Sunday, October 12, 2008

And A Special Little F***k You From Citibank: the Radical Comments on the Current Economic Crisis

One of my responses to the financial meltdown was to cancel a bunch of credit cards. How did I acquire all these credit cards in the first place? Well, in several ways, but most of all because they were offered to me by banks at low (or no) interest. They were offered to me as great opportunities, full of flattering language about how my credit history had caused me to be selected as a Particularly Prestigious Customer. In fact, I was getting them because we sold a house, bought a house, paid off a mortgage, acquired a new (relatively modest) primary mortgage, added a small construction loan, and made our payments punctually. In other words, because financial institutions share so much information, it was clear that the Radical family was spending hundreds of thousands of dollars in the space of about sixteen months. And much as I would like to imagine myself as Particularly Prestigious, I wasn't born under a rock. I was actually being offered these cards in hopes that I would overreach: that I would charge up a bunch of stuff, miss a payment (or not), and end up paying as high as 29% on purchases, accumulated interest, late payment penalties and miscellaneous fees. Which leads me to propose that in all the fuss about subprime mortgage lending, it is the extension of these fraudulent practices to the credit card market that has caused the second great weakness in our economy.

I had only one credit card for years -- the L.L. Bean Bank of America credit card that gave me free shipping --which I liked because, being a butch lesbian, I have a great need to be constantly filling out my wardrobe with flannel shirts, duck boots, jeans with flannel linings, wool socks, and whatnot. And then all of those years of commuting between Big City and Zenith also meant that new sail bags were always a fun holiday gift in the Radical household. Those of you who commute know what I mean: you empty the sail bag when you get home, leave it by the door, and start tossing things in the next day. By the time you are ready to return to the other home, you find your keys, your novel, your wallet and -- voila! Out the door.

That credit card got hammered during our big renovation two years ago (although many points were acquired and subsequently exchanged for new cross-country skis and a splendid bike rack), so -- although I tried to pay the card off every month -- at a certain point living expenses and construction expenses became so confused that I found myself with a sizable balance that was running at about 23%. What to do? Well, sensibly I thought, I acquired three other credit cards that offered me 0% financing for the first twelve months (I receive between three and six of these offers a day), split the outstanding balance on card #1 between them, and a year later negotiated with the other companies for a fixed rate of 7% that would last for the duration of the loan. I negotiated by simply threatening to cancel the card and get another one, and they (or their handsome, male, gay-sounding representatives) all quickly agreed to this low rate, particularly when I pointed out that it was well above prime. About a year later, I paid them off too, and then stuck them in a drawer, thinking that perhaps they might be useful in a refugee situation or some other dire fix where access to quick funding would make the difference between comfort and discomfort. "How sage you are, Radical," people would say as we settled into a comfortable hotel suite with our fluffy dog Breezy after a devastating hurricane, while they were breathing formaldehyde in government-issued trailers.

And yet there are two problems with having a lot of extra credit cards. One is that it is easy to lose track of them, because they blend in easily with ordinary household junk. One of my habits when I travel is to stick one of these cards in a Secret Location, so that if my pocket is picked I am not entirely without funds. Once, however, utterly by accident, I discovered that two ladies who had arrived under the auspices of Happy Housewives Homecleaning Services, and who left claiming that they had forgotten their vacuum cleaner (??), had filched one of these cards from an open suitcase. They were able to fill up their SUV and buy many cartons of ciggies at the Pequot reservation before I realized what was going on, canceled the card, and reported them. Not fun, on any level, particularly having to choose between reporting two desperately poor (but ambitious) women who wanted to go into the tobacco business and picking up the bill for their enterprise. Fortunately they were just petty thieves, and didn't find themselves in need of a set of antique nesting tables. But that taught me a lesson: if you are going to keep extra credit cards around, secure them.

The second problem is that before you know it, you have forty or fifty thousand dollars of credit available to you, which is no joke, particularly if you ever need a loan for something serious, like putting a new roof on the house, since all that credit counts against you when the bank is assessing you for a real loan. And for some reason, when the economy was tanking, that made me feel particularly vulnerable, perhaps because it was the one thing on which I could act. So I canceled WaMu (this was shortly before they stopped being WaMu, and I remember thinking at the time that their representative was particularly listless); and I canceled Chase (they resisted a little, but gave way). By the time I got to Citibank Amex, a card I do use every month for recurring household expenses, things were a little more complicated: I had to shift a bunch of bills to monthly payments from my checking account, then paid the remaining balance and called to cancel.

The representative put up vigorous resistance, so vigorous that I thought I would in fact keep this card as my backup. Now, just yesterday, I received a bill in the mail from Citibank for -- 50 cents. That's right. 50 cents. Why? Because that's what they charge you every month if you do not maintain a balance. And I swear to you, in the course of a conversation in which that nice gay man offered me the moon and the stars, he never mentioned that I would be charged just to have the card available. Had he done so, I would have canceled it, not because I can't afford six dollars a year, but on principle. And you know that, should I neglect to pay that 50 cents some month, they would charge me a $35 late payment fee.

If anyone in banking or government is listening out there: this is what is wrong with our financial system. Cheat, cheat, cheat. I believe that there were a great many people out there for whom having stuff they could not afford filled a great, aching hole. But I also believe that if you take a look at people like me, you will see a range of experiences: people being cheated a little bit here and a little bit there, and told in great surprise that the rule they have violated was right there, in .5 point type on page 13 of the agreement that revised their contract with the bank (a document they received last May.) Once I realized that, because I was paying my credit card off every month, I was getting the bill more and more frequently. Upon investigation, I learned that my credit cycle had been shortened to 17 days. I can only believe that the point was to trick me into "missing" a payment, when in fact I had literally just paid the bill.

I rarely take advantage of commercial credit now except for expedience, such as charging up reimbursable professional expenses (warning: when reimbursed, do not go out and buy a TV instead of paying the bill.) Mostly, for internet purchases and low-cash situations, I use my handy debit card (warning: if you pay for monthly expenses on a credit card and have no savings, you need to wean yourself to this system gradually, otherwise you suddenly run out of money in the middle of the month, as you are paying for everything twice in a single thirty-day cycle. And never give a hotel a debit card at the beginning of your stay, as they will put a hold on your checking account for a substantial sum of money that takes weeks to release.) But I also make enough money that I don't have to rely on credit to go on vacation, pay a medical bill or a car repair, the kind of thing that can put an ordinary person (an assistant professor paying student loans, for example) behind the eight ball for several months. As a household, we have a great, fixed-rate mortgage we can afford, and we have enough savings that we can make up a month's budget shortfall from our other resources, even in the midst of this great crash. But my own experiences doing business with (read: getting screwed by) huge interstate commercial banks do give me cause me to believe that the de-regulation of our financial system has made a great many people into permanent debtors by locking them into multiple "agreements" with banks that they cannot possibly understand, "agreements" that are deliberately altered in arcane and unpredictable ways to fool people into violating the terms they have "agreed" to. That I keep receiving such offers every day, and multiple offers over the internet, to consolidate my debt into one low, low payment when I am simultaneously hearing on the news that small businesses cannot get the loans they need to maintain inventory, suggests to me that we are still swimming with the sharks economically; and that as a nation, we are a long way from grappling with the corrupt corporate practices designed to take money from those who can least afford it and siphon it upward.

14 comments:

Virginia S. Wood, PsyD said...

Amen.

GayProf said...

Of course, as other people have pointed out, the government made it extremely difficult for individuals to declare bankruptcy in this nation when they became overwhelmed with debt (often times because of deceptive credit card practices). The government's solution for these indviduals was that they should just pay their bills.

When major corporations failed, in contrast, they received $700 billion bailout from the federal government.

New Deal Liberal said...

There's an old term used to describe something like charging a $35 late payment fee for a 0.50 bill: Usury.

I was once in a similar situation and talked the represenative into forgiving the late fee that month on that basis. But they probably would not have done on a second occurrence.

A good example of how unregulated this industry is.

Thanks for the very timely and informative post, TR. I intend to bookmark this one and revisit it.

-NDL

Dr. Virago said...

You know what really chaps my hide? International transaction fees. Ooh, they make me so mad. First of all, as little as 4 years ago, they didn't exist. Second of all, there's no freakin' way that an electronic transaction with one first world bank costs any more than another. And third, there was a freakin' class action suit brought against the credit card companies for doing this, and they LOST, and yet somehow they still get to do it.

But of course, when they do it to me, I call up, point out my 20+ years of being a customer, estimate the titanic amount of interest they made off me in graduate school, and then mention the class action suit. Then I threaten to start another one if they don't take the damn charges off.

But see, I can do that precisely because I am the kind of person who has savvy and income and experience doing these things -- as in TR's story about the interest rate. It's the people who don't who are really getting screwed (and that includes on international transaction charges, since around here, people cross the nearby border on a regular basis to gamble and party).

Profane said...

Dr. V - the international transactions fees were always there, but hidden. Thats why the credit card companies lost the class action lawsuit (as someone who lived in Britain throughout most of the period that the lawsuit applied to, I was ultimately a party to it). What the class action won us was the right to transparency on that point.

As for my own credit card use, so long as I get a monthly 0% loan for all my expenses, and 1% back on everything I spend, I will continue to take advantage of Citibank.

Susan said...

Dr V -- a few years ago we got a credit card just because it did NOT charge international transaction fees. Now the next step is getting rid of most of the rest . . . legacies of separate bill bank accounts; but also, like TR, the card that came with the mortgage.

right-wing prof said...

TR,

You are so hostile toward the large banks and I don't see why. I mainly use a single credit card from Chase. I don't need to carry much cash, I can use my card to purchase almost anything. When I do, I get an interest free loan for up to six weeks, depending on when in the month it is, before my bill is due. I can have the payment taken directly from my checking account the day it is due. And all this I get for FREE. Plus for every $25,000 I spend I get a free airline ticket. This is an incredible deal, and this deal is being subsidized by those people who can't use a credit card for what it is intended, and instead pay 20+% interest. To those in that category, thank you!

And gayprof, say what you want about the credit card practices but they are not deceptive. It is noone's fault but your own if you don't read the rules, but they send them to you in great detail when you sign up, and then anytime they make even the most minor change to the terms they mail you a letter to let you know and offer you the opportunity to cancel your account.

http://rightwingprofessor.blogspot.com/

right-wing prof said...

Sorry one more thing, a 3% international transaction fee is a bargain. Have you ever tried to exchange money at an airport. You are lucky if the buy/sell spread is only 10% plus perhaps fees, you get royally screwed for sure. That is why, when overseas, using your credit card or ATM card is much much cheaper than exchanging cash or traveller's checks. Do you really think your credit card company should have to play the foreign exchange markets to settle your bills and not charge you something for this convenience?

Anonymous said...

Dear Right-Wing Prof,

Using Tenured Radical's comments page as a place to shill your own blog is as *tasteless* as Citibank vigorously trying to retain TR as a 'valued' customer, yet charging her (a previously undisclosed) 50 cents/month for NOT using her card.

right-wing prof said...

Truly the funniest link ever:

http://www.breitbart.tv/?p=194983

Howard Stern talking to Obama supporters in Harlem.

ec said...

Last year Wachovia slapped me with a finance charge even though I had paid my bill on time. I called customer service, and they said it was because I had paid more than I owed (b/c of the timing of buying and returning something). Outrageous. I asked what part of the agreement allowed for this charge, and of course there wasn't one. In the end they did reverse the charge, but it's still outrageous.

Jarrod Hayes said...

I second the initial amen with my own secular version. TR and the various commentaries, with the exception of Right-Wing Prof, are spot on. My wife and I live in the UK, hopefully to end when we are both gainfully employed as assistant profs in the US next year, and the international transactions are incredibly annoying. The credit cards are highly unregulated with a business model predicated on taking advantage of the weakness of individuals (either fiscal or impulse control). Right Wing Prof is fundamentally wrong because he/she fails to appreciate the depth to which credit has become integrated into the ability of average people to make a life. Costs continue to rise, but wages for most income classes are stagnant or receding. Credit makes up the difference. We're not talking buying big screen TVs here, we're talking paying medical bills. It's not chumps who can't keep themselves from buying $10,000 worth of gizmos, it's working class folks who can't afford asthma treatment that pay for his/her plane ticket.

Another point that is often overlooked is that credit cards and similar economic devices are playing a second role for the top of the economic food chain. Not only do credit cards move wealth from the bottom to the top, they mask the growing level of inequality. People can continue to enjoy high levels of living quality in the US because, in many cases, it's illusory, resting on credit. Without this credit, the growing disparity between the top and the middle and bottom would have been apparent long ago (U.S. Gini Index was steady at ~37 until 1980 when it began an unbroken rise to its current value 45-higher than any other developed country) and the public would have pushed long ago for more vigorous wealth redistribution and the Republican party's economic platform would have been shown to be the scam it is.

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I'm pretty sure that even the foolest person in this nation and all over the world are aware of this situation.
This is the biggest shame ever!

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