John Stossel vs. Slate on Credit Cards

In his syndicated column, ABC's John Stossel throws cold water on Washington's latest abuse of the "Bill of Rights" suffix, in this case the Credit Cardholders' Bill of Rights.

Think about what a credit card is. It's convenient access to unsecured loans, permitting consumers to buy things large and small -- not to mention emergency services -- without cash. Pay the bill promptly, and you enjoy a fantastic service for virtually nothing. If circumstances prevent you from paying the bill in full, you can set your own payment schedule, realizing there is a minimum payment and that you will be charged interest on the unpaid balance. No surprise there.

To appreciate credit cards, it is worth recalling that before they came along, people got personal loans from banks, finance companies, pawnshops and loan sharks. Such loans were less convenient, and repayment was less flexible. Some people bought things on layaway, which meant they didn't take the goods home until they were paid for. Loan sharks sometimes broke people's legs.

Credit cards didn't create consumer debt -- they are merely a superior alternative to older methods.

As President Obama and other politicians demagogue this issue, keep two things in mind: Life would be more difficult without credit cards, and banks don't have to keep issuing them. Be careful what you ask for. […]

The "bill of rights" seems designed to prevent people from getting themselves in over their heads. That motive is honorable, but government has never been very good at such protection. The law of unintended consequences cannot be repealed, and what government gives with one hand, it inadvertently takes away with the other. Increasing the banks' costs will make it harder for poorer people to get credit cards, and that will only push them into costlier forms of debt, like payday lenders.

I've never understood how the poor are helped by limiting their choices.

Whole thing here; link via Volokh co-conspiracist and credit academic Todd Zywicki.

For a different and arguably/sadly more mainstream view, read this Christopher Beam piece in Slate making "The case for government-backed credit cards," preferably ones with an image of President Obama himself. No, I'm not kidding.

For a big stack o' Reason.tv Stosselania, start here.

Comments

[Naga Sadow]

Indeed, Mr Stossel. I don't even own a credit card but I'm pissed that while the government can act like a payday lender a private group offering easy credit lines apparently can't without government ire.

[Drip, Drip, Drip]

"The law of unintended consequences cannot be repealed, and what government gives with one hand, it inadvertently takes away with the other."

Plus interest.

[Punk]

I see... so in Beam's world, we'll make it more palatable to run up debt by making sure those evildoer capitalists don't charge too much for their obvious scam of the consumer.

More debt = Thriving economy (crap, I should have listened in math class!)

Brilliant!

"Those who know what's best for us must rise and save us from ourselves"

[J sub D]

I've never understood how the poor are helped by limiting their choices.

Jeebus, Matt. Don't you get it? The poor are ignorant, foolish, undisciplined and childlike when it comes to monetary decision making. Those in government have a moral obligation to prevent them from exercising the choices that the middle class and wealthy are afforded. You must realize that, like the regressive alcohol and tobacco taxes, it's for the poor's own good.

That is what the argument really boils down to. Getting an Obama fellator or other blue teamer to phrase it that plainly and honestly is admittedly difficult.

[CAMPBELL]

EVERYBODY DAY WILL COME RICH,MIDDLE CLASS WHO ALSO SMOKE AND DRINK.JUST LIKE AMERICA LAW'S HAS BEEN BROKEN FOR OTHER'S EVEN WHEN [AMERICAN'S VOTE]NO THE LAW SAID YES LIKE 187.THE AMERICAN POOR HAS ALWAY BEEN LOOK DOWN ON.BUT WHEN THE POOREST OF THE POOR COME TO THE LAND OF POOR AMERICAN'S FOR THE AMERICAN DREAM. IT WAS GIVING TO THEM JOBS,LOANS FOR HOMES,CARS AND TRUCK'S AND MEDICAL,MEDCARE.LOOK WHO OVER LABOR IN THE WHITE HOUSE THE COURT'S WHO GETTING IN HIGH PLACE'S.LOOK AT CALIFORNIA.NO MORE LOS ANGLES YOUR CHILDREN MINORITY THERE'S MAJORITY BECAUSE OF YOUR GREED[WHEN THEY COME IT WANT BE FOR THE AMERICAN DREAM IT WILL BE FOR AMERICA]AND THEN YOU WILL KNOW THE MEANING OF FEELING POOR

[J sub D]

My bad. It was John Stossel and not Matt Welch that doesn't care about the poor pissing their money away on things that their betters know the shouldn't.

[CAMPBELL]

THE POOR NEVER HAVE NOTHING TO PISS AWAY.BUT THE RICH COULD PISS HIS AND YOUR AWAY

[ed]

banks don't have to keep issuing them

But a Bill of Rights would force them to.
Because every American has a "right" to credit.
And a big house.

[Pro Libertate]

I find the left's patronizing of minority groups and claiming to speak for them offensive, as well as a transparent attempt to use those groups as a way of taking and maintaining power. While voters in that group may have good intentions, the politicians certainly don't.

As for the credit issue, while I agree with the gist of what Stossel is saying, the amount of consumer debt available is much, much greater today than it was before credit cards were ubiquitous. Also, I've never been comfortable with the way banks are able to change terms unilaterally, with minimal notice. While I understand the utility of that practice, I think it flies in the face of contract law. Of course, that's true with clickwrap and shrinkwrap agreements, too, though in a different way.

[creech]

And do you think any lower income person who loses his credit card, and is forced to use payday loan shops or loan sharks, is going to hold the Democratic Party accountable???

[J sub D]

Christopher Beam piece in Slate making "The case for government-backed credit cards,"

Will I be able to but goverment issued lottery tickets and liquor from government run stores with it? Can I use it to bet at government protected cash cow monopolies like Detroit casinos and thorouhbred race tracks?

Oh the hypocrisy. It burnz usss. Yesss it doesss.

[J sub D]

Oh the spelling. It essscapesss usss. Yesss it doesss.

[z]

If the banks stop issuing cards to the poor as an unintended consequence, we can make a new law requiring them to do so. It worked so well with mortgage loans, no? What could go wrong with requiring banks to loan money to people who can't pay it back?

[Legate Damar]

I enjoyed the fact that the Slate article's logic was, "Well, we do it for homes with Freddie and Fannie, so why not do it with personal credit?"

Had it not referenced Obama, I would have suspected that it was written in 2006.

[Fists of Furry]

"I find the left's patronizing of minority groups and claiming to speak for them offensive, as well as a transparent attempt to use those groups as a way of taking and maintaining power. While voters in that group may have good intentions, the politicians certainly don't."

Paging Doctor MNG. Paging Doctor MNG.

[P Brooks]

How *does* it happen that one party to a contract gets to alter the terms of the contract at will? The credit card companies lobbied wrote themselves some damn fine laws.

I blame a lack of regulation.

[nicole]

I knew before clicking that the Slate piece would be ridiculous. But somehow I always underestimate the insanity and then my brain melts.

"The idea" of government-backed credit cards with the president's face on them "isn't crazy." Is the mass delusion really that strong?

[Pro Libertate]

Back when I was in banking, we used to think that ACORN and other "consumer advocates" involved in lobbying for new lending laws were aiming for subsidized lending. That is, A borrowers paying more to subsidize lower rates for subprime, low-income borrowers. There's a tad of that already going on, but we're hearing actual rumblings from the government about doing this sort of thing and even potentially socializing lending to some extent.

I find this terrifying.

[P Brooks]

Rich people only exist to subsidize poor people.

[Martin]

I'd like a Big-O credit card - presumably it comes with a $10 trillion credit limit and my grandkids will have to pay it back in 50 years time. Sweet.

[roystgnr]

"The case for government-backed credit cards"

Government-backed loans to the ultra-wealthy are an integral feature of our financial system - so much so that some credit card debt is effectively already government-backed, via banks who get to borrow from the government and re-lend at a higher interest rate to consumers. That might not be a topic to avoid when discussing government credit - do you want people to be opposed to the whole system, or just opposed to cutting out the middle-man?

[?]

Had it not referenced Obama, I would have suspected that it was written in 2006.

It wouldn't have been written in 2006.

Bush was being cranky with Congress about the Freddie/Fannie mess then, so their names disappeared from the news.

[Mo]

I largely agree with Stossel and the point that most people understand what their current terms. However, he never addresses whether people know that interest rates on old balances can be increased and it the T&Cs can be changed unilaterally at the credit provider's whim. My dad, who always pays his bills on time, had his rate was unilaterally changed and his response was to cancel his credit card. I have no problem with changing the rate on new debt as economic conditions change. However, changing the rate on existing balances is sleazy. Heck, CC companies know it's sleazy because they hide it in 3 point font and in complex legal language.

I know that contractually, they have that right, but what kind of bs contract says one side can change any part of this contract at any time as they wish.

[P Brooks]

Would it be tacky to pay for my weekend in the Lincoln Bedroom (or my Hudson River air tour in Air Force One) with my ObamaCard?

[oldtimer]

A progressive interest rate is what we need. Under 10 K, 0%; 10 K-30 K, 2 %; 30 K- 50 K, 5 %.
anyone over 50 K should pay 39 %. The rich must pay their fair share.

[R C Dean]

How *does* it happen that one party to a contract gets to alter the terms of the contract at will?

When you enter into the agreement, you agree to allow them to alter its terms unilaterally.

Of course, if you don't like the new terms, you can always pay off your balance and cut up the card, so there's that.

[Lamar]

"banks don't have to keep issuing [credit cards]."

And I don't have to keep forcing air into my chest cavity, yet for some reason I can't stop.

[P Brooks]

Just for the record, I don't have a credit card. I find the terms unacceptable.

I have an old-fashioned American Express card, and I pay the balance every month. Mostly, I just pay cash.

I don't have much sympathy for people who run up credit card bills they can't pay, but I don't have much sympathy for credit card companies, either.

[Mo]

BTW, my sympathy for CC companies on this has gone down significantly after their hard core lobbying for changing bankruptcy laws in their favor. When you make unsecured loans, you expose yourself to a boatload of debt, no thumbs on the scale. Eventually the worm turns.

[Fluffy]

When you enter into the agreement, you agree to allow them to alter its terms unilaterally.

Well, that's sort of the point here, isn't it? The question of whether or not contracts that allow one party to alter the terms at will should be enforceable in our courts.

We wouldn't enforce a credit card contract if the issuer said, "Well, I can change any term I want, so I'm changing the terms to obligate you to give me head once a week."

I don't see how it would be inconsistent with the principles of libertopia for our contract law to say, "Any note with a variable rate feature shall specifically define the mechanism by which rate adjustment shall be made".

Of course, if you don't like the new terms, you can always pay off your balance and cut up the card, so there's that.

One question is what terms should apply to the repayment of that existing balance - the original terms, or the unilaterally changed terms.

[ChicagoTom]

How *does* it happen that one party to a contract gets to alter the terms of the contract at will? The credit card companies lobbied wrote themselves some damn fine laws.

Exactly the point of these Cardholder Bill of rights.

The reality is that the CC companies can not only fuck with you as their customer, they can hurt your credit score by their actions which affects you with other lenders as well.

Credit scores are affected by things like Credit to Debt Ratio. And when CC's start chopping down your credit limit, without any adverse actions on your part (like Amex is doing to many of their cards) it hurts your credit score even though you did nothing wrong.

Your credit score is also affected by how long you have had credit. Since part of your score is based on the length of time certain lines of credit have been open, closing out that 10-year old credit card could take a bite out of your credit score.

Also, CC companies can cancel your card on a whim, with little to no notice. There have been countless stories on consumerist.com of people traveling (both for business or for leisure) who have been screwed because their CC company canceled their card without informing them while they were away from home. If you only carry one card, (like many people do) you could be royally fucked.

Another thing companies like to do is change the interest rate on a whim without any adverse actions (late payment, going over your limit, etc) on your part. Many companies offer a "Fixed" Interest rate, but then reserve the right to change that fixed rate as they see fit. So what exactly is "Fixed" about it. If the CC wants to change the rate, then they should be forced to call that a "variable" rate (as it is now, variable means that it can change month to month based on the current prime rate or something else)

Of course, if you don't like the new terms, you can always pay off your balance and cut up the card, so there's that.

Well that's fine and dandy if you have the money, but chances are the reason it's on a CC is because you don't have the all money to begin with.

Some banks will allow you reject the terms, and continue paying off your balance at the old rate, but they will not allow any new purchases. But that is at the whim of the bank -- some allow it some don't.

I would have no problem with a regulation that codifies the ability to pay off existing balances over time via the original terms. After all, when you charged that money, you planned on paying it back at a certain rate.

The CC companies have too much power over the CC holders, and I think it's about time that they playing field gets leveled a bit.

[Invisible Finger]

That Slate article was one of the best laughs I've had this week!

Creating a government-sponsored lending agency-a Fannie Mae for credit cards-would rein the whole system in.

How completely blind to the facts can one person be!!??

[R C Dean]

The question of whether or not contracts that allow one party to alter the terms at will should be enforceable in our courts.

As long as you (a) are given notice of the changes and (b) have an immediate exit available if you don't like them, then I really don't see much of a problem with it.

I don't see how it would be inconsistent with the principles of libertopia for our contract law to say, "Any note with a variable rate feature shall specifically define the mechanism by which rate adjustment shall be made".

Having the government mandate the terms of contracts is a dicey business, in libertopia or elsewhere.

One question is what terms should apply to the repayment of that existing balance - the original terms, or the unilaterally changed terms.

Depends on how the contract is written. If you don't like entering into contracts that give the other side the right to make retroactive changes, then don't enter into such contracts.

[AA]

Some of the practices of CC issuers were sleazy, no question.

When Stossel says that penalties are triggered by a cardholder's conduct, that's technically true but isn't the whole story. For example, some companies would send their bills so that there was not enough time for customers to remit a payment for that bill through the U.S. mail before the due date.

Or two-cycle billing: for customers who paid off their balance one month but carried a balance for the following month, the issuer "calculates interest for the second month using the account balance for days in the previous billing cycle as well as the current cycle."

There were systemic abuses going on. I think the issuers brought this on themselves. Unfortunately.

[T]

Of course, if you don't like the new terms, you can always pay off your balance and cut up the card, so there's that.

One question is what terms should apply to the repayment of that existing balance - the original terms, or the unilaterally changed terms.

Having just done this with BofA, the original terms apply. It is also my understanding they can't alter the terms without your consent. You have to agree, or more precisely not opt-out.

[JB]

It's not about helping poor people; it's about making Obama's vagina hurt less.

[JW]

Also, I've never been comfortable with the way banks are able to change terms unilaterally, with minimal notice. While I understand the utility of that practice, I think it flies in the face of contract law. Of course, that's true with clickwrap and shrinkwrap agreements, too, though in a different way.

After about a decade on a 9.9% fixed rate Visa card from Capital One, they sent me a letter stating that what was in my wallet was no longer a fixed rate card and henceforth would also be about a 16% rate. (I have top-o-the-line credit, so I thought this was odd.) The only way I could refuse these terms is to stop using the card. So I did.

After looking around for a card with a decent rate, I applied for a variable rate MC from, wait for it, Capital One, at a much lower rate, about 7.5% at the time. I was approved toot-sweet and the rate is around 4% now.

Go figure.

[Ed]

What is the libertarian position on usury? Because I just got jacked to 30% APR. Ive had CCs for over 20 years, never experienced anything like this.

[SugarFree]

I haven't had any problems with my debt card, other than when the government lowers my spending limit by stealing from my electronic paycheck deposit.

[Invisible Finger]

However, changing the rate on existing balances is sleazy.

No it isn't - because the term on the balance is unknown. It is only logical that the interest rate would be variable if the length of time the principal outstanding is unknown.

[Invisible Finger]

What is the libertarian position on usury? Ive had CCs for over 20 years, never experienced anything like this.

Whatever the market will bear. Jacked up interest rates are indicative of a shrinking supply of credit or a rapidly expanding demand for credit.

Twenty years isn't very much history. Forty years ago you couldn't even GET a CC unless you were willing to pay $50 a year for the privilege ($400 in today's dollars). The last 20 years have been an anomaly (aka bubble), not a normalcy.

[ChicagoTom]

Having just done this with BofA, the original terms apply. It is also my understanding they can't alter the terms without your consent. You have to agree, or more precisely not opt-out.

BofA is one of the banks that has the policy. But not all banks do. Some banks will offer you to pay the higher rate, or pay the balance in full. They don't have to let you pay off the balance at the original terms.

And then there was Chase's awesome move. They had given people a balance transfer offer at a low fixed APR for the life of the balance. Then after a few months they gave their customers the following option: Either accept a higher interest rate on your balance (and a higher monthly minimum payment from 2% to 5%) or you can keep the original rate, but be forced to pay a $10/month fee. Oh and if you didn't pay the higher monthly minimum, they would treat it as defaulting and raise your interest rate as well.

They've since dropped the fee, and refunded paid fees once Andrew Cuomo started asking questions.

[Seamus]

Well, that's sort of the point here, isn't it? The question of whether or not contracts that allow one party to alter the terms at will should be enforceable in our courts.

If you don't like the terms of that credit card agreement, there are over 8,000 commercial banks in this country, nearly all of which issue credit cards.

[Lamar]

If one side can unilaterally change the terms, the document isn't really a contract as we know it.

[Fluffy]

If you don't like the terms of that credit card agreement, there are over 8,000 commercial banks in this country, nearly all of which issue credit cards.

In theory, we could enter a contract where you get money from me, and in return you owe me whatever I say you owe me at any particular moment in time.

And I could proceed to say that what you owe me today is oral sex, and what you owe me tomorrow is a lifetime of servitude on my cotton plantation, and what you owe me the day after that is you have to sign a waiver allowing me to perform medical experiments on your children, and so forth.

Our contract law would not enforce such contracts. And it would not matter if there were 8000 other commercial banks you could have checked with before you signed my contract. It would be unenforceable on its face.

What you and RC seem to be missing is that before a court can enforce contracts, it needs a framework within which to decide which contracts are legal and which aren't. And I don't see an issue with including in that framework a requirement that the repayment terms of variable rate debt be based on such objectively verifiable index or measure, and not the creditor's whim.

[robc]

I havent had the problems with Chase ChicagoTom mentions. They jacked up my rates, I said "fuck you", they canceled my card and my rate stays the same until my card is paid off (as soon as my federal refund check arrives).

They even sent me the instructions for how to keep my rate the same by telling them to fuck off.

Then they keep sending me offers for the card again.

[Craig]

Not only do you enjoy access to easy credit for virtually nothing, you typically get 20-30 days to pay while you can earn interest on the money yourself, and many credit card companies will actually pay you to use their cards (through rebates, frequent flyer miles, discounts, etc.), since they make money on the transaction fees, which the retailer typically waives for the customer.

[Hazel Meade]

I TOLD you people that the next step was to have the Fed issuing credit cards directly to Americans.

I predicted this last November!

[Craig]

There were systemic abuses going on. I think the issuers brought this on themselves. Unfortunately.

But the solution isn't automatically turning to government for every problem. If some or most or all credit card companies start abusing their customers, they will lose them to other companies that don't, or open the door for new competitors who offer more reasonable and predictable terms.

That's the funny thing about "consumer protection" legislation -- any company that abuses its customers risks losing them, so it is a self-regulating environment.

Now if only all the politicians falling over each other to bail out the big banks (over the objections of their constituents) and wondering how to craft new regulations to prevent a recurrence of the credit derivatives implosion could only see the contradiction inherent in their actions...

[Lamar]

"But the solution isn't automatically turning to government for every problem. If some or most or all credit card companies start abusing their customers, they will lose them to other companies that don't, or open the door for new competitors who offer more reasonable and predictable terms."

This doesn't provide any relief to those actually abused. Your solution only helps prospective customers. And it isn't quite self-regulating because the credit card companies have had lobbyists working for years.

[mark]

What roystgnr said. If the Fed hands out next-to-no-interest loans to big banks who are able to profit off that, there's no reason why they can't offer fixed 5% credit cards to the public. Not that I think they should do either...

[Mo]

If you don't like the terms of that credit card agreement, there are over 8,000 commercial banks in this country, nearly all of which issue credit cards.

True, but this doesn't address the issue of changing terms midstream.

No it isn't - because the term on the balance is unknown. It is only logical that the interest rate would be variable if the length of time the principal outstanding is unknown.

No it isn't. There's a minimum payment (set by the issuer). The size of the payment, and therefore the bank, determines the term on the loan. If you have a $1000 balance @ 10% APR and a $100/month payment, the term, including interest is ~11 months. Anything you add to the balance subsequently is new debt.

[libertreee]

The multiplier effect would come from fractional reserve banking receiving credit stimuli from the central bank.

The central bank creates money out of thin air,and its increase of the money supply is multiplied by fractional reserve banking.

This leads to too much money and credit in the system causing inflation. The inflation does not have to result in a "general price increase", but can result in bubbles in specific industries sensitive to credit.

The inflationary credit causes entrepreneurs to believe there is more real savings in the system than there is. Bad decisions are made to invest in long term projects that there is insufficient demand or resources to sustain. Eventually these projects are abandoned as unsustainable and the boom turns into a bust.

Too much consumer debt, too much money and credit in the system, too much government debt and deficits.

In a phrase, the Austrian Business Cycle.

Credit cards themselves are not the main problem. The main problem is central banking and fractional reserve banking.

[Fare and Ballast]

"Just for the record, I don't have a credit card. I find the terms unacceptable."

Me neither. I just use cash or my checking account debit card, which works exactly like a zero-interest credit card. Very convenient.

[Lamar]

"I just use cash or my checking account debit card, which works exactly like a zero-interest credit card. Very convenient."

Be very careful using your debit at certain places, such as restaurants where some young chick takes your card out of your sight. I hate to generalize, but you should probably assume that the waiter or waitress is young, desperate and just stupid enough to think they'll get away with swiping your card numbers. It happens all the time. I would suggest getting a credit card solely for restaurants.

[ed]

If one side can unilaterally change the terms, the document isn't really a contract as we know it.

It is if the contract states that the issuer can change the terms at any time, as most do.

[J sub D]

If one side can unilaterally change the terms, the document isn't really a contract as we know it.

Lamar has obviously never been married.

[R C Dean]

If one side can unilaterally change the terms, the document isn't really a contract as we know it.

Au contraire. If you agree to a deal that lets the other side change the terms unilaterally, then you are getting what you agreed to.

Believe it or not, there are thousands, if not millions, of commercial contracts that allow the vendor to unilaterally change their prices. Of course, these contracts also typically let the buyer terminate if they don't like the new prices. Those are all perfectly valid, enforcable contracts.

And I don't see an issue with including in that framework a requirement that the repayment terms of variable rate debt be based on such objectively verifiable index or measure, and not the creditor's whim.

Its not that hard. You agreed to pay based on the creditor's whim. Probably stupid on your part, but hey, contract law has traditionally not been applied to protect the stupid.

Perfectly enforcable contracts contain subjective criteria all the time. Terms don't have to be objective, merely coherent.

[Fare and Ballast]

"Be very careful using your debit at certain places, such as restaurants where some young chick takes your card out of your sight. I hate to generalize, but you should probably assume that the waiter or waitress is young, desperate and just stupid enough to think they'll get away with swiping your card numbers. It happens all the time. I would suggest getting a credit card solely for restaurants."

I only pay restaurant checks with cash (and waitstaffs love cash tips). I used to live on the road, so I am exceptionally careful.

I use my checking account debit card at Target and Home Depot only if the total exceeds the amount of cash in my wallet, and that's about it.

I'm basically a cash and carry guy. I stopped using a credit card a couple of years ago because of some of the very reasons cited in this thread.

I can get $200/day from ATMs. I live well on that.

[Lamar]

"If you agree to a deal that lets the other side change the terms unilaterally, then you are getting what you agreed to."

If you promise to perform in exchange for a promise to perform that isn't really a promise to perform, you don't have much of a contract. If material terms are not known or understood, there is no enforceable contract. Now, I'll grant you that contract law has evolved to enforce just about anything you can scribble under your balls.

[creech]

A liberal friend was arguing that payday loan shops charge over 300% annually and they should be stopped. I asked what a fair rate was, and he said "no more than 20%." Well, if the going rate today is 300%, then why aren't altruistic folks like you setting up shops that only charge 200% or 20% and putting the sharks out of business? Not only couldn't he answer it but showed no inclination to go out there and round up entrepreneurs. I guess, deep down, he knows the going rate is 300% for a reason.

[Pro Libertate]

To clarify my point way above, I don't object so much to the parties agreeing to change with notice as a general concept, but I'm not thrilled when it applies to things like mandatory arbitration. It's a fiction that people are negotiating these rights or even understand that they have a way out. I'm not taking the position that one side's ignorance excuses them from their obligations, but I do think something more that one more piece of paper in a bill filled with paper is required.

[kinnath]

Smart people make stupid decisions on occasion. Stupid people make stupid decisions on a regular basis.

There is always someone willing to make a buck off of other people's stupid decisions -- this is not a crime.

[R C Dean]

If material terms are not known or understood, there is no enforceable contract.

The material term that allows unilateral amendment is known and understood.

So long as you have notice of unilateral amendments and do not exercise your right to opt out, then you are continuing in a relationship where all material terms are known, understood, and have been (implicitly) consented to.

What's the problem?

[Fluffy]

Believe it or not, there are thousands, if not millions, of commercial contracts that allow the vendor to unilaterally change their prices. Of course, these contracts also typically let the buyer terminate if they don't like the new prices. Those are all perfectly valid, enforcable contracts.

What if the contract allowed the price to be changed for items already purchased in the past? At the seller's option?

So if I sold you a stick of gum for a quarter, I could show up later and seize your house, your car, your business, and the clothes off your back, while handing you notice that I was changing the earlier price?

You don't seem to want to respond to my outlier examples, and for your point to be valid you have to. Because as soon as you acknowledge that it's OK to make any potential contract term whatsoever, no matter how abusive impossible to enforce in the courts, then it's simply a question of what terms we're going to exclude - and that's a legislative question.

[Lamar]

"What's the problem?"

I have a problem with altering the terms with respect to the debt already incurred under the old agreement. I understand your argument, and it apparently carries the day. But there really isn't any consideration in the traditional sense to support the new contract with respect to the existing obligations.

[Kenton A. Hoover]

Mr. Stossel isn't entirely correct about where people were getting money pre-credit card -- they often received credit from the merchants themselves. The creation of payment cards allowed most merchants to stop providing store credit, which cut their transaction costs. However, only a smaller merchant can provide such terms -- BestBuy just doesn't know enough about individual customers.

[Tony]

Wonder why those who support returning our country to its Christian traditions never mention what Christianity has to say about usury.

[#]

Fuck you Tony!

That just never gets old.

[T]

Wonder why those who support returning our country to its Christian traditions never mention what Christianity has to say about usury.

I don't know. Why don't you go find some of them and ask?

[robc]

What if the contract allowed the price to be changed for items already purchased in the past? At the seller's option?

But that is not what is happening. The CC companies arent changing the price for a purchase in the past, they are changing the price for this month's rollover or debt.

I think everyone agrees that your example would be forbidden by any reasonable contract law, but that isnt the extreme example we are talking about. The extreme example would be Chase changing my interest rate to 369% starting in June. At that point, I would write them a check for what I owe them and be done with it.

(Or do what I actually did, which is opt out and keep my current rate until paid off).

[T]

The extreme example would be Chase changing my interest rate to 369% starting in June. At that point, I would write them a check for what I owe them and be done with it.

You're a bigger man than me. At that point, I'd call Chase and tell them to piss up a rope, they're never getting paid. I can take the hit on my credit.

[robc]

Tony,

The only two references to usury in the NT (at least, those that use that term in the KJ version) are in the parable of the Talents*. In it the master derides the 3rd servant for not even lending out the talent for interest.

The first two servants wisely invested the money given to them and doubled it. The 3rd was cast out.

*Or as I prefer to call it, the parable of the money managers

[Brandybuck]

No, I'm not kidding.

Uh oh. I just shit my pants. I don't know what's scarier, that people want Obama's mug on credit cards, or that they aren't the least bit embarassed about suggesting it...

[robc]

T,

They actually didnt go to 369%. That was an extreme example. And that was basically my response, other than continuing to pay them back. They provided an easy to understand option in which I canceled the card and kept my current very low rate.

[T]

They actually didnt go to 369%. That was an extreme example. And that was basically my response, other than continuing to pay them back. They provided an easy to understand option in which I canceled the card and kept my current very low rate.

I did the same to B of A after a 10 point jump on a card I've had for a decade. But at some point, I'd have told them to get bent and they could try to collect. I need to finish my refi first, though.

[Guess My Bra Size]

"And do you think any lower income person who loses his credit card, and is forced to use payday loan shops or loan sharks, is going to hold the Democratic Party accountable???"

Of course not. I've worked extensively with the underclass and on balance, they are as stupid as dirt.

[Guess My Bra Size]

"Wonder why those who support returning our country to its Christian traditions never mention what Christianity has to say about usury."

It doesn't say a thing about it Tony.

Now the Jewish Old Testament...

[Seamus]

True, but this doesn't address the issue of changing terms midstream.

Yes, it does, because if you don't like your current bank's exercise of its right (which you agreed to when you opened the account, so they aren't "changing terms midstream" any more than the holder of an adjustable-rate mortgage is when it, well, adjusts the rate of the mortgage) to raise the rate, you are free to search among 8,000+ alternative card issuers for a lender willing to extend you a sweet balance-transfer deal.

[Seamus]

"Wonder why those who support returning our country to its Christian traditions never mention what Christianity has to say about usury."

It doesn't say a thing about it Tony.

Now the Jewish Old Testament...

So when St. Thomas Aquinas, the council fathers of Vienne, Lateran II, and Trent, and the authors of the Roman Catechism condemned usury, I guess they were speaking as representatives of Zoroastrianism.

[Lamar]

"Yes, it does, because [repeat of previous post]"

Adjustable rate mortgages are no different than credit cards? Ages-old contract concepts like a "meeting of the minds" no longer matter?

Consideration for new contract terms on existing debts is apparently out the window as well. As long as the credit card company gets your signature, its off to the races. Competition in the marketplace does not provide relief to individuals. It is merely the most efficient way to allocate resources. It isn't a court room.

[Seamus]

Adjustable rate mortgages are no different than credit cards? Ages-old contract concepts like a "meeting of the minds" no longer matter?

That "meeting of minds" takes place when you sign the credit card application. Or maybe you don't read the terms that permit the issuer to adjust the interest rate? But I understand that a lot of people don't read their ARM documents either. In either case though, the fact that the lender has the right to change the interest rate isn't a secret.

Consideration for new contract terms on existing debts is apparently out the window as well.

The consideration is the fact that the issuer extended you credit in the first place. If you didn't like those terms, there were 8,000+ other lenders you could have gone to. (I have several thousand dollars on my Chase credit cards, at interest rates that are fixed at 3.99%, 4.99%, and 5.99% for the life of the loans. I seriously doubt that such deals will be offered to anyone after the Credit Cardholders' Bill of Rights is enacted. But by all means go ahead and enact laws that will screw me just because some people can't read their credit card agreements or do some comparison shopping for credit.)

[Mo]

I have several thousand dollars on my Chase credit cards, at interest rates that are fixed at 3.99%, 4.99%, and 5.99% for the life of the loans.

Actually, as many people have stated, those rates are fixed until Chase changes its mind.

[MJ]

So when St. Thomas Aquinas, the council fathers of Vienne, Lateran II, and Trent, and the authors of the Roman Catechism condemned usury, I guess they were speaking as representatives of Zoroastrianism."

They were speaking as representatives of those Christians who are Catholics. The Roman Catholic Church does bill itself as THE Christian Church, but that assertion is...controversial in some quarters.

Repeat after me: Catholics are Christians but a Christian is not necessarily a Catholic.

I guess you watch too much TV.

http://tvtropes.org/pmwiki/pmwiki.php/Main/ChristianityIsCatholic

Here endeth the lesson.

[Seamus]

MJ:

So in other words, "what Christianity has to say" isn't found anywhere but the New Testament. Everything else is just the views of some individual Christians.

Given that you believe Thomas Aquinas to be representative of Catholicism only, not Christianity, perhaps you will favor us with citations to Eastern Orthodox, Nestorians, Monophysites, or Waldensians who lived in or before his time who took a different view from his on usury. If not, then I think it's pretty clear that what he had to say was representative of "Christian traditions" (which is, after all, where this particular tangent got started).

[Seamus]

Actually, as many people have stated, those rates are fixed until Chase changes its mind.

I'm pretty sure that if Chase thought it could, it would have increased those rates by now. They certainly raised them on other accounts I have (accounts whose balances I'm thinking of transferring to Bank of America, which is offering a balance transfer rate of 1.99% through December).

[TerryP]

I use credit cards for almost all of my purchases. Why not when I can get money back for doing so and get an additional month to let my money earn interest before paying the bill. The trick is in just paying your entire bill off every month on time.

Too many people use credit cards for things that they can't afford today. Unless it is being used for emergency expenses, credit cards should not be used for expenses that you cannot afford to pay for now or at least by the time the bill will come due. If you do use it because they have a really low teaser rate such as zero percent or something lower then you can get elsewhere, you have to read the fine print or at least understand that they may be able to change the terms when they want to. You need to have a secondary plan in place if that happens.

What it boils down to is many people need to stop buying things that they cannot afford to pay for today with an unsecured card with terms that can change. If you are buying something that will take longer to pay off then you need to consider other financing options such as a bank loan with more defined terms or at least have that as a back-up plan.

This isn't rocket science. It is just plain common sense.

[Lamar]

"The consideration is the fact that the issuer extended you credit in the first place."

You don't quite get "consideration" do you? If I pay you $5 in exchange for a widget, I can't later use the same $5 to bargain for a new widget. That is essentially what you are saying. But the "new" consideration cannot be the "old" extension of credit (otherwise it wouldn't be "new consideration").

Unfortunately, the role consideration plays in contract law has shrunk in the era of consumer regulations. Don't think credit card companies haven't lobbied for this and used it to their advantage.