The Truth about the Life Changing Credit Card Business
The word credit is derived from the Latin word Credo. The word credo means "I trust you". It is defined by Gide as" an exchange which is complete after the expiry of a certain period of time after payment. As defined by a freelance writer named Barb Nefer, A credit transaction is a common financial activity, often conducted with a credit card. Credit gives you the ability to buy things you cannot afford to pay for all at once, and you can also use it for convenience. You must eventually pay the money back, and most credit purchases incur interest charges in addition to the original amount. The credit card industry, a most lucrative industry indeed, has spiraled out of control over the past decades. Shockingly! This industry seems to have grown out of the control of the government itself. According to the Federal Reserve, Total U.S. revolving debt (98 percent of which is made up of credit card debt): $801 billion, as of December 2011. The average credit card debt per household is said to be $15,799 and the average household debt is said to be $54,000. There are 609.8 million Credit cards held by U.S. consumers (Source: "The Survey of Consumer Payment Choice," Federal Reserve Bank of Boston, January 2010).
This massive and revolutionary breakthrough in the credit card business started in an unusual and unlikely place, which is South Dakota. South Dakota is where the credit card industry really took off. Today a town named Sioux Falls in South Dakota is one of the major credit card processing centers in the country. A quarter of a century ago times were hard in South Dakota and Bill Janklow was the governor at the time. Banks were hardly giving loans of any kind in South Dakota at that time. In order to get the banks to issue loan the governor decided to eliminate its historic cap on interest rates known as “Usury Laws” which are Regulations governing the amount of interest that can be charged on a loan. Usury laws specifically target the practice of charging excessively high rates on loans by setting caps on the maximum amount of interest that can be levied. These laws are designed to protect consumers. This attracted the “Top Banks” in the country to move their operations to South Dakota. But what really attracted them the most was a decision made by the Supreme Court that said a bank could export its interest rates to other states so as long as it coincides with the law of the state where the credit card issuing company is situated, it was called the “Marquette Decision”. It meant that if the states they were in allowed them to charge exorbitant interest rates, then they could charge it anywhere else in the country. Soon Delaware copied South Dakota’s legislation and became the credit card center of the east. For the first time in American history there were no limits on the interest rates banks could charge on credit cards nationwide. Other soon followed and caused a chain reaction that shaped the credit card industries into the “GIANTS” they have become today.
The credit card industry has become the most profitable in the banking sector earning profits up to thirty billion dollars. They feast on American’s addictive and impulsive spending habits. Credit card lending has become a very profitable industry indeed. In order to make their profits these industries target consumers that are marginal borrowers and are least likely to pay their debts off fully. They do not make a lot of money from people who pay off their bills every month; such people are referred to as “Dead Beats”. Instead they prefer and hunt for customers that don’t pay off their credit card debts regularly; such people are referred to as “Revolvers”. The companies make HUGE amounts of profits from these so called revolvers because of their high borrowing tendencies and due to the fact that they lack the ability to pay back their debts; sincerely how ironic is that. A...