An interesting article in the New York Times last week, about the complete and on-going irresponsibility of retail banks and credit card companies in the USA. If you’ve been reading the financial press for the last month or two, you’ll have read that after the mortgage crisis, we are going to have the credit card crisis. Credit card debt has been bundled and sold on in much the same way as mortgages were.
The article explains what is still going wrong, here’s a sample:
I recently had a client apply for a credit card. She is a homemaker, with no personal income. The house she lives in is in her husband’s name. She would have asked for a $3,000 credit line, just to pay miscellaneous expenses and to establish some credit on her own. So the computer is told that her household income is $150,000; her mortgage/rent payment is zero. The fact is that her husband’s mortgage payment is $7,000 a month (which he got with a no income verification loan). She had a good credit score, but limited credit since she has only lived in this country for the last three years.The system gave her an approval for a $26,000 line of credit!
I can only agree with that. Not only does the system give easy credit, but the retailers and merchants in the States treat one as such too!
I had gotten my first credit card earlier this year to travel more independently and to establish some credit of my own. As a free lancer, AVANZIA (out of Belgium, I believe) gave me a credit line of € 500 and quite frankly, I was happy with that! Some three months later, with extensive traveling and paying off my bills in full right away, my credit line was raised to € 2000. Fine, too.
Here comes the part about the finance crisis. I know I don’t have to use up my limit while shopping, but some of these American merchants will try anything to make you spend money you don’t have. Of course, having told them I was from Germany, the jeweler on 5th Avenue immediately assumed I had a debit card (where your house bank is liable if you go overboard). This one merchant tried to sell me a 3 Karat diamond ring – he went from the original price of $ 16,400. “down” to $ 2,500. I tried to explain to him that I do not have the credit line – neither did I want the ring – but he assumed I was from Germany, therefore had unlimited credit. He even told me then how the debit credit business works in Germany.
It finally dawned on me and I told him that I had a real credit card – not guaranteed by a bank from Germany- and had a fixed credit line.
For some people this credit business is not real. Money borrowed, paid back at some time whenever, seems not like a real obligation to them. Shifting goods, debts, credit lines – not much personal responsibility involved there.
I also heard some stores have gone back to “Lay-away” instead of pushing credit. You can put things on “lay-away” while making a weekly payment until paid in full to redeem it.