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Sunday, November 21, 2004

The credit squeeze is on

From the NY Times:
When Ed Schwebel was whittling down his mound of credit card debt at an interest rate of 9.2 percent, the MBNA Corporation had a happy and profitable customer. But this summer, when MBNA suddenly doubled the rate on his account, Mr. Schwebel joined the growing ranks of irate cardholders stunned by lenders' harsh tactics.

Mr. Schwebel, 58, a semiretired software engineer in Gilbert, Ariz., was not pleased that his minimum monthly payment jumped from $502 in June to $895 in July. But what really made him angry, he said, was the sense that he was being punished despite having held up his end of the bargain with MBNA.

"I paid the bills the minute the envelope hit the desk," said Mr. Schwebel, who had accumulated $69,000 in debt over five years before the rate increase. "All of a sudden in July, they swapped it to 18 percent. No warning. No reason. It was like I was blindsided."

Mr. Schwebel had stumbled into the new era of consumer credit, in which thousands of Americans are paying millions of dollars each month in fees that they did not expect and that strike them as unreasonable. Invoking clauses tucked into the fine print of their contract agreements, lenders are doubling or tripling interest rates with little warning or explanation.

This year, credit card companies are changing the terms of their accounts at a historically high rate, said Michael Heller, an industry consultant.
I'd guess that most of my readers are not suffering from acute cases of affluenza, running up huge amounts of credit card debt. But most of you probably know someone who is. If there is one step probably more important than any other that these people could take, both for their own sakes and for the sake of bringing down the evil corporations running (ruining) our lives, it would be to get out of debt ASAP.

I read recently in the book Limits to Growth: A 30 Year Update a quote that struck right to the heart of the matter. It went something like this: The billions of dollars in interest payments constantly being made are a pure gift from the poorer segments of society to the wealthiest. Interest always flows up the wealth ladder.