In “Secret History of the Credit Card”, FRONTLINE and The New York Times join forces to investigate an industry few Americans fully understand. In this one-hour report, correspondent Lowell Bergman uncovers the techniques used by the industry to earn record profits and get consumers to take on more debt.

“The almost magical convenience of plastic money is critical to our famously compulsive consumer economy,” Bergman says. “With more than 641 million credit cards in circulation and accounting for an estimated $1.5 trillion of consumer spending, the U.S. economy has clearly gone plastic.”

Millions of American families use their personal, general-purpose credit cards such as Visa, Mastercard, American Express and Discover to make ends meet; credit cards have been a discreet lifeline for families in financial straits.

But other consumers, like actor and author Ben Stein, use plastic purely for convenience. While it would appear that Stein — who says he charges a small fortune every month on his credit cards –is the ideal customer, in reality, he is what some in the industry call a “deadbeat.” That’s because he pays his balance in full every month.

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Ed Yingling, incoming president of the American Bankers Association, tells FRONTLINE that revolvers are “the sweet spot” of the banking industry. This “sweet spot” continues to grow as the average credit card debt among American households has more than doubled over the past decade. Today, the average family owes roughly $8,000 on their credit cards. This debt has helped generate record profits for the credit card industry — last year, more than $30 billion before taxes.

Some experts say the profitability of credit cards really began twenty-five years ago, when the banking industry successfully eliminated a critical restriction: the limit on the interest rate a lender can charge a borrower. Deregulation, coupled with a revolution in technology that enables the almost real-time tracking of personal financial information and the emergence of nationwide banking, has facilitated the widening availability of credit cards across the economic spectrum. But for some, the cost of credit is often far greater than it appears.

According to Harvard Law Professor Elizabeth Warren, the credit card companies are misleading consumers and making up their own rules. “These guys have figured out the best way to compete is to put a smiley face in your commercials, a low introductory rate, and hire a team of MBAs to lay traps in the fine print,” Warren tells FRONTLINE.

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This practice is called the “universal default” clause and increasingly is becoming a standard clause in credit card agreements. According to credit card executives, the logic behind universal default is that the bank is not being unreasonable in raising rates when it has reason to believe that the risk of being repaid by the customer has increased. [Note: Credit card banks can now easily track your everyday financial activities and monitor your credit score — see below.]

There is no limit on the amount a credit card company can charge a cardholder for being even an hour late with a payment.

In 1996, the U.S. Supreme Court in Smiley vs. Citibank lifted the existing restrictions on late penalty fees. Back then, fees ran to $5 or $10, and usually did not exceed $15. After the Court’s decision, fees soared, reaching upwards of $30. Since then, the amount of revenue the companies generate from fees (including late charges, over-the-limit fees, and charges for returned checks) has doubled. Duncan MacDonald, one of the lawyers who worked on the Smiley case, predicts penalty fees could rise to $50 in another year.

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Inflation debt and GDP - news in 2007.

Spot publicitar (Taxi) la creditul auto de la Alpha Bank.

Spot publicitar (Ploaia) la creditele de nevoi personale de la Alpha Bank.

Spot publicitar (Chinezul) la credite pentru nevoi personale de la Alpha Bank.

The thieves and the bank…

Care sunt motivele pentru care cineva ar apela la creditele de refinantare? In primul rand ofertele de creditare in conditii mai avantajoase: rate ale dobanzii si comisioane mai mici decat la creditele precendente (deja contractate). In al doilea rand poate fi vorba de avantaje in ce priveste suma lunara de plata (mai mica). In al treilea rand poate fi vorba si de avantajul consolidarii debitului, in sensul ca se plateste o singura rata lunara (de regula mai scazuta) in locul mai multor rate, in cazul in care creditul de refinantare este destinat sa refinanteze mai multe credite existente in acel moment.

In cazul in care sumele lunare de plata mai mici sunt explicate printr-un termen mai lung de returnare al creditului de refinantare, este posibil ca suma totala de plata a creditului de refinantare sa fie mai mare decat cea necesara stingerii creditului actual. La luarea deciziei contractarii unui credit de refinantare trebuie sa se tina seama si de comisionul de rambursare anticipata ce trebuie platit bancii unde se va stinge creditul actual.

Articol CrediteCredit.com

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