Credit Card Companies Still Evil; Congress Surprised

By Andrea Karim. Last updated 10 June 2007. 9 comments

Credit card companies are all kinds of evil. I know it, you know it. Now Congress knows it. Credit card companies do all kinds of nasty things (see below!) to take your hard-earned cash, so it's kind of nice to know that our government wants to do something about it.

The Senate Homeland Security and Governmental Affairs' investigative subcommittee got an earful today from Wesley Wannemacher, an Ohio man who was charged interest and penalty fees on his credit card that essentially tripled his debt.

Wannemacher used a new Chase card in 2001 and 2002 to pay for expenses mostly related to his wedding. He had $3,200 in purchases, interest charges of $4,900, 47 over-limit charges totaling $1,500, late fees of $1,100, for total charges of $10,700 as of February.

Or how about Derek Lee?

...who paid off one of his credit cards because he wanted to cancel it. Six months later, he still hasn't been able to because the card company keeps charging him mysterious fees that keep the account open. "It's incredibly frustrating. It's unfair and it's unethical, and it has dropped my FICO credit score [a measure of credit risk] by 69 points," Lee told "Good Morning America."

Headed by Senator Carl Levin (D., Michigan), today's Senate hearing examined credit card companies' lending practices touched on a number of issues relevant to anyone who used credit cards (that would be pretty much all of us).

One issue of significance to both consumers and business owners is something called interchange.

Largely unknown to most consumers, interchange is a percentage of each transaction that Visa and MasterCard collect from retailers every time a credit or debit card is used to pay for a purchase. The fee varies with type of merchant, transaction and card, but averages close to 2 percent for most credit card and signature debit transactions. Visa and MasterCard interchange fees totaled $30.7 billion in 2005, up 17 percent from 2004 and 85 percent since 2001. The average family in the U.S. pays more than $300 every year in hidden interchange fees.

What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?

Those are those little fees that the convenience stores make you pay if you try to put something under $5 on your credit or debit card, right? You either pay it directly or the store hikes their prices up to cover the difference, because it costs them too much and unfairly hits small businesses with crazy charges? And that costs me almost $300 a year?

Here are some other fun credit card practice terms you may or may not be familiar with (from ABC News online):

  • Trailing interest: credit card company charges interest on an entire purchase after you've paid it off.
  • Universal default: Make a late payment on credit card A, and other companies raise interest rates on your other cards.
  • Lowest interest first policy: charging consumers different rates for different types of transactions; transactions with the lowest rate purchases get paid off first, so that high-interest transactions hang around, charging you more.

The Merchants Payments Coalition, an industry group that is pushing for reforms that would change the way credit cards bilk... I mean, charge businesses, has put together a website that urges you into action.

I like this article by Issac Bailey, which points out that in some ways, our banks are worse than payday lenders.

Me, I've made up my mind about credit cards. I'm in the process of paying off my last ones, and when I'm done, I'm done. I might consider some sort of rewards card in the future, but a revolving balance will never again be an option for me. I'm glad, though, that these business behemoths might be getting their due. I believe wholly in capitalism, but there's this thing called 'ethics', which is related to 'human decency', which in turn promote 'customer satisfaction and loyalty'. Those are some terms that these banks and lenders really should try to grasp.

Some inspiration for those trying to cut up those credit cards.


Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

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Guest's picture

Why is it Sears and Lowe's can charged you so much and the more you pay it seems you are never paying the card amount down? I know as soon as am able Sears and Lowe's will never get my Business again. I have even paid at the local store for Sears three days before the bill was due and in my next statement it showed a late fee. How is that possible?, when I paid directly at the store an they entered it in their business computer.

Guest's picture

Beware of Lowe's Credit Card. The only time it pays is if you can manage your debt well and pay off any amounts you charge before your promo ends. Otherwise the interest snowballs. Only a good card if your charging all your funds during promo periods which are quite frequent. Keep your credit card statements-- usually on those, they have those annoying 299 or more on 'anything' promo's /annoying to me when the customer forgets the promo and expect me to honor it. I have to have the coupon to scan... although this is no longer accurate since --super secret info-- but we do get charged to do this although in comparison to giving 10% the --super secret info-- is cheaper.

Guest's picture

Andrea, I'm glad to see you raise the issue of interchange fees since it seems most people are completely unaware how big of a problem this is. Interchange is actually the largest fee by far at more than $30 billion in 2005, more than the total amount of penalty fees and ATM fees combined.

Interchange fees don't just apply to purchases under $5, but every purchase where you use either your debit or credit card. The best part is that essentially we all bear the cost of interchange every time we buy something as it raises the price of everything we buy whether you pay with plastic or cash.

In addition, MasterCard and Visa wrote the rules that make it virtually impossible for merchants to tell consumers how much interchange fees cost them. As you said it costs the average American family hundreds of dollars per year.

If anyone ins interested, there is great information on the interchange fee at,

Guest's picture

The credit card companies are profitable and the reason is that people and businesses use the card of their own free will. Like the subprime loans if you do not understand the contract you are entering into(read the fine print)then don't enter into the agreement. All of the fees, charges, etc. are spelled out in the contract. Even the evil universal default clause is explained.

I have credit cards for the sole purpose of raising my credit score. I use them just enough to keep the card company from charging an annual fee and pay them in full. My philosiphy is "If I can't find the money to save up for a purchase, where do I find the money to pay for it in the future".

Guest's picture

Very well said! Having been in the banking industry for 20yrs I am tired of willfully ignorant consumers whining about unfair fees, etc. Yes, there is abuse + predation in the industry, yes it sucks + unethical; but none of this is news. There is a reason the adage Caveat Emptor has been around for so long!

Take responsibility for your finances by being a wise consumer who does the research, asks the questions & reads the fine print, etc. instead of blaming everyone but one's self for one's own foolishness.

Also, driving small business out while going after big business hurts all of us & not just in the long run either.

Guest's picture

I use cash for everything... my motto "Don't buy it if you don't have the cash"
Sometimes however, we fall into situations like I did and using 2 lower limit cards was essential.

To make a long story short, When I began to get back on my feet, I was doing pretty good with paying these 2 cards off. I was late on a payment and things went south from there. Trying to get those cards paid off was a sisyphean effort and the company decided to NOT work with me on it. I got fed up and said... I will only pay the original principal off and not a penny more....take it or leave it... naturally they didnt take that offer. Now they'll get nothing. Ive sent certified letters and they've responded with regular mail... as far as Im concerned, if they didnt send it certified...they never sent it.

Because Ive always used cash... credit scores mean NOTHING to me. I can care less if my so called credit or FICO rating is -50000000. I love how they call and try to tell me that this will adversely affect my answer... I give less than a $#!* have a nice day.

The best defense against credit companies and bank cards...DONT USE THEM! Use cash! If you dont have the cash....dont buy it!

After doing research on credit companies... the reason they're all located in Delaware and South Dakota... there's no regulations. Nice huh! Thanks guv'na!

Guest's picture

These guys are all assholes who enjoy making a profit at the expense of others.

At 23 I was pretty new to the whole credit industry, I decided to take a chance and get a card. For the most part everything went pretty well for the first year or so. My first problem came with Capitol One. I setup a small life insurance policy for about 6 months before I decided to cancel it. Somehow the charge kept appearing on my statement so I called the company to make sure the policy was canceled, they said that it had been canceled for a few months now so I called Capitol One to figure out why it was still on there. They said it wasn't canceled. Basically to make a long story short it took me threatening to cancel the entire card before Capitol One would mae a 3-way phone call to the company to get the problem fixed and find out they were wrong. The guy from Capitol One hung up on me at the end which made me decide to actually cancel the card.

Secondly I got another card from Providian to help cover some college costs. Everything was fine til I missed a payment. I paid the late fee and decided to go ahead and pay off a good chunk of my college costs. I paid them $1500 in one day on a balance of $2800. Two days later they lowered my limit by $1500 and upped my APR by 20%. When I called them the reason they cited for this was a change in my credit report. It's kind of funny how it was two days after I paid them the exact amount that they lowered it by. Which in turn caused me to be over that 10% threshold and basically made all my efforts for naught. Needless to say I no longer do business with either of these companies. There is now a balance of $2000 on the Providian card in which I am in no hurry to pay off because of their greedy and unethical practices.

I am also one of these people who have always used cash and hated credit. I'm glad I've gotten out of the entire industry and I will never go back. I could care less what my credit score is.

If you continue to rape and pillage the people of a country under the guise of making money it won't be long until you are the one paying for it.

Guest's picture

I recently made a purchase with my Lowe's card, managed by GE Money Bank. This was a single item purchase over $2000 and qualified for their BIG Buy Plan with an interest rate of 15.49% APR. When I received my first bill, before the item had even been delivered, I also got a change notice from GE bank saying my new interest rate would be 21.99%. This change specifically stated it was "eliminating the Big Buy Plan" and was dated May 2008, long before I made my purchase in July 2008. It further stated my only option would be "opt out" by notifiying GE Money Bank in writing within 60 days and terminating my Lowe's account. This strikes me as blatant deception in the least and really more like outright theft. How can a major bank and retail company perpetuate such outright deception? Do they not want to do business with people with good credit that pay their bills on time? I have written to both GE Money Bank and Lowe's advising them of my rejection of these changes and letting them know I am terminating my Lowe's account and will no longer be doing business there. I will aslo file a complaint with any Government agency and consumer rights organization I can find and urge any others who have encountered this type of bait and switch credit policies to do the same. I will even seek a "class action" lawsuit against Lowe's and GE Money Bank if my interest rate is raised as a result of this policy. Credit card customers would do well to pay close attention to the notices included in your statements as this is not an isolated incident.

Guest's picture

Did you still get and put that 2000.00 purchase on your lowe's card??