Facts are shocking:
US consumer debt has reached astonishing levels after more than doubling over the past 10 years. According to the most recent statistics from the Federal Reserve Board, consumer debt topped to $2.4 trillion in November 2006. This amount, which includes car loan and credit card loan debt, but excludes mortgages, translates into approximately $22,700 per US household.According to a 2006 Government Accountability Office report, credit card fees, other than interest, are increasingly making up a greater percentage of credit card issuers' income. For 2006, credit card issuers are expected to collect $17.1 billion from credit card fees, and over-limit and late fees almost tripled in the last 11 years thanks to the abolishment of usury laws in many states.
More and more banks are setting a cutoff time on the payment due date, reports Consumers Union. This little-known "gotcha" policy is designed to trick us into a fee, even if we have a good payment behavior.
In recent years, rising number of banks have also switched "fixed" rates to variable rates that rise along with the market rates, according to CardWeb.com data. The small prints in credit card agreements lets banks change the terms "at any time, for any reason," although consumers get 15 days' notice. "This is the only industry we know of where they're able to raise the (rate) on your transaction months or years after you've made the purchase," says Darrell McGraw, the attorney general of West Virginia.
How high can credit card rates and fees go? A Supreme Court decision in the late 1970s required banks to follow only the usury laws of the state where they have credit card operations — not the laws of each state where they issue cards. So some banks moved their credit card units to states, such as Delaware and South Dakota, with no caps on rates. And now they can charge us as much as they want.
Numerous banks have also adopted a "universal default" policy. With it, they study our payment history not only with their cards but also with our other creditors. This lets them raise our rate if we pay a utility bill late or our overall debt grows up. Almost 45% of banks used universal default in 2005, jump up from 39% in 2003, Consumer Action says.
Industry consolidation has left around 80% of outstanding credit card debt in the capable hands of the top six issuers — Chase, Bank of America, Citigroup, American Express, Capital One and Discover — Nilson Report found. "When you get that kind of concentration, prices tend to go up because they can," says Dan Schatt, a senior analyst at Celent, a market research firm.
The payday loan (also called cash loan, bad credit loan, etc) industry is blooming. Influenced by the Bush administration, many states have eliminated their laws against high-interest lending and the number of shops that offer such loans has exploded in the last five years. It is easier to find a quick cash loan than it is to find a hamburger from Burger King or McDonald’s, as there are now nearly 22,000 stores nationwide that offer short term, astronomical-interest loans.
The profits from the $40 billion offered in such loans every year are stunning. The average interest rate on a two week loan translates to nearly 400% per year. The borrower pays a fee that averages about $15 per $100 borrowed over the two week duration of the loan, with average borrowed amount about $300.
The basic idea of the payday loan is that it will move the borrower over until their next paycheck. If the borrower cannot repay the loan in two weeks’ time, the loan can usually be renewed by paying the fee a second time or a third time that most of the borrowers do. The loans are certainly expensive as their 400% annual interest rate, dwarfing the credit cards interest rates, which typically run below 30% per year.
| Prosper open listings (overview) | ||||
Credit grade |
Average lender rate |
Average requested amount |
Number of listings |
Automatic funding |
| AA | 0.11 | $14,770 | 20 | 3 |
| A | 0.13 | $14,614 | 22 | 3 |
| B | 0.15 | $12,018 | 39 | 9 |
| C | 0.18 | $11,931 | 79 | 26 |
| D | 0.18 | $9,484 | 109 | 38 |
| E | 0.19 | $6,618 | 128 | 44 |
| HR | 0.17 | $6,189 | 269 | 133 |
| wiseclerk.com | ||||
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