The credit card industry is one of the nation’s most powerful and lucrative businesses and President Barack Obama says his administration will push for more protections for credit card consumers. After summoning senior credit card industry execs to the White House, the nation’s consumer-in-chief said, "The days of any-time, any-reason rate hikes and late-fee traps have to end".
The stakes couldn’t be higher and the purveyors of plastic don’t intend to be forced into financial submission. The industry annually collects an estimated $3 trillion in annual credit and debit card transactions, plus billions more in late fees and other charges.
America is a nation propped up on credit card debt. The average U.S. household carries more than $10,000 in credit card debt. Many consumers have complained about the high-fees of credit card companies and the U.S. House has approved a bill that would stop credit card issuers from imposing arbitrary interest rate increases and penalties, while halting certain billing practices.
A credit card is a pre approved loan with flexible repayment options. It’s distinguished from other financial instruments by the freedom it gives borrowers to determine the size of the loan and the pace at which it is repaid. Data collected by the Federal Reserve shows minorities most at risk of damaging their financial futures due to poor credit card management. African American households, in particular spend larger percentages of their incomes paying credit card and other high interest rate debt, heading closer to foreclosure bankruptcy while enriching lenders.
In 2001, 59 percent of African American families had credit cards, compared to 82 percent of white families. Although African American households have lower rates of credit card ownership, African American cardholders are more likely than whites to have credit card debt. Credit card debt has caused African American families to use critical financial resources to pay mounting monthly interest payments instead of saving or acquiring assets. Unfortunately, most of the debt African Americans have accumulated is used for items that depreciate in value, such as cars, furniture, electronics, and appliances. This is an indication that blacks use credit inappropriately – to stretch their incomes. Historic redlining by traditional banks has left high-interest credit cards as one of the few easily accessible sources of loans for minorities.
Close to two million African American households have annual incomes of at least $75,000, but there are comparatively few affinity, co-branded and reward cards targeted specifically to blacks. However, the high levels of unbanked and underbanked blacks have spawn affinity and co-branded prepaid cards marketed primarily to them. One example is record industry mogul Russell Simmons’ Visa RushCard. Though Simmons wasn’t in the White House meeting on credit cards his company is a symptom of the problem. He claims to be solving problems for underbanked communities, which often lack access top a bank account, but complaints are mounting about the fee structure of his prepaid Visa RushCard. To utilize Simmons’ RushCard and “live the American Dream” requires an activation fee of $19.95, a daily convenience fee of $1 (capped at $10 a month) and a $1.95 ATM cash withdrawal fee.
It’s going to take more than Obama taking credit card executives to the White House woodshed. Americans are used to credit cards and most have at least one credit card. When they go shopping, they just use their credit cards, since they don’t have to pay cash many feel as if they’re not spending their own money. Good financial management for African Americans requires actively tracking credit card usage and considering it a portion of overall net worth. When the economy is good, people do not worry because they know they can pay in one month when the credit card company sends them a bill. But now the economy is so bad, many people can not pay for the total amount and pay just the minimum which puts them in a 19 percent to 24 percent high interest rate category.
A rule of thumb for credit card use in today’s economic times – if you can’t afford it, don’t buy it.
(William Reed – http://www.BlackPressInternational.com)