U.S. Credit Cards and Spanish Debt Collectors - A Contrast

Having more credit than money,
Thus one goes through the world

-Johann Wolfang von Goethe, Claudine von Villa Bella

April
brought the prospect of changes to the lives of two different kinds of
creditors in two different countries. The changes were radically
different from one another. In the United States it was proposed
changes to the rules governing institutions that issue credit cards to
the consumer.

For years, issuers of credit cards saw
themselves as the consumers' friend. They provided the consumer with
the means to instant gratification in the world of acquisitions in
which we live. Being self-interested, as well as generous, however,
they appropriately believed they should get some benefit from their
good works as well. In doing so they took as their tutors the lame fox
and the blind cat in Carlo Collodi's Pinocchio.

When
Pinocchio was befriended by the lame fox and the blind cat he was
persuaded by them to bury the remaining four gold coins he had been
given to help his poor father, Geppetto. The two animals assured
Pinocchio that the coins would grow into a tree with a thousand gold
coins. When Pinocchio returned to the burial plot a short while later
he discovered that not only had the tree failed to sprout but the four
coins had joined the cat and the fox and left the burial place.

The
credit card companies are no different from the cat and the fox. They
fill the mailboxes of the consuming public with the enticing prospect
of credit at little or no interest for the first few months, only to
begin charging much higher interest at the end of the free period. (In
2008 the industry sent out 4 billion invitations to prospective
customers urging them to accept the solicitor's card.) In addition to
the interest rate rise that is explicitly described in the
solicitation, many issuers provide for increases in fine print where
its cardholders may not notice.

Wilma Erwin can explain.
She has had a Discover Card for 18 years and always made timely minimum
payments. On March 13, 2009, Discover Financial Services received TARP
funds of $1.2 billion. Inspired by its windfall from TARP and eager to
further enhance its financial position, on April 15 it raised Ms.
Erwin's monthly interest rate from 10.99 percent to 15.24 percent for
no particular reason, she having paid her bills on time for 18 years.
Discover was able to do this because buried deep within the fine print
in the credit card agreement were provisions giving the issuer the
right to raise the interest rate for a multitude of reasons, many of
which, like Ms. Erwin's, are unrelated to the holder's payment history.

If the Credit Cardholders' Bill of Rights Act of 2009
becomes law, many of the abuses enjoyed by the card issuers will be
outlawed. The Bill has passed the House and gone to the Senate where a
stronger version and a doubtful future await it. To date no Republican
in the Senate has announced support Opponents' reasons are no doubt
legion but are probably best summed up by Rep. Pete Sessions of Texas
who said:
"People who get credit cards have a responsibility, when they sign a
contract, to live up to that responsibility. It's not a right." He may
want to mention that to Ms. Erwin.

In Spain, reforms took
the form of taking some of the fun out of debt collection practices
that have been followed there since the 1980s. According to a recent
report in Time, on March 10 a committee of the Spanish lower house of
parliament unanimously approved a bill that a spokesman said was
designed "to protect citizens against those acts that attack their
dignity or invade their privacy." It was not referring to arbitrary
increases in interest rates that American citizens enjoy. The acts that
were complained of had to do with collection practices. According to Lisa Abend who wrote the story for Time,
Spanish debt collectors have employed the tactic of publicly
humiliating the debtor. To do this, they dress up as if they were
actors in a theater.

Ms. Abend reports that Monserrat Vila,
who fell behind on her mortgage payments, received a call from a
collection agency advising her that the next day people dressed as
bullfighters would visit her neighborhood and take up a collection from
the neighbors to help her pay her debt. The embarrassment for Ms. Vila
was probably more certain than the likelihood that any funds to apply
to her debt would be received. One agency's collectors dress up as
monks and another's appear in tuxedo. Sometimes the costumed collectors
follow the debtor into restaurants sitting near the debtor hoping
thereby to embarrass the debtor. (The owner of one collection agency
with 400 employees around Spain says his costumed collectors have a 62
percent success rate.)

If the Spanish law passes, Spanish
debtors will no longer be surprised by costumed debt collectors. If the
Cardholders' Bill of Rights passes, American taxpaying card holders and
taxpayers will no longer be surprised by the sleazy practices employed
by the very banks that have just been saved from extinction by their
taxpaying cardholders.