Americans depend heavily on credit cards but the industry is also in big trouble and the U.S. government is going to crack down on deceptive credit card practices.
It is reported that U.S. President Barack Obama is targeting the credit card industry in his effort to save the struggling economy.
James Barth, a senior fellow and expert in economy at the Milken Institute whose book The Rise and Fall of the U.S. Mortgage and Credit Markets will be published in May, told Xinhua in an interview Wednesday that the credit card industry in the U.S. has its own trouble.
When people defaulted bank loans or mortgages, lending banks could foreclosure their homes and hold their deposits to get the money back. But when credit card companies issue credit cards to their clients, there is no way they can hold their homes or other properties, said Barth.
To avoid the losses, credit card companies would charge a late fee to the users and a high interest rate. For example, the annual interest rate will be as high as 24 percent, explained Barth. But many Americans are used to use credit cards, most Americans have at least one credit card, some have several. When they go shopping, they just use their credit cards. Since they do not have to pay cash, they feel it was not spending their own money.
However, the fact is, credit card companies are waiting for their clients to default. If for any reason people failed to pay for the bill, they would charge a late fee of dozens of dollars and an annual interest between 19 to 24 percent, some even at 30 percent, which is very high.
Barth said when the economy is good, people do not worry because they know they can pay in one month when the credit card company sends them a bill. But now the economy is so bad with unemployment rate as high as 10 percent, many people can not pay for the total amount and have to pay just the minimum, and then they have to pay a 19 percent to 24 percent high interest rate.
According to Barth, on one hand, credit card companies charge service fees and high interest rate to avoid possible default of payment, thus causing millions of people in deep debts. On the other hand, so many people have defaulted payment, making credit card companies lose huge amount of money and possibly go bankruptcy.
In recent months, some credit card companies have changed their terms whether to increase interest rate or add service fees or late fees. Those changes have many consumers fed up with their plastic.
Many credit cards had no annual fees before. But recently Chase credit card company added a fee of 120 dollars on some of its "no fee" cards. American Express raised its late fees on some cards, from 29 U.S. dollars to 39 dollars, and Bank of America and Chase have doubled interest rates on some customers to up to 30 percent. Banks argue that they are only doing what's necessary to survive.
People complained that some credit card companies getting bailout money from the U.S. government are raising rates on existing balances. Some complained that their rates have been doubled.
The Federal Reserve in the U.S. has already tightened rules on credit card practices but those regulations will not kick in untilJuly 2010. The Obama administration has asked for an earlier approval of those regulations.
Reports said both the U.S. House of Representatives and Senate are considering a credit card bill of rights that would prevent certain practices like sudden interest rate hikes.
Barth said President Obama obviously has heard a lot of complaints and is willing to do something to crack down on abuses. Consumers certainly wish that the credit card companies lower their interest rate and reduce or remove service fees. But credit card companies have their own difficulties. If they don't charge a high interest rate and fee, they are going to lose money.
Also, according to Barth, like banks which provided mortgage loans to homebuyers and have run into difficulties, credit card companies have raised their standard to choose their customers, thus making some Americans difficult to get credit cards.
Barth said he knew China is in its initial stage to expand the use of credit cards, and the American experience, good or bad, can be helpful for China. Credit card companies should be aware of the danger of delinquency by credit card holders and preventive measures should be adopted to deal with possible abuses both from the customers or credit card companies.
Source: Xinhua
|
Comment
Tell A Friend
Print Format
Save Article