Bad Times for Credit Cards

[This Thursday rerun first appeared June 18, 2009.]

On Monday the New York Times ran a piece that, in a better world, would not have been news. Turns out that credit card companies are often willing to settle delinquent accounts for less than what is owed. Golly.

The article did contain an important tip for those in serious credit card trouble. When the card issuer calls you out of the blue and offers to let you C Cards 2 (Andres Rueda) settle the whole thing for 80 cents on the dollar, you should, without hesitation or reflection, say no. Then hang up. They’re not calling because they think you’ll pay them eventually. That 80% is what we Wall Street types call a “first offer”.

The Times piece tells the story of a guy who got a call like this, said no thanks, and then when the company called back a few weeks later, offered them 50%.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

Where I come from, the account rep would be considered very rude. Proper etiquette would have been to put the customer on hold for thirty seconds while pretending to beg a supervisor to okay the deal. At the very least, the rep could have heaved a big sigh and mentioned something about how will probably be fired for this.

Things are grim in credit card land. A few years ago card companies could sell delinquent accounts to collection agencies for 15 cents on the dollar. That may sound like a pittance, but things being what they are today, they can’t even get that anymore. According to the article, 5 cents on the dollar is now the going rate for bad accounts. And the number of those accounts is growing.

So, obviously, there is a groundswell of sympathy credit card companies and a feeling that they need the sort of help that the government gave AIG, GM and Chrysler, lest this key part of our economy be further damaged. Yeah, right. Credit card companies are like lawyers and used car salesmen. No matter the circumstance, popular perception has a black hat permanently affixed to their heads. Washington even used the current state of things to triumphantly enact a new set of restrictions on what the card companies could do.

Today’s Wall Street Journal has another article on credit cards, this one about the widespread rage that consumers have against them. Apparently, YouTube is filling with videos of folks destroying their cards in spectacular ways, inspired, at least in part, by our old friend Dave Ramsey.

So, in keeping with Ramsey’s views, are these angry consumers up in arms about the ease with which you can get credit and run up debt? Well, not exactly. They have some complaints about interest rates on existing debt going up. But the big outrage, for which the article provided four separate examples, is card companies reducing credit lines.

In other words, the movement isn’t consumers reducing their use of cards out of outrage against card companies. It is consumers’ outrage that the companies have forced them to reduce their use of cards.

And of course the companies have been reducing credit lines. What with one thing and another, credit cards have become radically less profitable for their issuers than they were just a little while ago and it doesn’t look like things will get better any time soon.

But consumers, who take daily use of cards for granted while complaining bitterly about how awful they are, can’t imagine why the companies could possibly be less interested in lending them more money all of a sudden.  They’re like drunks angry the bartender has cut them off. And that he charged so much for a shot of whiskey when he was serving. And what happened to the free peanuts? I better call my congressman.

[Photo: Andres Rueda]

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