Who is really responsible for consumer debt?
I read an article from nakedcapitalism.com called “Banks Supposedly Will Cut Consumer Credit Card Lines by $931Billion if Reforms Mandated”. I thought this would be a good article to read because in our discussions in class we talked about consumerism and this relates because consumer debt is the reason why credit companies are decreasing people’s credit lines is because they don’t trust cardholders. However, the credit companies are the ones responsible for the problems that stem from debt and the capitalist society in general because they urge people to spend money they don’t have and borrow money from lenders. This article is about a fairly well to do American express customer who was very angry that his credit line went from . How can a credit card issuer give a person a license to be in debt and then punish them when most cannot pay the amounts back. They offered too much credit to begin with. In this quote from the article he is criticising the banks.
“The authorities have made it clear that they intend to throw their weight behind making credit cheaper to consumer via lowering funding costs. How big an offset is that to the $10 billion loss in fees and default charge that the industry is crying about? I suspect the value of the subsidy is considerably greater than what the government wants to take back via tougher regulations.”
In this statement he is referring to the fact that credit card companies are complaining that they will lose 931 billion dollars when the new government regulations are in place that will force them to stop practices like universal default which means that your interest rates go up for one card if you are delinquent with another credit lender and when customers are late with a payment it must be late by 30 days in order to raise interest rates. So his point is that the card companies shouldn’t be complaining because they are more than making up for it with dramatically reducing peoples credit lines and making it more difficult for people to get credit. In the article he mentioned that 2 of his Amex cards were cut from 50,000 dollars to 3,200!! That is a dramatic decrease and he always paid on time.
He also asserts that the information that was presented in an article in the Financial Times is misleading. The article was called “Credit card reforms to cost banks billions”. He calls it misleading because the source of the information was Morrison and Forrester a law firm. He said that the number 931 billion was too precise and that they could have chose a financial consulting firm that knows more about the banks.
I think that it is appalling that credit card companies create consumer debt by encouraging people to use their credit cards for everything. Then they turn around and distrust them by reducing credit lines. Using American Express as an example, they always have ads with celebrities saying that they use Amex for everything. They are aware that we live in a celebrity obsessed culture and they know that normal people want to live like celebrities. So basically they are encouraging people to use up credit. This is what got the banks in a big mess to begin with, offering too much credit to people who couldn’t afford it. Then when the government puts regulations on it they complain. I definitely wouldnt trust the Financial Times for information on whats really going on with the banks because I think its more likely to be skewed in favor of the banks.
This relates to class discussion on consumerism because it is the root of Americas financial woes. We live in a culture that we want more than what we have. We don’t feel a sense of abundance in life so we borrow money in order to travel, and have other luxuries we otherwise couldn’t afford. However how can credit companies expect people to have discipline in a consumer driven society. The answer is they don’t expect it, and thats how they make their money. They are counting on people to screw up so they can make more off of sky high interest rates.
I found a commercial on youtube where Beyonce is shown living her celebrity lifestyle being catered to. In the end of the commercial she says that she uses American Express to shop online because shes so busy. In the end the commercial asks “Are you a card member?” This is proof that the credit card companies are encouraging customers to spend what they do not have. I have yet to see a credit card commercial encouraging people to pay bills on time to avoid interest and using discipline.Here is a link to the commercial so you all can watch:
