Notes on Frontline: Secrets of Your Credit Card

Introduction

• The average American family has $8,000 in credit card debt.
• Credit cards are both a necessity and a tool for a better life.
• The credit card industry profits significantly, often at the consumers' expense.

Origin of Credit Card Industry Growth

South Dakota's Role

• South Dakota emerged as a credit card processing center due to relaxed interest rate regulations in the late 1970s.
• Governor Bill Jano lifted caps on interest rates to encourage banks to issue loans during a recession.

New York City Banks

• City Bank faced financial difficulties due to strict usury laws limiting interest rates.
• City Bank moved credit card operations to South Dakota to escape these laws.

Supreme Court Decisions

• Marquette Decision: Allowed banks to export interest rates from states with no or high usury laws, leading to increased interest rates nationwide.
• Smiley v. City Bank: Lifted restrictions on fees charged by credit card banks, contributing to rising late and over-limit fees.

Current State of the Credit Card Industry

• The industry generates $30 billion in profits annually.
• Nearly 144 million Americans have credit cards, reflecting a significant part of the economy.

Consumer Behavior

How Consumers Use Credit Cards

• Many consumers rely on credit cards for daily expenses and emergencies.
• Some love the convenience despite the financial burden.
• "Deadbeats" are those who pay off balances monthly, while "revolvers" carry debt and pay interest.

Impact of Credit Card Debt

• The average American family carries about $8,000 in credit card debt.
• Job loss or medical issues can push families into deeper debt, leading to bankruptcy.
• The Muellers: a family that filed for bankruptcy due to accumulated credit card debt from job loss.

Credit Card Fees and Interest Rates

Rising Costs

• Interest rates can drastically increase due to missed payments or changes in creditworthiness.
• Penalty interest rates and late fees have skyrocketed since deregulation.

Marketing Practices

• Credit card companies often use attractive introductory rates (0% APR) that change after a period.
• The fine print often contains traps that consumers may not fully understand.

Issues with Regulation and Consumer Protection

Regulatory Challenges

• The Office of the Comptroller of the Currency (OCC) regulates national banks but often excludes state consumer protection laws.
• State Attorneys General report numerous complaints against credit card companies, yet face challenges in enforcing consumer protection.

Proposed Reforms

• Senator Chris Dodd proposed a credit card reform bill to require clear disclosures of payment impacts on debt duration.
• Previous attempts to regulate the industry have failed due to the industry's political power.

Conclusion

• The evolution of the credit card industry has created complex challenges for consumers.
• There are ongoing discussions about the need for reform to protect consumers from exploitative practices.
• Reflection on the industry's growth reveals both benefits and significant risks for American consumers.