Outrageous Credit Card Practices

Yesterday, I wrote about a comment made by a reader who thought I was to aggressive in promoting credit cards. Today, I would like to respond to a comment by a reader who thinks that I am being too hard on the credit card industry Tim writes in response to my post this week:

“you make it seem, as do many credit card users, that credit is a right. it isn’t. i simply do not get all the vilification. it has been obvious people cannot self-regulate and control themselves. why the heck do you need a high credit limit anyways? if you pay in full, no worries about the utilization ratio or anything else. if you carry a balance, there is a high probability that you will continue to do so and have a higher propensity to default or pay late. the vast majority of unfair and deceptive practices are avoidable, however, consumers have simply chosen to ignore them when signing up.”

Is Credit A Right?

No, credit is not a right. However, I do believe that people have a right to be treated honestly and fairly. How would you feel if I told you to drop by my house this Saturday. When you arrived, I wasn’t there. The next day I called you to complain that you failed to show up. That is what credit card companies routinely do when they make payments due on Saturdays. Sure, the United States Postal Service delivered the mail on Saturday, the day your payment was due, they just weren’t open. By the time they opened your envelope on Monday, it was late. Therefore, we are charging you interest on all of your purchases for the past two months, plus a late fee, plus we will damage your credit. In my book that is an unfair and deceptive trade practice. It seems that the Federal Government now agrees. Or rather, they will agree in 18 months.

I also have no problems with lower credit limits, but not when it involves the racist practice known as redlining. To deny someone financial services based on where they shop is indistinguishable from redlining minority customers, as they will doubtlessly shop in the neighborhoods they live in.

Is Just Paying In Full Ok?

Tim goes on to say that “ if you pay in full, no worries about the utilization ratio or anything else.” I used to believe this, as Tim did. I have since read too many articles, and talked to too many credit specialists who have told me that this is simply not the case. It is an incontrovertible fact that companies will reduce your credit rating if you do not have enough credit. If you have only a few credit cards, your credit score will suffer if you have a high utilization ratio, even if you have never, ever paid late or accrued interest.

Trust me Tim, I do not like this practice at all, but it does exist. So too does the practice of using mere credit inquires to determine your credit score. Since credit agencies will not release their secret formulas, consumers have uncovered this practice merely by observing cause and effect. There is no warning given when someone checks your credit that your score will suffer. As I explained in my post, there are many innocent reasons why people’s credit scores can suffer when their true credit worthiness is actually rising. The credit agencies and the credit card companies themselves apparently view these people as acceptable losses, even if they always pay their bill on time, and in full. I simply do not believe that this is a fair practice.

Deceptive Practices Avoidable?

Tim contends that “the vast majority of unfair and deceptive practices are avoidable, however, consumers have simply chosen to ignore them when signing up.” Yes, many of these deceptive practices are avoidable. As I have written, I pay all of my bills electronically. It is in this way that I always avoid paying bills late.

Just because it is possible to avoid being cheated, doesn’t absolve the company that attempts to cheat you. I just don’t believe that the foundation of the banking industry should be on cheating and deceiving it’s customers. I think it is bad for consumers, bad for banks, and bad for the nation’s economy as a whole.

This entry was posted on Wednesday, December 24th, 2008 at 23:11 and is filed under Reader's FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.