Always a topical subject; credit cards, debts and intrest rates. I guess we are all aware of the malpractices of these financial multinationals: you get a piece of plastic, they encourage you to use it, you get into debt, they own your ass. Yes, it is evil. No I would not want to waste precious blogging space on that alone. So why this post then?
This morning in one of the free Dutch papers I read a small article about Edward Yingling (not that’s not a joke, it’s the dude’s actual name). Mr. Yingling is the president of the American Bankers Association and, as such, he has got something to say on behalf of the credit card companies. His defense on that matter is a strange one: ‘If somebody starts behaving in an increaslingly risky manner, like losing creditpoints because he or she does not fulfil his or her monthly payments we have to able to raise the intrest rates. It’s a risky business we’re in.’
I found this somewhat surprising. What he’s saying is that institutions loan too much money to people so they will not be able to pay them back. Then, because they have created a risk for themselves, they find an argument in this to raise the amount of intrest you have to pay for money you have already loaned because they would reduce that risk. In fact the opposite is true: since you will now have to pay even more, the chance that you will ever be able to fulfill you debt is even smaller now. So the action the credit card companies are taking are not reducing, but increasing their so-called risk.
For credit card companies, there is no risk. All the risk lies with the gullible consumer who gets lured into biting off more than they can chew. And from that moment on… your money goes to the credit card companies. All of it. you will try to pay of loans with new loans and like quicksand, everytime you try and struggle, you just sink deeper.
Edit (oct. 2008):
It appears that I was not completely right here. The practice of knowingly lending people too much money did have some effects on those financial institutions, as we all know by now. We are all ducking for cover from the flyinf debris… I wonder, has mr. Yingling been sued yet?