4/11/07

Dirty little secrets of Max Stout

Tri-O's Oddities, observations, and opinions
By Herb Kandel

Dirty little secrets of Max Stout

Hardly a week goes by when one credit card company or another seeks me out offering a pre-approved credit card with a high credit limit and low interest rates. Who knew I was so popular and credit-worthy? But wait- - it seems that I'm just one of eight billion who have been the recipient of similar solicitations last year. What gives when massive missives cause the cutting of thousands of trees and other multi-related expenses just to put another piece of plastic in wallets? How can you build a defense against this unsolicited wastebasket stuffer? What is a beleaguered person to do?
With the help of my imaginary whistle blower Max Stout we‘ll explore some credit card practices and policies and build some defenses to thwart them.
Max and I were listening to NPR “Fresh Air” when hostess Terry Gross interviewed Elizabeth Warren a Harvard Law Professor and bankruptcy expert. Warren is also the author of “The Two-Income Trap: Why Middle Class Mothers and Fathers Are Going Broke.”
“Max, is it true as Ms .Warren states that if a young couple charges $5,000 worth of baby supplies and pays the minimum, the baby will be grown, married, and have babies of his/her own before the debt is paid off?”
“’Fraid so. At some of today’s rates It can be upwards of 26 to 34 years.”
“ And why do they refer to people who pay their bills in full each month as ‘deadbeats’?”
“Credit card companies make money three ways. First, through a merchant discount fee; each time you charge something, the vender has to pay a fee. Second through interest on the unpaid balance. But the third way is the ‘jackpot’ – the high double digit fees the companies charge when the customer fails to make payments on time. Paying your full bill on time provides only about $21 billion annually, small potatoes. The ‘real’ profits come from fees charged for over-limit, or late fees or default rates of interest.”
“Isn't that usury?”
Max smiled knowingly as he said, ”Credit card contracts usually state ‘we have the right to change the rates, fees, and terms at any time, for any reason’ so they can charge you whatever they want. Ever notice that most issuers are based out of Delaware, South Dakota, California, and Tennessee? According to the American Bankers Association these states have no maximums on delinquency fees, cash advance fees, over-the-limit fees, transaction fees, stop payment fees, ATM fees, and mandatory grace period”
“How did that happen?”
“In 1978 the Supreme Court had ruled that a national bank could impose any credit rate allowed by the state in which it is located. That’s why South Dakota is so popular in banking circles.”
“Are there other things to be wary of?”
“Watch the interest rate even if you pay on time, some credit card companies will hike your rate if they see you've made a late payment on another card. Check the due date, for months your bill will be due on a certain date, then without notice the date will be moved several days earlier or fall on a holiday or a Sunday. If paying by mail allow more delivery time, as some issuers send east coast cardholders pre-printed envelopes directing their payments to some town on the west coast - a small town because it takes longer for mail to be distributed - while west coast customers mail, you guessed it, go to a small town on the east coast. If you receive an unjustified charge fight it. Warren claimed, ‘This year, one company hit everybody with a $75 fee. Anybody who complained got the fee removed from their bill. This way, the company kept their "alert, cranky customers" and got $75 from the careless and timid’”
“Max, it all seems like a one way street if you're not vigilant.”, I sighed.
“That’s right you get the benefit, advantage, convenience of credit, and perhaps some perks but you must be familiar with the rules and the pitfalls.”
“Can I at least stop the relentless pre-approved offers?”
“ Sure thing”, he said as if anticipating the question,“ Just like the telephone marketers ‘no call’ list, consumers who call 1-888-5OPTOUT or visit www.optoutprescreen.com can “opt out” of most mailings. Your name will not be eligible for inclusion on lists used for offers of credit or insurance for five years; there is also an option to make this permanent. Destroy the applications you are not interested in, as thieves practice ‘dumpster diving’ to retrieve them and try to activate them. If your mail is delivered to a place where others have easy access to it, criminals may intercept and redirect your mail.”
“Thanks for the heads-up, Max. Where are you going now?”
“To buy more stock in a shredder company.”
END