Dungeons Of Debt
AS BANKS GET READY TO DOUBLE MIMIMUM CARD PAYMENTS, CLIENTS GET READY TO RESPOND
by Joe Shea
American Reporter Correspondent
BRADENTON -- As a little-known consequence of the new bankruptcy legislation sponsored by congressional Republicans and recently signed by President George W. Bush, many banks and credit card companies can now double the minimum payments on credit cards, part of a move to reduce consumer dependence on credit.
But there are signs a full-fledged consumer revolt may be in the offing. Some clients are preparing letters to their credit card companies acknowledging their debts and yet declining to pay them if payments are doubled.
Others say they are writing to their bank to tell them they won't pay at all if the bank suspends a credit card in good standing due to the fact that other credit cards are delinquent. Many others, it appears, will simply stop paying their bills, at the same time suspending their dreams of one day borrowing hundreds of thousands of dollars to buy a home.
Millions of others Americans are rushing to declare bankruptcy ahead of the October effective date of the legislation, which reduces consumer protections against their creditors once they go admit in court they are broke. Bankruptcy courts say they are overwhelmed by the new applications. With layoff now running nearly 50 percent higher than last year's pace, the problem appears to be on that can only get worse.
The credit section of the law is aimed at penalizing those who only pay the minimum due each month, although sponsors say they want to help such Americans avoid spending far more than they borrowed - due to higher interest rates - as well as free up financial resources for other lending opportunities. The problem is, many of those bank clients can't afford a doubled minimum payment because they are overextended on many loans, not just one, while their earnings remain relatively flat.
The people who are writing letters say they don't want their names in the paper, but they are willing to share the letters with you that they are writing to Citibank, Bank of America, MBNA, Wells Fargo, Providian, U.S. Bank, Discover and other lenders who cancel their accounts. This is an example:
August 2, 2005
Re: Suspended Account xxxx-xxxx-xxxx-xxxx
I was saddened to receive your note of July 27, 2005, regarding the suspension of my Citi Cards account due to a delinquency on an ATT Universal Card account, which is also owned by Citbank . It is my policy to suspend all further payment to any lender who suspends one account due to the delinquency of another account. To me, it is rather like suspending one misbehaving child for cause and the suspending his sister, who has given no cause, on the belief that one problem child indicates a problem family. While you may sometimes be right, you will often be wrong, as you were in this case. You clearly and fundamentally violate the American tradition of fair play.
I understand that you will notify the three major credit bureaus of my suspension of payments, and a copy of this letter will also be forwarded to each by me. Surely you cannot believe you are better off to have several letters on file than to have your money each month at the rates we initially agreed upon, but this is a banking decision that is best left up to you and your attorneys to pursue. However, be advised that I will not cooperate with any attempt to collect this debt that comes ahead of the restoration of the account that was not delinquent as of the date of your notice.
John Q. Public
The other letter Americans are sending to their banks and credit card companies are aimed at the issue of doubled minimum payments. Here, again in anonymity, is an example:
August 12, 2005
Citi Cards 7920 W. 110th Street Kansas City, MO 64153 Re: Doubled Minimum Payment xxxx-xxxx-xxxx-xxxx
I understand that as a client of yours who may become subject to doubled minimum payments under the Bankruptcy Act of 2005, I may be expected to pay twice the minimum amount I am currently paying in order to retire my debt faster and to encourage me to depend less on credit. You may recall that you offered to loan me the amount owed at a highly attractive rate reflecting the low cost of funds the bank was then enjoying at the Federal Reserve. Now that the cost of funds has doubled, I understand that you would like to get more of your money back faster in order to take advantage of the higher interest rates you can now charge clients like me, and that the Congress is trying to help you do it with the new bankruptcy law.
This is certainly a laudable approach to making money, but it does overlook one key fact: Many Americans are overextended now insofar as their credit is concerned, and as the result of the loss of manufacturing and other jobs and a sharp increase in layoffs over the past year, many of our neighbors are unable to make ends meet and are far less able than before to meet the demand for a doubled minimum payment.
I must admit I am one of those Americans. Therefore, if you do double my rates, I will discontinue my payments. While this may seem unfair, you must remember the rules have changed in the middle of the game, and I have not agreed to the new ones. Moreover, since you do add a $35 late charge for every future payment I might make at the current payment level, I would be playing a fool's game to continue payments that would each incur such a charge. It would be far better for me to suffer the delinquency reports you will send to the three major credit bureaus, even if it prevents me from borrowing to buy a house, than to indulge your usurious rates and cozy relationship with Congress. Further, I will not cooperate with any attempt to collect the debt, and will avail myself of every means to avoid collection, until your policies better reflect the sense of fairness and friendship that once was the hallmark of American banking.
Your alternative, of course, is not to increase my minimum payment, in which case you will continue to receive your money for many years to come. Although Congress doesn't think so, it should please you to know that you can rely on income for the rest of your bank's existence from loyal clients like myself.
John F. Public
We're sure once these letters (feel free to copy them) reach your bank they will go straight from the mailman to the trash, but in the hundreds of thousands someone will begin to notice how badly banks and credit card companies are treating their customers - and then at least think about straightening up their policies to play fair.
But that may be giving them too much credit.
This is the first in a series of articles about the difficulty of dealing with onerous late fees, overlimit fees, high interest rates and other devastating economic blows proposed by credit card companies and the new bankruptcy law.