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Published on Monday, October 5, 2009 by CommonDreams.org
The Cash or Credit Conundrum
Consumers rejoice. Floyd Norris has just penned a piece for the New York Times titled: “Rich and Poor Should Pay Same Price.”
Mr. Norris said, it seems “absurd to have a system that requires people who do not use credit to subsidize those who do. You know there is something wrong when a middle-class person can get a part of his purchases refunded by the bank, or can collect miles good for free airline tickets, while paying the same price as a poor person who can get none of those benefits.”
Mr. Norris is on to something important. He reminded me of an article I wrote in December 1985. I asked readers of my weekly column to consider some of the pitfalls of credit card purchasing. I noted that the big banks relentlessly promote credit card usage without adequately presenting the downside of credit card debt. I asked readers to imagine seeing a television presentation by an organization known as the "Cash Payment Fans of America.” The made-for-television production sponsored by this imaginary organization would ask viewers to consider some counter-marketing advice with the following declaration: “Credit Cards: Maybe You DO Want to Leave Home Without Them.”
Law Professor Adam J. Levitin, in a 2008 article in the Harvard Journal on Legislation reports: “On average, credit card transactions cost merchants six times as much as cash transactions and twice as much as checks or PIN-based debit card transactions.” Professor Levitin also notes that in 2006 “U.S. merchants paid nearly $57 billion to accept payment card transactions, which makes this component of the payments industry larger than the entire biotech industry, the music industry, the microprocessor industry, the electronic game industry, Hollywood box office sales, and worldwide venture capital investments.” These are stunning observations.
Alas, our collective imagination may not yet have evolved to the point where we can consider a day without VISA and MasterCard. The buy now, pay later credit card cabal knows few bounds. The credit card vendors want you to forget that using a credit card means you are borrowing money and that you must repay what you borrowed with interest. And, the interest rates can be staggering. Until recently credit card companies could charge annual percentage (APR) rates of up to 36 percent. And, the fine print in your credit card agreement might allow the “merchants of credit” to charge membership fees – described as “participation fees,” “maintenance fees,” or “activation fees” – on top of the interest fees. And don't forget the “transaction fees,” for getting cash with your card, the fees for exceeding your credit limit or for making a late payment.
Ed Mierzwinski of USPIRG, a consumer watchdog organization, monitors the credit card racket and the slippery practices of banks that gouge consumers with a variety of fees. USPIRG notes that credit card issuers have tricked consumers by:
1. suddenly advancing long-standing regular due dates by five days or more to trick consumers into paying late;
2. arranging for due dates to fall on weekends and then claiming that bills received after 12 noon or 1 pm were late;
3. imposing late fees not only when bills were 30 days late, but as little as one minute or one day late; and,
4. raising the interest rate if your credit score declines.
Fortunately, some of the most egregious credit card abuses will be eliminated by legislation signed into law on May 22, 2009. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, while not perfect, will generally require 45-days advance notice of any rate increase or any other significant changes in account terms, up from 15 days, and card issuers will have to inform consumers of their right to cancel their card before rate increases or account changes take effect. Credit card statements must also be mailed out 21 days before they are due. The new law also limits some interest rate hikes for late payments.
Unfortunately, the problems associated with getting on the credit card treadmill are still overwhelming. Despite some modest legislative reforms, too many credit card issuers are still predators waiting to pounce. Representative Peter Welch (Vt.) and thirteen House co-sponsors have introduced the “Credit Card Interchange Fees Act of 2009.” This piece of legislation is designed to limit some of the fees credit card companies charge retailers and shed some light on the costs of credit card transactions to consumers and merchants.
Consumers can make some additional waves themselves by pretending they have joined "Cash Payment Fans of America” and for one week paying with cash for goods and services. The results could be illuminating.
Mr. Norris said, it seems “absurd to have a system that requires people who do not use credit to subsidize those who do. You know there is something wrong when a middle-class person can get a part of his purchases refunded by the bank, or can collect miles good for free airline tickets, while paying the same price as a poor person who can get none of those benefits.”
Mr. Norris is on to something important. He reminded me of an article I wrote in December 1985. I asked readers of my weekly column to consider some of the pitfalls of credit card purchasing. I noted that the big banks relentlessly promote credit card usage without adequately presenting the downside of credit card debt. I asked readers to imagine seeing a television presentation by an organization known as the "Cash Payment Fans of America.” The made-for-television production sponsored by this imaginary organization would ask viewers to consider some counter-marketing advice with the following declaration: “Credit Cards: Maybe You DO Want to Leave Home Without Them.”
Law Professor Adam J. Levitin, in a 2008 article in the Harvard Journal on Legislation reports: “On average, credit card transactions cost merchants six times as much as cash transactions and twice as much as checks or PIN-based debit card transactions.” Professor Levitin also notes that in 2006 “U.S. merchants paid nearly $57 billion to accept payment card transactions, which makes this component of the payments industry larger than the entire biotech industry, the music industry, the microprocessor industry, the electronic game industry, Hollywood box office sales, and worldwide venture capital investments.” These are stunning observations.
Alas, our collective imagination may not yet have evolved to the point where we can consider a day without VISA and MasterCard. The buy now, pay later credit card cabal knows few bounds. The credit card vendors want you to forget that using a credit card means you are borrowing money and that you must repay what you borrowed with interest. And, the interest rates can be staggering. Until recently credit card companies could charge annual percentage (APR) rates of up to 36 percent. And, the fine print in your credit card agreement might allow the “merchants of credit” to charge membership fees – described as “participation fees,” “maintenance fees,” or “activation fees” – on top of the interest fees. And don't forget the “transaction fees,” for getting cash with your card, the fees for exceeding your credit limit or for making a late payment.
Ed Mierzwinski of USPIRG, a consumer watchdog organization, monitors the credit card racket and the slippery practices of banks that gouge consumers with a variety of fees. USPIRG notes that credit card issuers have tricked consumers by:
1. suddenly advancing long-standing regular due dates by five days or more to trick consumers into paying late;
2. arranging for due dates to fall on weekends and then claiming that bills received after 12 noon or 1 pm were late;
3. imposing late fees not only when bills were 30 days late, but as little as one minute or one day late; and,
4. raising the interest rate if your credit score declines.
Fortunately, some of the most egregious credit card abuses will be eliminated by legislation signed into law on May 22, 2009. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, while not perfect, will generally require 45-days advance notice of any rate increase or any other significant changes in account terms, up from 15 days, and card issuers will have to inform consumers of their right to cancel their card before rate increases or account changes take effect. Credit card statements must also be mailed out 21 days before they are due. The new law also limits some interest rate hikes for late payments.
Unfortunately, the problems associated with getting on the credit card treadmill are still overwhelming. Despite some modest legislative reforms, too many credit card issuers are still predators waiting to pounce. Representative Peter Welch (Vt.) and thirteen House co-sponsors have introduced the “Credit Card Interchange Fees Act of 2009.” This piece of legislation is designed to limit some of the fees credit card companies charge retailers and shed some light on the costs of credit card transactions to consumers and merchants.
Consumers can make some additional waves themselves by pretending they have joined "Cash Payment Fans of America” and for one week paying with cash for goods and services. The results could be illuminating.
11 Comments so far
Show All1. What ever happened to usury laws? 2. Why did congress give them till February 2010 to clean up their act? 3. How does it feel working for the company store??
Excellent article.
Here's another part of the credit scam. Your credit "score" determines your credit limit and your interest rate. But, your score is determined largely by how much you use credit. If you rarely use credit, your score is lower. If you never use credit, you don't have a score at all (sometimes called "null credit").
Perversely, your credit score is said to measure your credit worthiness, but if you always pay cash you don't have a score and are not credit worthy at all.
It's immoral.
I got raked on another thread for proposing Nader's exact point. Avoid consumer credit, manage your own money, and teach others to do the same.
People who don't use credit cards somehow never seem to have problems with late fees, exploding interest rates, or capricious rule and rate changes.
If we all refuse to play the game, we can't be cheated!
Uncle Sam Shazam
The credit card anchors are pulling us down; wrecking America’s dream. Their charge-it schemes come with hooks too deep to fathom. They dip both ends of the stick, skimming the sales with nets the fish cannot slip; then at the swipe of your card they reel out their dough, riding your line on the rate you agreed to, the total you owe.
Horrific stories abound. You pay your bills online on time. Build excellent credit. Then one night your laptop freezes. By a tock of the clock, you’re late. Your interest rate jumps double digits, off the chart. Then you get the call. Sopranos on your cell.
Yet credit card folk appear angelic, necks to pay-check advancers who prey on the broke. The payday people put fifteen bucks on a hundred, their max two-weeks flat, and grinningly tell you, “That’s 391.07 percent per annum.”
The credit card giants and check advance dealers have something in common: The same filthy hands. Price fixers violate law. But their scams for scramming money are apparently legal, their shades, miniscule.
We need a public credit card option: The Uncle Sam Shazam!
The statute will read, regardless of your credit, an income guarantees your Shazam line comes with Shazam agreement: Uncle Sam Protection, the interest fair, plainly written clear, a teensy rate with excellent credit, higher for chronic late payers, your monies compounded quarterly.
The shops accepting Shazam can expect livable fees for all their transactions. You make the call, the citizen who flashes glam of Shazam, guaranteed extension.
Uncle Sam Shazam is a boon for Congress, too. Suggesting, “Public Option,” burns their pocket through; halls of the Congress crowed by lobbyists, ducats by the bucket full. On Capitol Hill, lobbyists and prostitutes go far, share the same car. All aboard pay the fare, get their due.
Senator Max Baucus snatched three million pesos from the health care execs. Their single payer plan insures every body single, pesos them, unless you get sick. Then you don’t have a prayer.
Lobbyists for entrenched purveyors will exercise their protection racket, rising to the call, stuffing campaign pockets up and down the hall, thousands for their elections, quid from the pros for Members of Congress all, to snub the Shazam, refuse to hold hearings, issue tabled, snubbing Nobel Prize winners on whether or not to consider saving us one trillion bucks a quarter.
Oh! That Shazam Card interest payment? That’s in the statute. Interest goes to pay vigorish due on our national debt! I explained this idea to my banker: The public option for private creditor debt. The manager exclaimed, “ We’ll be back in the black.”
Unless we draw down our world wide debt we will soon be secondary rated, our vigorous dollar slashed! That’s the debtor etch on the window; why worldly executives self-inflict with repugnant piles of money, G’zillion dollar bonuses that dwarf their pay. They sense devaluation is coming our way, trillions of deboned empty dollars ushering steep dénouement, their inflation plan, stash while you can.
How long after 2012 before one stick of Wrigleys will chew up a dollar? When I was a kid five sticks cost a nickel. One dollar covered an emergency trip to Doctor Greunfeld’s, a block away. A chunk of coal was stuck in my eye. Those days are gone. My eye is OK.
When our economy slumps in a funk, instead of braying for the Federal Reserve to adjust money cost, we can bump the Shazams of all our working folk 500 bucks, interest and payments not for six months. When the bottom is up, our economy pumps; their Fed economy, anomaly.
What about dead beat non-payers? Oh? What about that income tax refund?
Besides the vig from our national debt, Shazams’ net, locked and boxed to square medicare, saving trillions, we have home land security snookered, re-spoken for by Great Sam Uncle Shazam.
The conspiracy crowd shouts I’m nationalizing private debt, Uncle Shazam will get in our lives deeper yet, find out to whom we owe, and for what. That’s right! Grin and get bare with it, the great skinny dip, our ship of state buoyed by Shazam; our all purpose patriotic ticket.
The government taps your transaction information and sweeps every move. Times where you go. Sees what you do. Good. Shazam dissolves their queasy need to tap our phones en masse, listening to one maybe wannabe terrorist! Cells qualified for spot checks should belong to those who hide behind cash. With Shazam we regain our homeland security, the privacy of our home spoken thoughts, sanctified in our sanctuary.
You approach an ATM. Insert Shazam, punch in your pin, whisper magic word, greenback appears. (Shazam magic word.)
michaelslevinson.com
A basically sound idea. It should be part of the total socialization of the financial sector. We (the government) could have bought the banks for little or nothing instead of bailing out the stockholders. Then the financial sector can be put on a nonprofit basis and enhance productive activity instead of being a parisitical millstone around our necks.
Sioux Rose
JACK LEGS: I like your writing style, and that you don't think inside the box. Where can I apply for a "shazam?" Maybe commondreams can do its own savings and loan/S& L. I remember there was a time when just $100,000 was needed as start-up capital, and then all those wonderful fractional loans turn that $100,000 into what, a million in assets? There's plenty of shazam in that possibility.
most folks here probably know about 'your money or your life' from the new road map foundation...it's been around quite a long time. it's a useful way to help us break the vicious cycle of debt, etc.
Due to the horrid practices of the credit card companies, I got rid of my credit cards over 6 years ago. If I do not have money, I simply do not buy the item. I save up to get things I need, and am quite happy being out of debt. I'd love to get a percentage discount for using cash.
I always ask for a 10% discount for using cash and I have found many, but not all retailers are happy to comply. Even my dentist gives me a discount for cash. If they do not want to comply with my request for a cash discount, I reply: okay here is my credit card and I will pay them cash when the bill comes from you! It has worked many times for me, but you have to ask.
During the gas crunch in '73-'74 some stations were giving 5 cent a gallon discounts for cash. The credit card cos. complained and won. Now, of course, they offer discounts for using their credit cards.
About 15 years ago, my chiropractor was charging $35 but $30 if you paid cash. The State insurance commission made her stop "Wasn't fair to insurance companies".
This is an idea whose time has come.
I think you'll get a huge discount once the credit card bubble bursts which shouldn't be too long from now.