Thursday, February 23, 2006


Life takes (plenty of bullsh*t from) Visa

The TV ads during the Winter Olympics are filled with nauseating contradictions and ironies, like McDonald's "partnering with our Olympic athletes," while simultaneously cheerfully making the rest of us obese.

Or how about U.S. bobsledder Vonetta Flowers getting a surprise reunion with her little boy -- she couldn't afford to fly him to Italy -- courtesy of Kleenex? In case you might have missed the connection, their marketing people make it part of a "Kleenex Moment" campaign. I would have reached for a Kleenex myself, except that experience has taught me it's not the right tool for the job when you need to barf.

But to me the worst offender is the "Life Takes Visa" campaign, which airs at least once during each and every commercial break. Where do they get all that money to saturate us with their damned ads?

You know who "Visa" is, right? Visa is an umbrella brand name for all the companies that have gotten into the consumer lending business through issuig Visa credit cards. The companies are banks, large and small, but the Visa consortium is dominated by a few particularly huge banks, such as MBNA, Chase and Citibank.

As for where the advertizing money comes from, some of it has been coming from me. I've had to pay two $39 "late fees" on my credit card bill in the last two months. I'm a guy who likes to pay bills twice a month -- not 6 or more times a month as the bills come in. I developed my twice a month habit back in the days when banks were more regulated and, like highly regulated utilities such as phone and power, gave you about two weeks to pay your bill.

Visa, full of innovations, has as far as I can tell, shortened its bill paying period to effectively one week. They cleverly withhold information about when they mailed you the bill, even going so far as to use a mail procedure that places no postmark on the envelope, so it's hard to tell unless you pounce on the bill the moment it shows up in your mailbox. Based on my last observation, to avoid the late fee, I would have to make sure Visa had my check in hand ten days from when I received the bill. Allowing for mailing time, as a practical matter, I'd have to send out my check in a week or less.

And what happens if the check arrives late? You not only pay interest (the so-called "finance charge") at an annualized rate of 20% or more -- about ten times the interest you get on a savings account -- but also the (seemingly industry standard) $39 late fee.

Arguably, a late fee could be charged to offset the administrative cost to the bank of processing a late payment, but I find it hard to believe that that cost, if it exists at all, exceeds a couple of dollars. That means the balance -- conservatively let's say around $35 -- functions purely as additional interest. A total of $60 interest on a $600 bill paid maybe one week late works out to something like 520% interest. (Economists, help me out here.)

Okay, a rough estimate, but it sounds a bit like usury, doesn't it? By the way, why do you think your phone, cable and power companies don't charge massive late fees like your credit card? 'Cause they're nice? Nuh-uh. Because they're regulated. Unfortunately, banking regulation has been weakened to the point where this practice is arguably legal.

But suppose it's not legal -- who's going to sue for $39? What is needed is a class action: a suit brought on behalf of all of us who have paid the usurious "late fee." Unfortunately, banks and credit card companies have that wired too. If you read your credit card agreement, you'll find there is something called an "arbitration clause" in their which prevents you from suing in court. Arbitration clauses are another innovation in which the banking industry has taken a leading role. And banks are now arguing, with some success, that their arbitration clauses mean that you can't bring a class action against them.

Bush the Boy President points out that America is addicted to oil. We're also addicted to easy credit. Credit card companies have exploited various aspects of deregulation to create a bonanza out of lending huge sums (in the form of credit card debt) to high risk debtors at extremely high interest. And they are making record profits.

Those "Life Takes Visa" commercials are the tip of a marketing blitz that has made banks the world's most successful drug pushers, getting consumers to spend beyond their means to the point where American households are deeper in debt than at any time in our history. Oh, yeah, I almost forgot -- the banking industry recently pushed "bankruptcy reform" through Congress, making it much harder for consumers to get out from under crushing debt through bankruptcy.

What's the third in the three-way "axis of corporate evil" in our time, joining the oil and pharmaceutical companies? Answer: the banking industry.

You're absolutely right re: wondering why these practices don't run afoul of typical usury laws.

It also makes sense to wonder why Congress last year decided effectively to become the collection agency for credit card companies (in passing the new bankruptcy bill, to ensure the companies get even more money).

The answer might have something to do with the fact that MBNA is one of the biggest (if not the biggest) contributors to Bush-Cheney (gave more than $3M to Bush-Cheney 2000, for example). And American Express and Capital One are also near the top.

As far as late fees go, every time I've seen one on my bill, I call customer service and ask them to take it off. Every time, they have.
Amen, amen, amen.

(Verification: amdyuu, with which I could create words for several days, stopping only for coffee.)
APL, you're right about MBNA. Also, regrettably, they rule Delaware and alas Sen. Joe Biden, who brought "bipartisan" support to the bankruptcy reform act.
Your Kleenex bit made me laugh out loud. Then I got sad because I am the queen of late fees. One month I paid $450 in overdraft fees to my bank. I hate them. But they own me.
Credit card companies make a lot of their money off folks who pay late fees and finance charges. Which is why my form of revenge is to use the credit card for everything but have the bill payment done automatically by deducting the full monthly bill directly from bank account. Never a late fee or a dime of interest.

trkdtuqx -- track and duck, the recommended motion for anyone going quail hunting with the vice president
The other thing that infuriates me about these credit card practices is that my credit card (issued through MBNA) has, several times in the past, had the payment deadline fall on a Sunday. That, despite the fact that they are NOT OPEN on Sunday and do not do any business on Sunday, effectively shortening the time I have to pay.
I try to follow warren p. k.'s civilly disobedient ways as well. Plus, I get air miles for CC purchases, so I'm sticking it to two obnoxious business sectors at once!

I just got stung by my bank with a $16 overdraft fee for a $.07 shortage in my account. I had plenty of money in savings to cover it, and they dutifully (and automatically) transferred it over. The next morning, I called them and asked them to explain the fee. They said it was to cover the overhead and administrative costs of the overdraft protection service. I pointed out that "overdraft protection" is basically just transferring money from my savings account, which is something I can do for free. Why does it cost $16 for a computer algorithm to do it? Then I got the "It's our policy" stonewall and the conversation ended. Bastards.
Excellent rant, Oscar!

Interpreted as an interest charge, you're right that late fees would usually imply high APRs. To put my rationalization hat on, I'd think the fees relate less directly to the banks' cost of funds than to the probability that a late account will become uncollectable. That the fees seem to have become a profit center for the card issuers, and that they have concentrated where they are, suggests to me that industry consolidation is having anticompetitive effects. (See also: the ubiquitous fees for using most ATMs outside your bank's network.)

The possibility of running afoul of usury laws is, of course, part of the reason why the credit card banks are concentrated in jurisdictions such as Delaware and South Dakota that conveniently lack (or eliminated) their usury laws.

I do have to say, the bankers did make Wilmington a better place to live on balance than it was in the DuPont company town days -- more good places to eat, anyway -- though the suburban sprawl in a couple directions there makes the far southwest side of Madison look like a storybook village by comparison.

At the risk of deflating Warren P.K. and Majorsteel (whose examples I also more-or-less follow; I've gone to electronic bill payment because of the shorter grace periods myself), the reason we don't get dropped for paying no interest and (often) no annual fees while getting perks worth about 1% of our transaction volume is that the banks make money off our transaction volume, too -- if not quite as much as if we carried balances or rang up fees. The merchant fees represent, themselves, another big competition problem, since lack of competition between umbrella payment networks keeps those fees well above plausible processing costs.

Since merchants usually can't charge extra for processing credit cards, and rarely offer cash discounts, credit card users are subsidized to some extent by users of other payment modes. Good for me, personally, but probably not so efficient.
I was one of those high risk debtors that was easily given credit when I didn't deserve it. The more I spent, the higher my limit went so I could spend more.

Now I'm guessing that it will take me at least another 3 years to get out of my credit card debt, and that's with me cutting them up a year ago. It's very difficult to get used to living within your means.
Oscar, I do have to pick some large nits regarding your 'axis of corporate evil' membership.

Shouldn't Big Tobacco be on the list? Pushing a product that shortens one's life when used as intended must displace Big Pharma, which mostly does the opposite (even as they pick your pocket doing it, not to mention devote socially suboptimal resources to the problem of unhealthy middle-aged men who can't get it up).

I don't think that the banking industry as a whole merits inclusion, though 'subprime' lenders (payday advance shops, etc.) would rank high for me. The value judgments are complicated, but I don't think I'm worse off for not having to, say, come up with the entire purchase price of my house in cash in order not to be a (total) renter.

I would also add honorable mentions, at least, for the alliance of the corporate takeover and management consulting industries -- making the very rich very much richer, and most everyone else not so much, in the name of 'efficiency' defined as stock market returns.

I'll respond at greater length in a separate post -- but isn't the short answer that the big banks are engaging in subprime consumer lending through their credit cards? Poor Sleep Goblin is one of many caught up in that snare.

kqmraum -- (KQM-raum): the motivation for expansionist, consolidation and takeover policies in the broadcasting industry; lebensraum ("living space") for west coast radio TV and stations.
MT -- I had a feeling you'd like the bit about the Kleenex. Don't ask me why...
You should really check out Mojo Nixon, a surrealist punk rocker whose ouevre includes "I Hate Banks"

The lyrics are (approximately:

I hate banks, just can't stand 'em
give me a shovel and man I'll plant 'em
6 feet under is where they belong, I hate banks is the name of this song
Think I'll rob myself one or 2, I hate banks how about you?
Lend me a nickel, lend me a dime, reposses my house any old time
Financial institutions think that they're so high falutin'
Just a bunch of fruits in a three piece suit tryin' to steal all my loot
Things are smellin' mighty rank we must be near a stinky bank
Smells worse than Rockefellers feet, wall street can eat my meat
Throw the money changers out of the temple, I hate banks its just that simple
Royal Crown Palm Ade tin is the best thing to keep your money in, mason jar is okay to, if you see a bank you know what to do

.... Courage
I have to agree with APL: last time we had late fees, we called and threatened to cancel the card. They not only took off the fees but threw in a bunch of little perks to keep our business. It's worth trying.
and the fourth axis of evil certainly has to be Insurance companies.
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