Are credit card companies evil?

I doubt anyone in today’s financial climate would disagree that credit card companies are part of the overall economic problem.   Mortgage bankers have allowed families to purchase unaffordable homes with adjustable rate mortgages, and then foreclosed as the rates increased, forcing people from their homes.   Credit card issuers have taken a different approach to screwing over the public.

Credit card companies pitching college students

Credit card companies are well known for their pitching of college students who have no real income.   This in itself is not a bad practice; it makes sense to get upwardly mobile people from college.   But the intent doesn’t seem to be just to acquire them as customers, but to put them in early debt with contracts most could never understand. This has lead to students leaving school in tremendous debt even before they get a job, and in some cases, suicide.

But in fairness to the credit card companies, we credit wisely.   We shouldn’t be buying things we really can’t afford.   Although one could argue that the average consumer would say that’s exactly what a credit card is for.

When credit cards made good financial sense

There was a time when I was growing up that credit cards made sense.   With the ability to deduct credit card interest, and the insane rate of rising inflation of the 70’s, buying something on a credit card right away, and then deducting the interest, made a lot of sense.   But when Ronald Reagan closed that deduction, and inflation was put under control, credit cards lost their economic advantage.

If you’re the credit card company, and you are hit with such a huge issue like credit card interest in no longer tax deductible, what do you do?   As anyone in business knows, you don’t have the luxury of just taking the hit and moving forward the best you can.   You must grow.   So they came up with new ways to get people to use their cards.   Thus, programs like Frequent Flier Miles are born.

The birth of frequent flier miles in credit cards

Credit card companies had to come up with new ways to push out their cards, and incentives through “miles programs” were one of the better ways to do this.   Of course this lead to other programs like hotel points, or store credits, etc…   I actually worked for Chase when we launched the cash back card (which was quite cool looking).   We had a bigger than expected launch party for the card right outside our call center building in Tempe, AZ.

So now credit card companies have the new reason why using a credit card makes sense; we get “free” stuff.

The in-house credit cards

Reward programs for credit cards don’t stop with Visa and MasterCard.   In-house programs quickly popped up around the country.   Nearly every major store chain has an in-house credit card program?   No trip to Target is complete without my checkout girl asking me if I want to save 10% off my purchase by applying for a Target card.   Ideas like zero interest for 1 year, and no payments for 6 months are meant to lure us into making purchases we normally could not make with cash.

The credit card screw over

But everything above is fine by just about any standard.   Why should credit card companies not be able to market themselves by providing some sort of value?   And why shouldn’t stores be able to push products through in-house, or bank financing options that also allow them to earn some additional revenue from interest?   I doubt anyone could argue with their logic.

But I’m pretty sure most of us know that’s not where things end.   What about the changing of credit terms for just about any reason they like?   How many stories have we heard about banks providing a teaser rate to get consumers to move their balance, and then finding just about any reason (had a credit report pulled, paid for a visit to a divorce lawyer, were late on your car payment, etc…)   to jack up the rate into double digits?

Credit Bureaus, they are not your friend

Ask anyone who works in the credit space about how much information credit bureaus   have about you, and you will likely get the answer, “you don’t want to know”.   Imagine you fly to Las Vegas on a trip, and while there you decide to put $500 on your card to do a bit of gambling.   Credit bureaus just captured this information.   Imagine you are at a bachelors party for a friend at a “gentlemen’s club”, and you decided against using a credit card, and instead opt to pull cash from their ATM.   The fact that you just pulled $200 in cash from your bank at a strip club was just recorded in your file.   Pay for a divorce lawyer on a credit card?   A credit bureau may see this coming before your spouse.   Pay for your child’s private school on your credit card?   That information is available too.

What does a credit bureau do with this data?   It sells it.   Marketers would love to talk to a gambling, strip club going, ready to be divorced single dad who sends their kids to private school.   And now they have your address and phone number.   This is not some sort of “possible future” idea.   This is being done right now to everyone who uses credit cards.

You don’t have to look hard to find quite a bit of evidence that credit cards are causing significant economic problems to the people of this country.

You can read about how I decided to ditch credit all together here, and you can read about one woman’s successful fight against unfair credit card rate hikes here.