Money: The Truth About the Credit Industry
n October 2008, many of the problems that have long been hidden in the credit industry finally showed up in a big way. The immediate response was for the government, the very same people who caused the problem to begin with, to now "solve" the problem by taking $700 billion of your money and mine and giving it to the people who created this disaster. Yeah, that works... Since this book (Life Without Debt; this article is an excerpt) is about personal finance, I’m not going to talk much here about the problems with the mortgage industry and the government bailout. I’m going to focus on the credit industry which many of our politicians wanted to include in the bailout. The cause of the big financial crash is the exact same cause that will eventually burst the credit bubble: easy credit to people who lack financial discipline and the ability to repay it. As I said at the beginning of this book, I’m not one of those people who run around saying "it’s not your fault you’re in debt" (excluding those who have experienced a medical catastrophe or some accident through no fault of their own). To whatever degree you are in debt from using credit cards to purchase lifestyle, it is your fault! Until you change your mindset about credit, no amount of good information on the predatory practices of the credit industry and how to avoid them will keep you from getting in debt. So keep the number one foundational principle in mind as you read this section: you must change your attitude about debt in order to get out of debt and stay out of debt. You must accept personal responsibility for being in debt and not blame it on anyone else, including the credit industry. With that said, let’s take a look at the credit industry so you’ll know how to deal with them and avoid them in the future. The credit product industry is a huge and extremely lucrative market earning in excess of $30 billion per year. That’s billion with a B. While the government has done a few things to regulate ridiculous interest rates, there is no regulation against fees and penalties, and that has become the primary way that the credit industry makes money. They charge you fees for every imaginable service or transaction and set up the system in such a way as to cause you to very easily began to rack up penalties as well. Over 1 billion credit cards are in use in the United States, and about one and a half trillion dollars of transactions are processed on them enjoying one of the highest profit margins of any business. Credit card banks and lenders are some of the largest contributors to political candidates on both sides of the aisles. To believe that that does not buy them favorable regulation is to live in a dream world. We hear so much about the "evil oil companies and their obscene profits" who make on average about 6% profit (while the government gets 18% on the same money) but never hear a word about credit card companies and lenders who jack up rates as high as 30% on top of collecting countless fees and penalties. It’s amazing what banks and credit card companies get away with and never get reported. Financial Peace author Dave Ramsey pulls no punches and calls companies like American Express scumbags and predators on national radio. It’s hard to disagree with him considering some of the settlements they have been subject to: Citibank, $45 million for improperly assessed late fees; Advanta, $7.2 million settlement for charging higher interest rates than advertised; Sears, $36 million settlement for raising interest rates after saying they would not. The sad part is, $50 million is chump change in the credit industry. They settle these disputes for what amounts to be a painless penalty and then go right on doing whatever it is they were doing in the first place. Don’t be fooled. The credit card company can say they will do something 27 times and it doesn’t mean squat. They can go about doing exactly what they want to do, and if and when they are ever challenged, simply pay a settlement and keep right on going. The credit industry is so lucrative that a few lawsuits are nothing but a slight nuisance in the overall scheme of profitability.
Let me educate you about one of their favorite tricks: universal default. Not all credit card companies and banks use universal default, but many of them do. In essence, universal default could be described as saying "we think you MIGHT NOT pay us, so were going to raise your rates." This is most often accomplished by accessing your credit reports and looking for any negative entry that gives them an excuse to declare universal default. By declaring this, they now have the right to raise your rates as high as legally allowed. So if you miss a payment on a medical bill or go to collections for any reason known or unknown, that becomes an automatic excuse for many lenders to crank up your interest rate on all credit products to the highest limits possible.
They don’t have to explain themselves, they don’t have to tell you why, and they can tell you pretty much anything they want to tell you as a reason. It’s absolutely legal, and they can do it as well as lower or cancel your available credit.
There are four credit areas that you must be most educated and aware of: bankruptcies, credit cards, mortgages and student loans. These are the areas where the worst of the predatory practices reside. Student loans are particularly troublesome in that the credit industry is in bed with the education administrations. The academic institutions frequently receive kickbacks, commissions or some other type of monetary payback in exchange for open access to their student bodies. For the most part, this is done in such a way as to bypass the parents when possible. If you have college students or high school kids about to graduate, you are making a mistake if you don’t get well educated and alert about the student loan industry.
So what’s a brother to do? Are we just helpless at the hands of the credit industry? Many people selling financial programs or get out of debt services would have you believe just that. Of course that is just as intellectually dishonest as the predatory lending practices they denounce. You are not at the mercy of the credit industry either before you get into debt or after. Let’s look at a few things they don’t want you to know...
Did you know there is a statute of limitations on debt? Now, we need to be careful here because I never say that you should not repay or don’t owe debt that you have legitimately incurred. However, much of this debt is passed around and bought up from collection agency to collection agency and large amounts of punitive fees and penalties are tacked on. I don’t care how old the debt is, whether or not it’s been written off, or whether or not it’s ancient history, or even if you file bankruptcy, if you owe something, you should pay it back no matter what it takes. I’m talking about the principal amount that you owe, but penalties and fees are another matter. I think you should do everything in your power to keep from paying jacked up, outrageous punitive penalties and interest rates. The statute of limitations is one way you can fight back.
Each state has its own laws on the statute of limitations concerning debt but typically runs from 3 to 6 years. So if you’re being harassed or contacted about debt that is past the statute of limitations, then you are in the driver’s seat as far as the negotiations with a collection agency. In fact, you can tell the collection agencies to kiss off. In order to make restitution, you should figure out what the principal amount was that you legitimately borrowed and go back to the original company and make arrangements to pay it. Now legally because of the statute of limitations, you can simply avoid paying, but that is dishonest. It is corrupt for the lending industry to use legalities and technicalities to jack up what you owe. It is just as lacking in integrity for you not to pay something you owe because legally you can get away with it.
So check out the statute of limitations in your state, and if you’re being hounded by a collection agency concerning old debt, tell those collectors to get lost and quit bothering you. Then, go back and make restitution with the original lender. Often, they will simply tell you to forget it, that it has already been written off and at that point you no longer have the moral duty to pursue it.
Also keep in mind when dealing with collection agencies that they are very persistent, and you should not let them scare you. Never admit to a collection agency that you owe anything (related to debt that is past the statute of limitations) and never send the money because this is an admission that you owe the debt. They will use any and every means to try to prove that you are agreeing to pay the debt back. Don’t deal with the collection agency, go back to the original lender and make arrangements to repay any legitimate principle directly to them.
So what about debt that has not run out the statute of limitations? Here are a few tips:
Never admit to any specific amount but only that you will investigate it to see if you owe anything at all.
Never agree with the debt collectors about any arrangement or anything they ask you to do.
Ask the debt collectors for proof of what you owe, the alleged debt occurred and a line item exclamation of the items or services.
Remember that you can always negotiate. While integrity requires us to pay back the principal amount owed on any legitimate lending, the ridiculous interest rates, penalties and fees are up for grabs. There are no official laws that state what they can charge or what you must pay, it is all a negotiation. Be tougher than they are about getting interest rates and penalties significantly reduced or removed from the amount owed.
Many times, we can simply be upfront with them about our financial situation, and the principle holds true that getting something is always better than getting nothing. If the collection agency or credit card company refuses to negotiate interest rates, penalties and fees, then you can persistently remind them that being unable to pay them anything at all is certainly not in their best interest.
Let’s end this depressing section with some positive action steps:
Ask to have penalties and fees removed from your account.
Ask the credit card company to remove annual fees.
Insist that the credit company lower your interest rates in order for you to have the ability to pay.
Educate yourself about credit card gimmicks and traps such as 0% introductory rates and the preprinted checks they send in the mail.
Know your rights as a credit consumer: you cannot be contacted before 8 AM or after 8 PM; they cannot tell other people that you owe money; they cannot have you arrested or say that they can; they cannot talk to anyone but you about your debt; they cannot threaten to sue you (only the original creditor has the right); they cannot contact you by phone if you have requested they contact you in writing only; they cannot threaten to take your employment income.
Be sure to keep detailed and clear records about who you spoke to, details of the conversation and dates.
Oh yeah, get out of debt and quit using credit. ~
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By Brent Riggs
Brent Riggs is an author, mentor and Bible teacher. For Bible teaching and answers, visit his ministry website at www.seriousfaith.com
