Secret History of the Credit Card
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What are your views on  the techniques used by the credit card industry to earn record profits and get American consumers to take on more debt?
handing over a card [photo]fico score screen [photo]interest rates [photo]computer screen [photo]

Dear FRONTLINE,

Unfortunately, those who most need to see this piece will never see it. I am a reformed credit junkie who has paid off 20K of debt in two years -- and will never use anything but AMEX again. I have a Chase card with a 30% interest rate! I could do better on the street! Seriously, it's like legal loan-sharking. I'm going to call them tomorrow and thank them for my 13K credit limit, but I'll never use the card unless they reduce my rate. I wonder what they will say.

The credit industry insiders are correct -- consumers need to take responsibility for their actions. However, how long must we pay for our mistake? I have been meticulous with my credit for two years, and my FICO score is creeping up with the speed of a three-toed sloth. There is so much secrecy in the industry. Our entire lives are tied to this score, but the formula with which it is formed is not "available" to the public. Not to mention that it is designed to help only a fraction of the population -- most everyone else is only hurt by their credit score. It's easy to ruin, but almost impossible to restore. Meanwhile, the banks are laughing all the way to the, er, bank.

Kim Capp
West Orange, NJ

Dear FRONTLINE,

Even if you pay off your credit card bill(s) every month in full, the Credit Card Banks are making 2-5% on every dollar you charge to your credit card. That is what they charge the merchant. This is passed on to the consumer in the form of higher prices and is equivalent to interest rate of from 24% to 60% APR.

Not only that, but by agreement or practice it is nearly impossible to find a merchant that will agree to a discount for cash even though it is costing them an additional money to accept a credit card. This means that cash customers are subsidizing the credit card banks and there is no incentive for consumers to use cash.

If we are serious about reducing credit card use and its' associated problems we should pass a law requiring that the merchants credit card fees should be added to the bill as a separate item when a credit transaction is initiated.

This would allow the merchants to have a single price for cash or credit and still recoup their costs for credit transactions and provide an incentive for consumers to use cash.

Similar to the line item for sales tax in Pennsylvania.

Larry Duncan
Cranberry Township, PA

Dear FRONTLINE,

I am interested in joining any consumer group whose goal it is to put pressure on Congress to corrects some of the problems identified in the Frontline show; especially the criminal policy of increasing a customer's interest rate because he late pays the bill of a competitor or a card company.

Also Congress needs to put a ceiling on the late fees. Additionally, there needs to be legislation to require companies that do credit scoring to disclose their algorythm.

Skip Young
San Diego, CA

Dear FRONTLINE,

As an entrepreneur, I loved it when credit card companies started offering low interest teaser rates. I could use it to fuel the growth of my business concepts and so I borrowed to leverage success and accepted the risk of a personal guarantee. Then I got clobbered by Enrons chicanery and my low rates expired before I could solve my problem. The credit card companies began to raise my rates, not to squeeze more blood, but to recover what they could before I went down. The system was working properly, unfortunately for me.

Spiraling toward insolvency and bankruptcy, I then was faced with a barrage of daily calls. Again, the system was attempting to preserve its capital, not to punish me. When I proactively tried to solve my problem, a funny thing happened, a young man named Tim (no last names allowed) at MBNA suggested a consolidation technique which lower my interest costs, modified amortization terms and created a banking consortium which I could not have accomplished on my own. The system worked again, jobs were saved and the original capital allocated was preserved.

The credit card system in this country allows entrepreneurs like me to create value for ourselves if we accept the risks of the system, warts and all. Of course were for lower fees and lower rates, but its our responsibility to read the fine print and pay as agreed or suffer the consequences if we fail.

I hope all the Tims of the credit card industry and their families have a joyous holiday season and prosperous New Year!

James Mingey
Easton, Maryland

Dear FRONTLINE,

Great program! I have a suggestion for viewers to get the late fees reversed by their card companies. It's simple: Call up and ask (or demand if asking doesn't work) that they reverse it. Here's why they will: With so many offers in the marketplace and easy balance transfer methods, the card companies are sensitive to the loss of business. Just threaten to close the account if the company won't reverse the late charge. They are especially sensitive to these requests if you've had an account with them for a number of years. As long as you don't have a history chronic "lateness" they should reverse the fees.

Cockeysville, Md

Dear FRONTLINE,

As a teacher of high school economics, I was thrilled to watch your program and will incorporate its message into my unit on Consumer Credit. Your program drives home the message I have been trying to preach this semester- that credit is a tool that can make lives easier if used sensibly, or a nightmare if you get sucked into the "tender traps" the Companies use to lure you into their web.

After viewing this program, I think my students will finally understand what will await them as freshmen in college next year as they are bombarded with solicitations to get some plastic into their wallets.

Joe Lombardo
Southampton, NY

Dear FRONTLINE,

While I found your program informative, I fear it is most likely preaching to the choir, credit card "deadbeats" like myself and Ben Stein. The victims of the credit card industry are the least likely to watch a program about money--until after they themselves become victims.

What is truly criminal is the fact that we do not teach basic money management in school before kids enter the jungle. If your parents aren't good with money, chances are you will either learn these lessons the hard way or never learn them at all.

Children need to learn the basics of savings and interest in grade school, and build upon that throughout their years with lessons on bankruptsy and mortgage. Only then will we be able to close the great divide between the haves and the have-nots.

Steve Perrie
Baltimore, Maryland

Dear FRONTLINE,

As an attorney who has worked on prosecuting class actions against credit card issuers, I would like to add something. One expert on your broadcast alluded to something pernicious that has also been occurring in the credit card industry: that these companies now also include mandatory arbitration provisions in customer agreements.

In addition to the Providian lawsuit mentioned on the program, private attorneys brought class actions throughout the 90s and early 00s that challenged a wide assortment of improper practices at most of the big players in the industry. These attorneys recovered hundreds of millions of dollars for cardholders and forced the card issuers to change their practices and improve their disclosures.

The major card issuers' response, beginning about five years ago, was to impose mandatory arbitration on all cardholders so that no such class actions could ever be brought again. The practical effect (and likely the intent) of imposing arbitration was to insulate the card isssuers from liability for flouting the lending statutes and regulations -- which they still do.

Harley Schnall
New York, New York

Dear FRONTLINE,

I am an account manager for a major Credit Card provider, taking about 300 calls per week, many from customers who have paid their bills late, or who have in one way or another, incurred fees on their bills, which they are now want reversed.

It seems to me that as an industry, we have allowed people to be less responsible, and now customers expect that we will just give them back the fees that they have rightfully incurred, or else we might lose their business.

Here is my humble opinion to those who don't like additional fees: Don't just read the fine print.....understand it! Not understanding how your particular credit card works in no way excuses people from responsibility. If you can sign on the dotted line, then you are assumed to understand the terms.

Remember, the credit card is only an option when it comes to paying your bills and buying your things. If you can't handle it, then cut up your cards and go back to cold hard cash.

Above all things, take responsibility for your actions, and quit complaining about the lack thereof.

Belfast, Maine

Dear FRONTLINE,

Thank you frontline, I am college student and would have blindly signed up for a credit card with out any precautions. You have made me think twice before getting a credit card and blindly spending.

I feel that if people were not so consumeristic that they would not get into problems with credit. An ipod is a good example, given its nice but if one were to wait and save cash they could buy one with out having to put it on the credit card.

Vinay Anantharaman
San Louis Obisipo, CA

Dear FRONTLINE,

Last year,I took out a Home Equity loan (4.5%) to help start a sheet metal fabrication company. I chose to take this risk, but my return will be 18%, enough to pay off my credit card debt and "grow" my money. I am taking the interest of the credit cards I use for the business from my taxes as a business expense. I've bought computers, paid for truck rental,and paid for other "big ticket" items. I am paying more than the minimum on my the business credit cards and will cut the cards up one by one as they are paid off.

I am glad that my investment and use of credit cards helped to start a company that now has 58 employees and continues to grow. There are advantages to using credit cards. And, there are big risks involved, too. Thank you for giving me reasons to pay off the credit cards that I use for my personal/household account.

Karen Kelly
Cincinnati, Ohio

Dear FRONTLINE,

Thank you for this brilliant piece of investigative reporting on the Credit Card Industry.

Credit Cards have become a necessary evil and a horrible trap for the unwitting. Your program gives the tools for consumers to understand the traps awaiting, but sadly the people who need your message the most were not watching -- young people headed to college or to the workforce.

Before obtaining a credit card a new consumer should cut his teeth on a debit card and get used to disciplining himself to check the status of his cash reserves before making a purchase for an item he really doesn't need.

If a new consumer remembers these three things he will never get into financial trouble: 1) Never pay more than 8% interest on any loan;

2) Always pay you credit card off every month well before the due date;

3) Only buy a home or car on credit.

Easier said than done these days with the "easy credit" policies of our consumer driven economy. This country is headed for a financial disaster the likes of which we haven't seen since the depression unless this "easy credit" available through credit cards is reigned in.

There is a website designed for high school students and teachers to learn more about the things they aren't often taught at home, and that the schools do not teach: . Its focus is credit cards, cell phone plans, buying a car, housing issues, and internet fraud. Consumer education should be mandatory in our schools but is often sadly neglected.

Robert Parlette
Wenatchee , WA

Dear FRONTLINE,

It occurred to me a number of years ago that credit card companies are analogous to tobacco companies in their methods. They use shameless tactics to get users hooked, including ad campaigns aimed at young people.

Both industries are insidious at adulterating or doping the product to advance their mission at the expense of unsuspecting consumers

The perennial debate over personal versus corporate responsibility is parallel as well; its easy for those on the personal responsibility side to say just dont smoke or just dont use credit cards The reality is that its a more complex issue than that; societal, cultural, and economic pressures are at work, all in the maelstrom that is human nature. And these two corporate predators are poised to move in for the kill

I was very glad to see that Frontline gave us an in depth view past some of the smoke and mirrors or should I say smoke and plastic?

Donald Miller
Brooklyn, Connecticut

Dear FRONTLINE,

Thank you for saving my familys credit!

I recently received a letter from my credit card company stating we had not made a payment in three months. As this was incorrect, I called the company to dispute their claims. The problem was caused by an incorrect address, one we had corrected months ago. During the conversation, they gave me an amount for a minimum payment. I decided to ask them how long it would take to pay off my account by using only the minimum payments.

After a few moments of stammering, the account rep told me he had just received the memo on the FRONTLINE special and didnt have a calculator to compute the time. He did mention that the APR had skyrocketed to 25%. At that, I demanded to speak with a manager. After a few minutes on hold, the manager came on and immediately started crediting our account for all of the late charges, submitted a request to lower the APR and sent notice to the credit bureaus to remove the late payments.

I feel the FRONTLINE special should be given the bulk of the credit (no pun intended) for these actions to clear our credit. Thank you FRONTLINEthank you.

Keith Hall
Orlando, FL

Dear FRONTLINE,

i have enjoyed frontline for many years and i believe it to be one of the best shows on television. however, i would have liked to see more discussion in the broadcast about how one actually obtains a copy of their credit report and score. after doing some online research, i discovered a bill which has recenlty passed that will allow anyone in the western states to obtain a free credit report from each of the agencies starting this december 1st 2004, and in the other states early in 2005. hopefully frontline can publish this information on their website as i did not see any mention or links for obtaining free credit reports.

keep up the good work frontline !!

jeff brennan
phoenix, arizona

FRONTLINE's editors respond:

The writer is correct. Starting December 1, 2004, consumers living in the western U.S. will have the
right to order a free copy of their credit report under the Fair and
Accurate Credit Transactions Act (FACTA) and the Fair Credit Reporting Act
(FCRA). FACTA, which was enacted on December 4, 2003, amends the FCRA and
requires, among other things, that the three nationwide consumer reporting
agencies (CRAs) - Equifax, Experian, and Trans Union - provide to consumers,
upon request, a free copy of their credit report once every 12 months. (Currently, myfico.com provides credit scores for a fee of $12.95 for any of the three credit bureaus.)

Consumers will become eligible for FREE reports on the following schedule: WESTERN STATES: (Alaska, Arizona, California, Colorado, Hawaii, Idaho,
Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming) will
become eligible on December 1, 2004; MIDWESTERN STATES: (Illinois, Indiana,
Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, and Wisconsin) will become eligible on March 1, 2005; SOUTHERN
STATES (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana,
Mississippi, Oklahoma, South Carolina, Tennessee, and Texas ) will become
eligible on June 1, 2005; and EASTERN STATES (Connecticut, Delaware,
District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New
Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont,
Virginia, and West Virginia), Puerto Rico, and all U.S. territories will
become eligible on September 1, 2005.

After December 1st, WESTERN STATE consumers can visit www.annualcreditreport.com to request your free
credit report or request the report by phone or mail:
After December 1st, visit www.annualcreditreport.com to request your free
credit report or request the report by phone or mail:

Toll-free number: 877-322-8228
Mailing address: Annual Credit Report Request Service, P.O. Box 105281,
Atlanta, GA 30348-5281
Requests by phone or mail will be processed within 15 days of receipt.

Dear FRONTLINE,

Credit cards that offer airline, hotel, and other points programs charge the merchant an additional fee which covers the cost of the points given. The merchant ispaying for the points consumers use.Most merchants do not know that this charge is buried in the fees charged by the credit card company.

A whole new Frontline investigation and presentation.

W. Simsbury, CT

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posted nov. 23, 2004

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