27% interest. Would you take out a loan with such a high rate? New Mexico has passed laws which specify such loans as predatory lending and prohibit them. Only those who have no possibility of getting other lending would consider such a loan.
Our financial system is in serious danger of total collapse. As a result, the banks have recieved major financial bailouts of billions of dollars. Defaults are expected to skyrocket in the near future.
A major factor in the dramatic increase in defaults is at least partially the result of such exorbitant interest rates by the credit card companies.
A card holder has been very careful never to be late sending in his payment. His minimum payment is 100 dollars per month. One day, he mails in a payment on one of his utility bills, and for some reason it is credited a few days late. He is then listed as being in arrears and is reported. Thanks to current regulations, the credit card company is now able to raise his rate from the initial 8% to 25%. His minimum payment jumps from $100 to over $200. This happens even though his payment was received on time.
The credit card issuerer is now able to collect an extra $1200 or more per year because the customer has a late payment record, even though he has never been late with one of theirs, and may not even have been late sending any payments. Suppose he, like many people, has 3 cards with similar balances. That is $3600 a year of payments he neither incurred nor agreed to. I believe such practices are even more predatory than the companies accused of predatory lending.
While he was able to make the $100 payment, the $200 payment is a problem. If he has 3 cards, it is much worse. A payment is delayed, and a late fee, often $200 or more is added, forcing the card holder further in arrears. It is very probable that the card holder will end up in default, and may loose everything if he happens to loose his job.
Check cashing and title loan companies are prohibited from charging such exorbitant interest rates under state law, and cannot increase rates after the loan is made. Credit card companies are governed by federal alw and appear to be exempt to such restrictions.
Stores offer a no payments and no interest for six months or even up to 3 years programs. Unfortunately many people forget how much they are buying. As a result, since they are not making payments, and have 3 years before the first one is required, they may spend more than they will be able to pay for before the first payment is due.
Even if they are able to make the payments, by the time payment is required, the product may be showing serious wear. The consumer will probably be stuck with it until it is paid for.
Some of these programs are even worse. One I looked at specified that as long as payment was made before the end of the free period, no interest would be charged, but if the item waqs not paid in full, interest would be retreoactive from the date of purchase. When the first payment is due. the purchaser's debt may be more than half again larger than the initial purchase. The customer agreed to those terms, and will be stuck with paying off the larger amount because he didn't read or understand the fine print.
If this results in late payments, fees willbe added, again pushing the consumer further into debt. A recent news report indicated that warning the lender that you are struggling may not get any help, as it appears to be in the companies best interest to allow the customer to get behind, since it increases their potential earnings.
Regulations which allow such practices are at the root of much of the current financial crisis. Despite our consumer protection programs, it is still very much a "buyer beware" situation in our credit markets.
As more and more jobs disappear, people are discovering they are enslaved by their debt. it would be worthwhile to remember the biblical statement in Proverbs 22:7, "The rich ruleth over the poor, and the borrower is servant to the lender."
As people learn how the credit system has trapped them, they are frequently unable, and often afraid to borrow more money. This will probably prevent the stimulus packages from producing results right away, making it even more risky for others to borrow.
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465
Date Published :
Feb 3 2009