I predicted todays economic woes over two years ago, and I predicted it would be the credit card industry that would lead the way.
I believe the banking system is addicted to overloaning. Overloaning is a real problem. Banks have overloaned more and more money to those who cannot afford more debt. A customer with too much debt but who still has a job, should not be allowed to write off their debt unless they are first offered an interest free debt pay down plan. An interest free debt pay down plan is a better option than just writing off existing credit card debt and then using that as a reason to damage a consumers credit rating and raise their interest rates in the future.
The Banks would actually increase their monthly intake of money as consumers who were previously hopelessly in debt can now pay down their own debt, interest free. Would the banks really be against an increase in monthly, "interest free" debt paydowns for the next 3-5 years versus writing off those same consumers?
It seems to me that the faster the banks get back money that they loaned out to consumers who are having difficulty paying their monthly bills, the better the banks can figure out how to reinvest it in a more solid manner.
As I research various blogging sites and internet news columns about unfair credit card practices one common dissenting viewpoint emerges. Usually the dissenting voice states "I never spend money I don't have. If people are that irresponsible with their borrowing habits they deserve to pay all the interest the banks want to charge".
In many cases the issue is not the actual credit card debt, it's the non-disclosure about what the true payoff date is, what the credit card interest rate really is when one makes only the monthly minimum payment, the late fees, the raising of the interest rates if the customer is dinged with a bad report from any financial institution, and Credit Protector charges that has accelerated the problem.
What I find a bit ironic about the people who want to solely blame credit card debt on the person with the debt is that they themselves may make a living selling services and products that are purchased on credit by others. To those who continue to judge credit card debt as if it is entirely the fault of the debtor , put YOUR money where your mouth is and ONLY ACCEPT DEBIT CARD PAYMENTS. Don't work or operate a business that accepts credit card payments if you feel so superior to those who are in debt. You are probably just as addicted and needy of taking money from a debtor as the debtor is to paying their bills on credit, which makes you an accomplice.
Nobody in the public eye seems willing to mention the concept of an interest free pay down for any length of time for any consumer in trouble, it's either walk away or an instant reduction in debt, both of which will presumably affect the consumers credit history report.
Creating a New Credit Scoring System
There should be a second credit scoring system in place, a credit scoring system made for the people and by the people. I would call it a Consumer's Credit Bureau.
The Consumer's Credit Bureau would be based on a scoring system using the letters A through F. An A score is for anyone who can just pay off whatever debt they have in an instant because they have ample cash reserves. An A- score would be for anyone that basically has a stellar payment history and whose debt fluctuates rather than only rises. A B+ score would be for those who always pay on time and are able to maintain their debt and are never late on their payments. A B- score would be for anyone that has occasionally missed a payment but has always paid off their debts. A C score would be reserved for those who never gave up and paid off their debt even if it had to be done interest free.
A C score would also be where everybody starts when they are first given a credit score, aka, old enough to vote. A D score would be for those who have fallen behind on their debt and cannot pay it off interest free, and have given up. An F score is a failing grade for anyone who basically took the money and ran.
My alternative consumer credit scoring plan simplifies the credit score process and would allow credit issuers to tailor their offers based on the letter of credit one has earned. More importantly, it allows the consumer to easily figure out their own credit score. As it stands now, banks are covering up their own overloaning ways and attempting to fix a wrong that they created while trying to lay the blame at the feet of the consumer.
Taking a holier than thou position about credit card debt in my opinion is elitist. Credit card companies never disclose the 400% to 500% increase in the interest rate above and beyond the claimed interest rate that occurs if the consumer only pays back the monthly minimum. If banks originally had disclosed how the credit card interest rate varies depending on how much one pays back per month, people would borrow a lot less.
There in lies the rub. Banks appear to want to put their hooks into the customer first, then judge the customer as a "risk" so they can raise their credit card interest rates on the debt that is already owed. In my opinion these predatory credit card interest billing tactics are unethical and need to be reformed.
Sadly, there is no real voice for the consumer in the United States, and perhaps nowhere else either.
Please go to pages two through seven for more important information about credit card debt.