I have always done my best to inform you about the latest scams and schemes by the credit card companies to keep "revolvers" revolving and to get the "dead-beats" revolving.
Remember, "revolvers" are people who carry credit card balances on these revolving lines that are bread and butter to credit card companies, while "dead-beats" are the people who don’t carry a balance, thus robbing the credit card companies of interest charges and fees.
Well, I just finished reading an article in BusinessWeek about our good friends at Capital One and their latest round of trickery. I hope my warning will catch you before you fall victim to their latest trick.
I must begin by pointing out two important changes in the credit card industry.
There was a time when once you had a Capital One credit card, you were no longer a potential customer for a Capital One credit card. They made their money off of the interest that you paid on the card and then received bonus income when you went over the limit or were not able to make the minimum payment. And if you needed additional credit, you asked for an increase on your credit card’s limit.
While Capital One loves to get your interest charges, today, the majority of its money comes from what used to be the occasional bonus...the overlimit fees and late fees.
As the spending and credit habits of consumers have evolved to be less and less responsible, the credit card companies have adapted to take advantage. There is change number one...credit card companies today make more money from the fees than they do from the interest they charge on the loans.
On to change number two. If you have a Capital One credit card, you may notice that you still receive applications in the mail from Capital One, and you probably think that this is just some mail list error and that if you send in the application, they will tell you that you already have a Capital One credit card and apologize for the confusion, but this is actually not the case.
What many American consumers do not realize is that these Capital One applications are the result of a new capital idea from Capital One. Don’t increase credit limits...issue more than one card to each consumer. If you have a "revolver" who is at the limit and paying late fees and overlimit fees, chances are, that "revolver" is going to open up a new credit card to borrow against to pay those fees, and once that second card is maxed, then open up a third, then a fourth, and so on, just to pay the fees on their cards until their miracle happens and all the sudden they can somehow pay off this credit card debt that they have accumulated on all these different cards...so why don’t we, as Capital One, make sure that each of those credit cards that are maxed out and wracking up fees is a Capital One card?
Don’t give the consumer one card with a $1400 limit and collect one set of fees, issue that consumer two cards with $700 limits and literally double our income by collecting two sets of fees.
So, there is change number two. Capital One no longer will say, "Sorry, you already have a credit line with us and you’re not doing so good with it so we can’t increase your credit limit," but in fact, will now say, "Thank you very much for maxing out your card, please, have another!"
And so began a new chapter in credit card history. Capital One would wait until you maxed out card #1, hit you with fees, then send you an application for card #2 so that you’d cash advance that baby to pay for card #1, borrowing at a higher interest rate on card #2 than on card #1, thus maxing out card #2 at an even faster rate.
Naturally, when you’d maxed out card #2, the applications for card #3 were already in your mailbox. Once you were at card #3 or #4, you just kept sending in the applications, just hoping they’d allow you a card #5 or card #6 just so you could keep your head above water.
Of course, the using one card to pay the other wasn’t new, just now, all these cards were from the same bank. The article I just read told the story of some folks that had as many as six Capital One cards, each with a ridiculously low credit line of $200 to $700, some of them paying a much as $400 per month in fees alone.
Again, I go back to personal responsibility and must say that Capital One discloses all of the fees that you will be charged when you apply for a card when they issue it and tell you up front what will happen when you max it out.
Every step along the way, they let consumers know on the statements and in the terms pamphlets what they will do when consumers get to and go over the limit, so we, as consumers, know up front how things will be and then we, as consumers, agree to these horrific loan terms.
What most American consumers fail to realize, but must begin to understand, however, is that these credit card companies pay a lot of very smart people to analyze us as a group to determine the best way to get us to run up credit card debt, and then, determine the best way to make money off of that debt once it has been created.
I am not saying that you can’t beat the credit card companies, because each of us knows full-well that we could have a credit card in our pocket and just not use it, thus avoiding self-perpetuating debt, but we must be aware of the forces that are working against us to get our dollars and to break our banks.
We have to be aware of these forces, know that they are working against us, and remind ourselves of it every single day. It is not easy to do, but it is much easier to remind yourself not to charge today than to get out of credit card debt tomorrow.
I have said it before and I will say it again, please do not carry credit card balances in any situation other than a dire emergency. Say, a root canal or a co-pay on a surgery that saves your life, as opposed to a new TV that is better than the one you bought two years ago, or the cell phone that is better than the cell phone you already have.
The article in BusinessWeek touched on the need for federal regulators to step in and stop this multiple-card-issuing practice, but we cannot expect the "powers that be" to protect us from credit card companies.
It’s not the government’s job...it is our job to police our spending habits ourselves...
