I finally got around to watching the Frontline documentary, The Card Game, which aired this Tuesday, November 24th.

My Review

It was a well produced documentary of only an hour.    They began by delving into a little history about how the tricks and traps were developed.   They were able to score interviews with a few of the executives, now retired, who “innovated” ways to separate card holders from their money.    They delved into a lot of issues that are regularly discussed here on this blog.   Topics such as universal default, late fees, and debit card “over the limit” fees were explained, with sympathetic consumer victims interviewed.    They also touched on payday loans, an industry so infamous that it has been banned in 15 states, yet there are still more payday loan locations than Starbucks!

One segment that caught my attention is the interview with fee pioneer Shailesh Mehta, the former CEO of Providan, now part of Washington Mutual.   He specifically referred to his fee structure as “stealth pricing” and “penalty pricing”.    He even acknowledged that the credit card agreements were designed in such a way ” will require a degree of some sort to understand” them.    The interview was conducted as he strolled through his mansion, a replica of the White House.    I give him credit for honesty, if not morality.

The same could not be said of the industry representatives that they interviewed.  Nessa Feddis, the spokesperson for the ABA (American Banking Association) attempted to defend her industry’s practices.    She repeatedly stuck to the line “most people manage their credit cards well, and that is a reflection on an industry that works.”    Frankly, that is nonsense.     Most people are revolvers, people who carry a balance every month, paying interest on all their purchases from the moment they swipe their card.     I think that it is a lie to say that this practice could be construed as managing your credit card well.

Another infamous quote from her was in response to this question; “Do you really understand that contract that comes in the mail with your credit card?”  Feddis replies; “Well, that’s not really what people rely on. The teachable moment is the application. And since 1988, every application has had to include a summary box of the primary important terms. And that’s what people rely on when they make a decision on what credit card to select.”

Isn’t that nice of her to explain that people don’t rely on the contract.    The banks certainly do!    So they know that you don’t read your contract, it was designed that way, but they enforce it to the letter.

Of course Feddis seemed like a girl scout compared to Bill Strunk, who tried to claim that people prefer $35 overdraft fees, and they really like it when banks re-arrange checks in order to maximize these fees.    He was almost able to say it with a straight face, almost.

What Disappointed Me About The Program

I thought that they could have been a bit more clear about how the banking industry divides everyone up into revolvers and deadbeats, people who never carry a balance.    I know that the deadbeats are in the minority, and that they are able to use credit cards responsibly.      A few times, the conclusion was reached that the poor are subsidizing the rich.

I just don’t buy the subsidy argument.   I agree that revolvers are much more likely to be poorer than deadbeats, but I disagree that one group subsidizes another.   Deadbeats charge more, generating more merchant fees.    At the same time, they are far less likely to default on their bills, as deadbeats by definition pay their bills on time and in full.    Finally, it is obvious that if banks lost money on deadbeats, they would stop marketing to them and even cancel their cards or jack up their fees.    To this day, there are tons of no annual fee cards available,  and people with good credit are barraged with new offers on a daily basis.     I think the reasonable conclusion is that the banking industry, like so many others, finds it is easy to profits through tricks and traps with poorer consumers than with wealthier customers.     The reasons for this likely have something to do with education level being higher for higher income people.   Also, lower income people are much more vulnerable to family and medical emergencies that make it easy to get caught in a cycle of fees and interest payments.

The Discussion

Frankly, as someone who follows the credit card industry closely,  I knew much of this information, although I didn’t know who really came up with the “tricks and traps”.     What was more interesting to me than the program itself was the discussion that it provoked between my wife and I.     She had an interesting perspective, and  I hope to share some of this debate with you in this blog in the near future.

This entry was posted on Friday, November 27th, 2009 at 20:00 and is filed under News. 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.