Creditor Abuse Essay Research Paper
Creditor Abuse Essay, Research Paper
Society is rapidly leaning on credit cards. More consumers prefer to carry plastic instead
of cash. Moreover, the privilege of holding a line of credit is convenient and useful in today’s
world. From hotel reservations and apartment rentals, to ordering online products, families are
relying on credit as a time saving devise. As the importance of credit soars, money hungry
creditors are taking advantage of the public’s reliance on credit cards.
Credit cards are essential for the escalated pace and demands of today’s society.
Consumers are increasingly using credit cards to simplify their spending. In addition, carrying
cash is more dangerous than carrying credit cards and cash is more difficult for record keeping.
In Fact, Hickey (2000), states that cards are safer than cash and necessary for online shopping. In
regards to record keeping, reasonably, 45% of the consumers feel comfortable with using cards
for the purposes of daily living (“Using Credit,” 1998). In short, because most families are busier
than they used to be, limited time necessitates credit card usage for accurate records and time
Credit card companies are creatively abusing the American consumer. Robert Heady
(1999), founding publisher of Bank Rate Monitor, contends that creditors are making substantial
profits from various unfair practices. Heady identifies the strategies as late charges, over limit
fees and inaccurate account information. For example, one consumer states that his creditor
claims that it takes thirteen days for the company to post the payment, resulting in a late charge,
but the creditor sends the bill without adequate time to pay thirteen days in advance (Heady,
1999). Moreover, “fees have soared by 75 percent in the past four years, according to Consumer
Action, the San Francisco-based consumer advocate” (Heady, 1999, p. 16). Furthermore,
inaccurate information posses an equal threat to consumers. To illustrate, Heady (1999) purports
that an individual called the automated teller for his required payment and was given the dollar
amount, but not the change owed. However, after paying the acknowledged amount, the
consumer received a late charge. When the credit holder questioned the company, their response
was that the automation did not include the change owed because it would result in extra air
time charges on the creditor’s eight hundred number. Another consumer was devastated when
he accepted an offer for a card with a $1,200.00 limit from First North American Bank, but after
reaching the limit the creditor began to lower the limit and raise the interest rate. Therefore, he
acquired a higher amount owed in interest, plus over limit fees (Heady, 1999). Furthermore,
Weber and Palmer (2000), state that when a consumer pays late, the creditor has the right to
raise interest rates, however, if a consumer does not use a card, the creditor may charge
inactivity fees. Cut up the card and the creditor is entitled to charge a closing fee.
A consumer with flawed credit suffers the most. Although creditors are happy to issue a
credit card, creditors aggressively demand unfair funds from the consumer. Nelsons Reports,
states statistics concerning Providian Financial Corporation, claiming that their net income grew
by 86% when they authorized forty five-million users of which 30% were considered non-prime
customers (Weber & Palmer, 2000). A non-prime customer is an individual that has a low credit
rating or other flaws on her/his credit file. In fact, companies like Providian are capitalizing on
non-prime customers by charging excessive interest rates. However, these tactics including poor
customer service have backfired on Bank One when the company lost 69.4 billion due to
consumers that closed their accounts. As a result, Bank One’s stock dropped from 63.00 dollars
per share to 30.00 dollars per share (Weber & Palmer 2000). In contrast, Weber and Palmer
(2000), claim that because Providian has capitalized on the non-prime consumer, it posted a gain
of $18.71 billion.
Credit card companies target young students, ripping their lives from them before they
even have time to start a career. Paul Richard who states that “Credit-card companies are
preying on students who are financially naive.” (Hickey, 2000). Hickey investigates the matter
and reports that creditors use campuses as sign up sites and offer gifts to students for applying.
By using lures, creditors are receiving funds of ill-gotten gain from innocent students. For
example, according to Hickey, an unfortunate young student dashed his education and his
dreams of medical school to pay off his debts. Furthermore, Vickers (1999), reports a tragic
story of a student who acquired debt because the student fell for the fallacy that he would pay
them off when he graduated, but he was not able to make his minimum monthly payments and
had to work three part time jobs, in addition, his parents had to assist. Nellie Mae, a nonprofit
provider of student loans, states that 10% of students are carrying balances of more than 7000
dollars. (Hickey 2000).
Credit card companies have become willing to grant credit to poor underprivileged
consumers to make a profit. One of the saddest facts concerning the recent greed of creditors, is
the carelessness that they use when they issue a low income family credit. Unfortunately, it is
this class that is hit the hardest. In contrast, baby boomers are able to pay off their debts in
entirety each month, thereby boomers obtain lower interest rates (Weber & Palmer, 2000).
However, fat creditors do not target the baby boomers, instead they freeload credit to the poor.
Edward Bird and others, completed a study that accessed in 1989 17% of poor families owned a
credit card. In contrast, by 1995, 36% of poor families owned credit cards. Moreover, in the
recession of 1990-1991 poor families increased their credit expenditures, while middle class
families brought their spending habits down (Koretz 2000). In addition Koretz (2000), implies
that former welfare recipients have started using credit to maintain their previous level of
income. In short, welfare reform may be a fallacy because creditors opened their doors at higher
unfair rates to the poor. Again, Providian has made a killing off the backs of America’s poor
(Weber & Palmer, 2000).
What needs to happen in order to change the growing problem? While the Federal Trade
Commission has set standards for creditor rates, in light of the abuse it is important for the
government to intervene by creating more detailed restrictions on creditors. Limits need to be set
for mailings of pre-approved offers and consumers need awareness of the costs of credit card
debt. Hickey (2000), states that some college campuses are forbidding creditors to set up tables.
This is an action that can prevent young adults who are vulnerable to the lure of free money. In
addition, the use of debit cards issued by banks can replace the need for a credit card.
Consumers are able to keep track of their spending by using the debit card as a credit card, but
the funds come directly from the client’s account. Debit cards are also permissible for hotel
rentals and any other credit card requirements. Those that are in debt need to start paying the
debt down by adding to the minimal payment per month while the economy is still lively. In
conclusion, awareness, government intervention and pro-active consumer behavior will destroy
the power of unfair and abusive credit card companies.
Hickey, M.C. (2000, September 25) . Majoring in Debt Many College Students aren’t
ready for plastic. BusinessWeek Investor [Online] . Available: http://access.barry.edu
Business Week Online. [2000, September 25] .
“Using Credit” (1998, November). Using Credit Cards for Daily Expenses.(brief article)
USA Today [Online] . Available: http://www.findarticles.com [1998, Nov.]
Heady, R. K. (1999, July 5) . Some Credit Card Firms Play Dirty Ball. Sun-Sentinel Company
[Online] . Available: http://access.barry.edu:2061/research/edata.htm
Weber, J. & Palmer, A. T. (2000, February, 14) . Finance: Consumer Debt: The Perils of
Plastic. Vol. 3668, Business Week. P.27
Vickers, M. (1999, March 15) . A Hard Lesson on Student Credit Cards. Businessweek Online
[Online] . Available: http://access.barry.edu:2150/search/search.htm
Koretz, G. (2000, January 10) . Plastic Puts the Door at Risk. Economic Trends vol. 3663. P.