More about credit cards, debt, pyramids, and eschatology

My recent post “Why I’m canceling my Bank of America credit card” brought a comment pointing out that cancelling credit cards can adversely affect one’s credit score, perhaps making it difficult to borrow for cars and houses. That may well be true, but it seems to spring from a view of credit and debt quite different from mine. Rather than dump this on the hapless commenter as a reply, I’ll say it here.

First, the companies have no incentive to restrict credit, and I expect they’ll soon be back to sending out credit apps to dogs and kindergartners. When the banks lose money through extending credit unwisely, they raise rates on the rest of us to recoup. Worst case, as now, the taxpayers bail them out, they buy each other up, write off debt, get tax breaks for losses. So I think people can safely cancel all but one or two cards, and still be able to use credit to make major purchases.

Second, I’m hoping that ordinary people, who DO have an incentive to learn from the present debacle, may start restricting their debt to large necessary items. Cars and houses usually do require going into debt. But I’m old enough to remember life without credit cards; my mom had a metal “charge-a-plate” for Macy’s, and there was layaway at some stores, but no credit cards. If you wanted something you saved up for it. If you couldn’t afford to go out to dinner, you didn’t go. To those accustomed to incurring chronic credit-card debt for indulgences, such a life may seem a bleak prospect. But actually I recall very few people growing despondent for want of cruises, concert tickets, and designer handbags.

Back in the 1980’s when I saw items at an Oregon department-type store bearing tags that said “Want me? Buy me!” and a credit card logo, I viewed it as a dangerous & selfish attitude to cultivate. Along with it came the re-definition of human beings as “consumers”.

The present economic system is a pyramid scheme because it is predicated on continual growth. We do not live in a world of infinite resources and space, therefore neither population nor consumption/production can continue to increase forever. Business interests, and even the administration, expect increased consumption to get us out of this depression. If it does, it can be only a temporary fix.

I know there are a lot of optimists out there who say not to worry about dismal stuff like the economy, climate change, and all that, because the world is going to end in 2012 (Mayan Calendar theory) or “soon” (some Christian fundamentalist theories). But I just can’t be that optimistic. Call me crazy, but what if we’ve got those Mayan numbers just a little bit wrong? Or some translator introduced an inaccuracy into the Book of Revelations? What if God has changed His mind, and now thinks it might be amusing to see how His little creatures manage with these challenges? We just can’t know. Better to keep our eyes on the ball, as it were (in this case the planet & its inhabitants) and not count on the Umpire calling the game on account of End of Time.

Why I’m canceling my Bank of America credit card

Going through a pile of mail last week I came across two items related to Bank of America.

First, the AARP newsletter had a short article about a guy collecting unemployment in (I think) New Mexico. The state issues the monthly amount via B of A debit card. When this fellow had questions, he was charged for the phone call to the bank; when he makes more than one withdrawal in a day he is charged a service fee. The amounts are small––but then, so are unemployment benefits. And whatever the amount, the fact that the bank levies these charges on unemployed people (who also have to pay taxes on their benefits) is appalling. The state also should take action, should have negotiated a different setup, but it is the Bank of America that is profiting from people for whom every dollar is precious.

Second, I received a tender missive from Bank of America, announcing that the interest rates were being raised. “The standard rate for new and outstanding balance transfers is increasing and will use the Variable Rate formula with a margin of 11.72 points” yielding an annual percentage rate (as of Feb. 2009) of 15.72%. New and outstanding purchase balances will have the same rate, and the rate for cash advances will go to 25.74%.

They calculate this rate by using the highest US Prime Rate over the preceding 3 months, as published in the Money Rates section of the Wall Street Journal. Can anyone say, “The odds always favor the house”?

Yes, banks perform a service. They must make a profit. But this is far beyond a fair profit. Banks now levy multiple charges, at least one on every stage of a transaction. Businesses pay a percentage of each transaction for the credit card processing. Every credit card user pays interest on amounts owed, sometimes even when paying the balance off in full each month. There are big late fees. Some banks (Chase, for one) have started charging a monthly maintenance fee for “processing payment and statements” [Wisebread blog].

Our local credit union issues us a VISA debit card, with no fees unless we get cash advances from an unaffiliated ATM. The credit union covers overdrafts (checks) for us by charging a line of credit so that we never will pay a bounced check fee. The credit union was not part of this reckless orgy of greed on the part of financial institutions, which has caused our economic crisis, and for which we ordinary folk are paying at every turn: taxpayer bailouts to the institutions who profited, massive unemployment, foreclosures, blighted lives as families become homeless and food pantries empty their shelves to gobsmacked crowds of the nouveau poor.

Screw the banks. Use cash, join your local credit union (credit union membership is now usually based on locality; you don’t need to work for a school, a certain corporation, or belong to a certain union, to join). And if you close an account or credit card, be sure to let the bank know exactly why. We are already paying plenty for their dishonesty and incompetence.

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“Bank of America helps build strong communities by creating opportunities for people — including customers, shareholders and associates — to fulfill their dreams.”
Kenneth D. Lewis
Chairman, CEO and President 1