'Tis the season for all those holiday bills to come due. The credit card companies love this time of year. So much the better if, like millions of Americans, you don't pay off your balance this January. Better yet if you procrastinate and pay your bill late, so they can charge a walloping fee and change the terms of your contract.
A lot of consumers don't realize that there are no limits on credit card interest rates and late-payment penalties. And while low interest rates are used as bait for consumers to accept new cards, the banks that issue those zero-interest deals can suddenly jack your rate into the stratosphere without notice if you are even one day late paying a bill.
They can do it even if that late bill is for a different card issued by a different bank. Yup, pay your MasterCard bill late, and Visa may raise your rate.
Over the last couple of decades, the banks have made eye-popping changes like this to those indecipherable, fine-print "agreements" with their credit card customers.
The upshot is that consumers have lost basic legal protections against usurious lenders. That's because the banks that issue credit cards have fought and won the legal right to act like mafia loan sharks. This reality was driven home to me when my husband got a great deal on Amazon.com last year by applying for and making a single purchase on an Amazon credit card. The bill came in a nondescript envelope from Chase Bank mixed in with the usual pile of credit-card solicitations. I missed it.
By the time I caught up with the bill, we were paying 29.99% interest - and a $50 late fee on a $400 payment.
Tough noogies, you may say. If you're not organized enough to keep track of your bills, of course you'll get dunned. True enough.
But once upon a time, outside of the criminal underworld at least, there was some limit on what lenders could charge. Federal and state caps on interest kept banks from taking advantage of the poor or gullible. Not anymore.
A terrific Frontline special, "The Secret History of the Credit Card" (available for viewing on the Web at www.pbs.org/wgbh/pages/frontline/shows/credit/), describes how the states of South Dakota and Delaware lifted their usury laws to attract the big banks. A series of court decisions subsequently allowed banks that relocated their headquarters to those states to charge unlimited interest rates and fees to customers everywhere.
In the 1980s, after Citibank moved to South Dakota, credit cards went from a money-loser to the most profitable sector in banking. Like the mafia, the banks deliberately target people they know will not pay their monthly balances in full or will pay late.
Using low minimum payments and evanescent low interest rates as a lure, they hook customers into a debt spiral that can quickly exceed the amount of their credit card purchases.
Obviously, in our buy-now-pay-later culture, a lot of people are victims of their own foolish behavior. Of the 35 million Americans who pay only the minimum on their credit card bill each month, many have the resources to pay off their monthly balance, according to Frontline. But to their own detriment they don't.
Still, as debt-ridden as many American families are, it is not hog-wild consumerism that pushes them into bankruptcy. Losing a job, major illness and divorce are the main reasons people go broke.
The credit card companies prey on these people. "They get their feet tangled up in those high interest rates, and they just get sunk," bankruptcy expert Elizabeth Warren told Frontline.
The 2005 bankruptcy law, pushed by the credit card companies, has made it much harder for consumers to get relief from credit card debt. Sen. Russ Feingold chastised his colleagues for refusing to consider amendments that would make the law less devastating. His fellow senators, he complained, "have been willing to blindly follow instructions from the shadowy coalition of groups that are behind this bill - mainly the credit card industry."
Indeed, re-regulating credit card interest rates and fees would be one of the biggest contributions the new Democratic Congress could make to the well-being of American families.
Sen. Christopher Dodd, the new chair of the Senate Banking Committee, has supported consumer-protection legislation opposed by the credit card companies in the past. On his Web site, the Connecticut Democrat offered holiday shopping tips for consumers that show he's aware of the problem:
"Putting an extra $500 on your credit card can cost you almost twice that in interest costs and take almost eight years to pay back, if you make only monthly minimum payments," he wrote.
Whether Dodd and his colleagues will go beyond sage advice and offer some tough consumer protection legislation remains to be seen.
In the meantime, it makes sense to take the advice of Madison personal-finance guru Connie Kilmark: Put your credit cards in the freezer - literally - and stick with cold, hard cash.
