned around and bit them, the person who was only recently a fine candidate for an ever-increasing line of credit is now someone to ditch as quickly as possible. So that part is a decent move made for all the wrong reasons.
Once the new law goes into effect (sooner or later, depending on whether the Senate can get it together to vote), look for the credit card companies to try to outdo each other showing who’s changed the most and is the nicest and cuddliest. But remember, without the threat of legislation and massive bad publicity, they only change for the worse.
Tags: credit card, predatory economy
At risk of making you mad at me because you get the jingle stuck in your head, you know those Free Credit Report ads?
Obviously they’re not buying all that advertising time to give you something that doesn’t benefit them at all. And of course, it turns out it’s not really free. Shocker, I know.
Basically, you go get your “free” credit report and they sign you up for an ongoing, not-free service. And then they make a lot of money—their business is even growing despite the lousy economy causing so much trouble for other businesses.
Even better, you can get a truly free credit report by going to AnnualCreditReport.com. The government requires it. So the “Free” Credit Report people are making money by bragging about something they’re giving you for free even though they’re then charging you a monthly fee for something you don’t necessarily want and the government requires them to give you the original thing you wanted for free, anyway.
Tags: credit reports, predatory economy
Remember this story? Frightened people who’ve lost their jobs pay thousands of dollars to job search firms making big promises and delivering nothing.
The Arthur Group, a company that the New York Times featured as they investigated this phenomenon has now been charged with fraud in Minnesota. Former employees of the company had told the Times that “the company found jobs for about one person a month, but often none, though dozens of people signed up every month for services, usually paying several thousand dollars.”
The Arthur Group has closed since it was singled out by the Times, but that hasn’t stopped Minnesota Attorney General Lori Swanson from filing suit:
The lawsuit accused the Arthur Group of fraud and deceptive trade practices. It said clients were victimized by a “bait-and-switch,” in which job seekers were lured by the promise that they would gain access to numerous job openings and a “hidden job market,” but only if they paid as much as $4,500 for the company to improve their résumés and upgrade their interviewing skills.
“Consumers who paid for the Arthur Group’s services did not receive the interviews, or jobs, that they were promised,” the lawsuit said.
But as I had previously noted, it’s difficult to truly shut these guys down; too often the same names seem to repeat as the same guys keep coming back for more under different names. That’s true in this case: The president of the Arthur Group had previously worked for a job search company that was—wait for it—charged with consumer fraud. The company was shut down and ordered to pay restitution, its owner was barred from future work in the field…and one of its employees went on to go into the same business and be charged with the same thing.
It’s really like economic predator whack-a-mole out there.
Tags: predatory economy
Yet another way the banks have found to prey on people struggling in this economy:
Banks and credit unions have long pitched debit cards as a convenient and prudent way to buy. But a growing number are now allowing consumers to exceed their balances — for a price.
Banks market it as overdraft protection, and the fees it generates have become an important source of income for the banking industry at a time of big losses in other operations. This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance.
What does that mean, in practice? It means that you might not know you’re at your limit, and they’re not going to tell you. They’re just going to let the transaction go through without a word, and then charge you up to $35, no matter how small the transaction.
And the banks want consumers to consider this a “service.” Because, according to them, most working people would so much rather pay $35 extra than suffer the embarrassment of having their card declined. But for something they consider such a valuable service, the banks sure make this one hard to get out of: In fact, they’re fighting regulation that would require consumers to have the ability to opt out of this “service,” and are threatening that if the amount they take in in overdraft fees goes down, other fees will go up.
But that’s not all. Not content with charging extortionate fees when people legitimately overspend, the banks might game the system so you pay for three overdrafts instead of the one you should have owed:
Mr. Tornes had $195 in his account when he made two debit purchases for $8 and $13; the bank also processed a bill payment of $256.
He claims that Bank of America took his purchases out of chronological order and ran the biggest one through first. So instead of paying $35 for one overdraft fee, he was stuck with three, for a total of $105.
Once again, of course, it’s for the customer’s own good, because maybe the big bill was the most important to them. That’s what the banks say—but that argument only holds water if they’re trying to decide which charge to decline. If they’re letting them all through, all that matters to the customer is how much the overdraft charges come to.
Not enough that the finance industry and big banks sent the entire economy into crisis, they’re now apparently trying to cause working people crisis, one by one.
Tags: banks, debt, predatory economy
