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The Critics and The Credit Card

 Having more credit than money, Thus one goes through the world.
- Johann Wolfgang von Goethe, Claudine von Villa Bella (1776)

It's tough to be a credit card. Everyone worries about the consumer whereas no one seems to worry about the credit card even though it is subject to unending criticism. The cards' acts of kindness are legion and have been written about in this space and elsewhere repeatedly. Indeed, according to the New York Times, in the first half of 2008, credit card companies graciously wrote off more than $21 billion because of the poor economic situation of their customers. Such generosity notwithstanding, two days after Christmas the New York Times editorialized against what it described as "unfair and deceptive credit card practices". It said credit card companies "have stealthily adopted a variety of billing strategies that are designed to maximize penalties and fees. . . ." and urges congress to get involved and bring an end to those kinds of practices. The paper fails to realize that most of the practices complained about are nothing more than an attempt to instill in consumers a sense of financial responsibility their conduct suggests is lacking.

There are countless ways credit card issuers attempt to instill financial responsibility in their customers. One is by penalizing them if they incur too much debt. Ed Schwiebel of Gilbert, Arizona, offers an example of how that works.

Ed had a card issued by MBNA. In a conversation with this writer some years ago he said that he always made the minimum monthly payment within a day or two after his bill arrived. For many months he was paying 9.2 percent and his monthly payments were $502. Suddenly, without explanation, the interest rate was increased to 18 percent and his monthly payment went up to $895. He told a New York Times reporter that "It was like I was blindsided." He was. He does not know what prompted the increase but told this writer it might have been because he had too much credit outstanding even though he was within the card's limits. It is obvious that the credit card company was trying to show him the benefit of having less debt.

Another instructional tool used by the credit card companies is known as "Universal default. Thanks to modern technology it is easy for a credit card company to learn if a customer has failed to pay, for example, a phone bill on time. When that happens many credit card companies will automatically increase the interest rates on the credit card held by the late payer in order to reinforce whatever lesson the phone company may already have taught the late payer by virtue of late payment fees. These are just two examples of how the companies try to teach financial responsibility. There are countless others.

Back in 2004, when asked about the credit card companies' practices that remain current, former FBI director, Louis Free, who was then general counsel for MNBA, a credit card issuer, explained how the credit card companies were helping out the borrowers. "If we see indications that a customer is taking on too much debt, has missed or is late on payments to other creditors, or is otherwise mishandling their personal finances, it is not unreasonable to determine that this behavior is an increased risk. In the interest of all of our customers, we must protect the portfolio by adjusting a customer's rate to compensate for that increased risk." The parent of a misbehaving child could not have said it better.

Credit card companies do not limit themselves to tutoring consumers in the art of financial responsibility. They try to insure that no one who wants a credit card is unable to get one. In the first quarter of 2008 more than 1.1 million solicitations were sent out by the credit card companies. Some companies such as Washington Mutual, (a company that would soon find itself in worse shape than the worst of its credit card holders) cut back on the number of solicitations it sent out but continued to target the less fortunate in order to make sure that no one who wanted something would be unable to buy it.

Not only do the companies try to help the less fortunate-they actually target those who have taken bankruptcy. Instead of shunning those who have resorted to bankruptcy in order to get a fresh start, the companies target those people. Explaining this compassion in 2005 when the bankruptcy laws were changed, Laura Fisher, then a spokesperson for the American Bankers Association said: "The people coming out of bankruptcy need an opportunity to get back on their feet. If you take away the opportunity to get credit it's like taking away the want ads from a job seeker." Not everyone would equate being deprived of the ability to look for work with being deprived of the ability to buy things. It's that kind of creative thinking, however, that has made credit card companies what they are today.

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Christopher Brauchli

Christopher Brauchli

Christopher Brauchli is a columnist and lawyer known nationally for his work. He is a graduate of Harvard University and the University of Colorado School of Law where he served on the Board of Editors of the Rocky Mountain Law Review. He can be emailed at For political commentary see his web page at

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