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Commentary :: Globalization
Banks Injure Economic Stimulus Plan by Jacking up Credit Card Interest
05 Feb 2009
Could banks jacking up credit card interest during a horrendous recession—delay U.S. economic recovery and destroy the expected benefits of the Economic Stimulus Plan?
Millions of Americans now face the prospect of their own economic collapse. As the recession worsens, Americans increasingly can’t pay their credit cards, rent and mortgage payments. Despite these hardships, recently several U.S. banks and credit card issuers—largely jacked up interest rates they charge credit card customers. Consequently it should be expected the large hikes in interest will further choke consumer spending and cause a new surge of credit card defaults and home foreclosures? During the 1930’s banks inflamed Americans and the Great Depression by similarly raising consumer interest rates that forced millions of people and businesses to default on loans. Houses could not be sold. Perhaps Americans in 2009 should ask Congress ASP, “Could banks jacking up credit card interest during a horrendous recession—delay U.S. economic recovery and destroy the expected benefits of the Economic Stimulus Plan?”

Congress has proposed spending billions of taxpayer dollars to pay for an Economic Stimulus Plan to create jobs, generate bank lending and stimulate consumer spending. How could any Economic Stimulus Plan be expected to succeed if Congress doesn’t act to limit the rate of interest banks charge credit card purchasers? During these bad economic times credit card lenders need to be limited to twelve percent. The current high credit card interest rates discourage consumers from making card purchases at retail and other businesses that would help stimulate economic recovery. Unless credit card interest rates are strictly regulated, credit card issuers could become the main recipient of the Economic Stimulus Plan, sucking up stimulus dollars from Americans forced to pay higher credit card interest on debts they incurred prior.

Here we go again? U.S. banks are duplicating in part through credit card lending some of the same problems that caused the sub-prime mortgage collapse and real estate crash. Except this time, U.S. banks aren’t selling packages of so-called mortgaged-backed securities to investors; the banks are selling “credit cardholder debt” to investors. Under this operation, after the bank sells a credit card holder’s debt at a specific interest rate, the selling bank can keep raising the cardholder’s interest rate—keeping part of the higher interest charged: the bank will have little or no exposure for the sold debt. The bank can also profit from subsequent fees charged the credit card holder. This operation gives the bank little or no incentive to lower the credit card holder’s interest rate after they have raised it. Sound familiar? Do the words Sub-Prime Mortgage come to mind? Sub-prime mortgages sold by banks to investors, were frequently defaulted on by borrowers because they could not pay higher interest rates provided for in mortgage loan agreements. At least purchasers of Sub-Prime loans had real estate to secure the mortgages. “Credit card debts sold by banks” generally provide debt-investors with only the debtor to look to for repayment.

Banks selling credit card debt to investors has the potential of becoming a scheme that could cost U.S. taxpayers and the global economy billions. Congress needs to limit fees and interest rates banks can charge credit card holders. That would eliminate much of the incentive for banks to resell a credit card’s debt then keep raising interest rate on the credit card.

Meanwhile while U.S. banks continue to Jack Up your credit card interest, keep in mind these are some of the same financial institutions that failed to sufficiently provide the U.S. Government with an accounting explaining how they spent billions of “bailout dollars” provided by U.S. Taxpayers.

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