Blindfolded Into Debt: A Comparison of Credit Card Costs and Conditions at Banks and Credit Unions

Profit maximizing, credit card companies, and a world of debt
Posted by: robgregory on Fri, 25 Apr 08 03:46:20 +0000

A peculiar thing has happened in America lately: Consumption continues to go up, up, up, while real wages have stagnated or gone down over time. This research paper intends to provide a comparison of the lending practices of credit unions and banks through a look back, a view of the current situation, as well as one possible solution to make practices more fair in the future. Overall the organization of this paper is excellent: It tells you what is covered, how it's covered, and why its covered. The data is impressive, and the message is overwhelming. Credit debt is a major issue in modern America, and this research tells us how we got here.

There are important points throughout on the connection between credit card debt and personal bankruptcies, which doubled between 1990 and 2002, as well as the phenomenon of home owners borrowing heavily against their homes. There is also information on the reasons for debt overall, including stagnating wages, the rising costs of medical expenses, the culture of consumption. Of course, this particular study is concerned with another debt: the exorbitant penalties, interest rates, and fees associated with credit cards.

Banks versus credit unions is the theme. Credit unions are not profit maximizers, the research tells us, while the very opposite is true with banks, since profits are enormous in one of the most lucrative parts of the financial services industry, credit cards. Some of the most valuable insights come with the background of banks versus credit unions and credit cards. For example, we learn that federal deregulation during the 1970's led to credit cards flourishing. Further, deregulation has continued into the 1990's when caps on penalties, fees and interest rates were all but destroyed. The report ends with its recommendations for improving credit card products to make them fairer to the average consumer, and the recommendations are well researched.

I couldn't recommend this report anymore to anyone slightly concerned with the state of credit card practices and the rising indebtedness of the average American household.