Credit cards

Citigroup’s Chief Financial Officer John Gerspach announced this week that the Credit Card Act which was signed into law last year, will reduce his company’s net pretax profit by $400 million to $600 million in 2010.  Does Mr. Gerspach really believe that the average American has sympathy?  For years credit card debt has been sending millions of Americans into bankruptcy and now we’re suppose to care that new and sensible legislation will cut credit card companies’ profits. Many Americans don’t fully understand how past credit card policy has been a major driving factor in the rising rates of bankruptcy in this country.  Before the Credit Card Act was put in place, credit card lenders could raise interest rates almost at will.

Increased interest rates could send increase an individual’s risk of  bankruptcy if they could not afford to pay. And let’s not mention “universal default.” Universal default alone could send an individual running to file bankruptcy by sending all credit card accounts into default when a debtor defaults on just one of their debts. When individuals face financial difficulties it is inevitable that they will fall behind on the bills.  One failed tactic that indebted people use is charging expenses onto credit card accounts in the hope that by the next bill (or the one after that) they will have the money necessary to pay it back. Or, they believe that they will eventually pay it off it they pay the minimum on their credit card.  But credit cards don’t work that way. If a credit card consumer only pays the minimum on his/her credit card they could be paying on that card for a very long time.  With the new law, credit card companies must be up front and let debtors know how long it will take to pay off a debt if they pay only the minimum balance.  The truth will probably be a shocker for most debtors and may just shock them into more prudent spending which might decrease their chance of filing bankruptcy in the future.

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