A Modest Proposal 2005. In 1729, the Anglo-Irish satirist Jonathan Swift wrote a now-famous essay in which he proposed that the poor Catholics of Ireland sell their one-year-old babies to the Protestant ruling class as food, and even suggested ways that this new meat might be prepared. Some people missed the irony and were appalled that anyone could suggest cannibalism as a cure to social ills. This same theme, albeit intended as a cautionary tale rather than a satiric absurdity, was pursued in the classic 1973 sci-fi film Soylent Green. My suggestion today is not nearly so drastic: let's abolish credit cards.
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Over the weekend one of the network evening newscasts (I forget which one; I watch all, bouncing between them depending on the topic of the particular story, timing of commercials, etc.) reported that the typical American family has $9,000 in credit-card debt, from which it will likely never be free. That report did not state the typical interest rate on such debt, and if one has several accounts with different companies, the rates can differ substantially. Let's say that the average rate is 17%, altho many companies dare to charge 21% as their ordinary rate and over 27% as their "default rate". Many companies that charge a more 'modest' rate, like 11% or 14%, often use a "universal default" policy to inflict a default rate on anyone who is late paying not just that company's own bill but any credit account: another credit card, their mortgage, their car loan — whatever. And the Government lets them get away with this.
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Default rates today are typically in the range of 25-27%, and some are even higher. The group Consumer Action says:

CA found default rates as high as 35% (Merrick Bank). Runners-up for the highest default rates are Citibank and Providian at 29.99%. The lowest default rate is 12% (Arkansas National Bank).

Why do we put up with any of that?
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Neither individual states nor Congress has done much of anything to rein in the hideous abusiveness of credit-card issuers, who have imposed indefensibly high interest rates and fee after fee after fee, some of them hidden from customers. The spread between the "cost of money", that is, what credit-card companies have to pay to borrow money from the Federal Reserve system, and what they charge customers is extraordinary. The Federal Funds rate is now 4%. The prime rate (commercial loans to solid companies) is 7%, and banks can make money from that 3% spread. But the spread on credit card rates is 10% and more, sometimes much more. How do they justify that? They don't have to. They charge what they can get away with, and nobody is doing a thing to protect us.
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Millions of Americans have sunk so deep into credit-card debt that they can't make even minimum payments, so are charged a late fee every single month, which can be as high as $35, even $39 per month. Those fees are treated as purchases, and themselves at once push one's owed balance higher and bear interest, so you are paying interest on fees! If those fees and/or the interest atop them pushes one's owed balance over his credit line, the card issuer then charges an over-limit fee, which could also be $35 (or higher) for each and every month that the borrower is unable to bring the balance below his credit limit. Even if he completely stops using the credit card but is unable to make timely payments or bring the balance down, he can be charged $70 (or more) in fees each and every month — for nothing. And that's just fine with our "representatives" and "public servants" in state legislatures and Congress, as are interest rates of 27%, 30%, and more!
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Credit-card issuers fite any restriction on their business. So let's just outlaw their business altogether. You won't let us regulate? Then we'll destroy.
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Altho it may seem to young people that credit cards have always been with us, they are actually a fairly recent phenomenon, historically speaking. Money (successor to barter) has been with us for thousands of years but credit cards for little more than 50.
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Charge cards for an individual merchant that allowed a customer to put off paying for a purchase until the end of the month (only; the balance had to be paid in full each month) started to be introduced in the United States in the 1920s, but the first multi-merchant charge card, Diners Club, did not appear until 1950. The predecessor to Visa, which is a genuine credit card that extends repayment times but charges interest on unpaid balances, did not come into being until 1958, and of MasterCard not until 1966.
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At the time credit cards came into existence, there was no such thing as a debit card nor a 24-hour-accessible ATM or cash machine. Banks had short hours, typically 9am-3pm Monday-Friday only, less holidays. Checks were not accepted from strangers nor outside of one's own vicinity. Out-of-state checks could take weeks to clear. All that has changed.
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Logically, the advent of the debit card has made the credit card obsolete, a needless drain upon people's finances.
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Myriad individuals are reduced to using credit just to get by, borrowing on one card to pay the minimum on another and getting ever deeper and deeper in life-crushing debt. Enuf! It's time to abolish the credit card and put the entire credit-card industry out of business.
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We lived without credit cards before 1950. We can live — better — without them now.
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(The current U.S. military death toll in Iraq, according to the website "Iraq Coalition Casualties", is 2,096.)
- posted by L. Craig Schoonmaker @ 6:01 PM