A message to credit-card companies from Wall Street maverick Muriel Siebert: Now that you’ve reformed bankruptcy laws, it’s time to lower your interest rates.
New bankruptcy laws that took effect Monday will steer more debtors into repayment plans instead of wiping out their debts. As a result, credit-card companies – which charge as much as 24 percent annual interest – will collect billions in bad debts that they couldn’t grab before.
“These guys are under no pressure, and they are making a lot of money,” said Siebert. “Why shouldn’t they share that with the people who are borrowing the money from them?”
Siebert, 72, is a financial-literacy advocate. In 1999, she developed a program for schoolkids that she hopes to spread nationwide. She’s better known as the first woman to own a seat on the New York Stock Exchange, which she bought in 1967. Siebert then founded Muriel Siebert & Co., a national brokerage that she still runs today. In 1977, she became New York’s first female banking regulator. And in 2002, she published her autobiography, “Changing the Rules: Adventures of a Wall Street Maverick.”
Siebert said credit-card companies have been too aggressive, issuing cards to people who lack the resources or savvy to manage them. Some companies are even hawking cards to kids.
Earlier this year, I wrote about the “American Idol” Clay Aiken MasterCard, offered by a subsidiary of MasterCard, called MyPlash, which is short for “my plastic cash.” It’s a prepaid card requiring parents’ signatures for those under 18, but I think using “plastic” as an adjective for “cash” sends the wrong message.
“Some of the colleges are pushing credit cards on the kids,” said Siebert. “And the colleges make money doing this. I think that’s wrong. They know they are digging these kids a grave.”
One reason why credit-card companies are facing rising defaults is because they pitch their cards with abandon. One of the fastest-growing age groups for people filing bankruptcy is 20 to 24. But instead of cutting back on their aggressive marketing, credit-card companies lobbied for the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
If you drove by U.S. Bankruptcy Court in downtown Denver last week, you saw the result: Throngs lined up to file before the tougher standards took effect.
Bankruptcy Court clerk Brad Bolton said 11,566 people filed in Denver last week. That puts Colorado on track for a record year of bankruptcy filings. The total so far for 2005 is 40,000, compared with about 28,000 in all of 2004.
This same scenario is playing out in bankruptcy courts across the country.
Credit-card companies – fearful of these rising consumer defaults – have put the squeeze on Americans. They’re not going to lower rates, as Siebert suggests, despite whatever windfalls they may receive from bankruptcy reform.
Instead, they are raising the minimum payments required each month.
The lowest amount that credit-card debtors can pay on bank-backed credit-card debts could double under federal rules that go into effect Jan. 1, from roughly 2 percent to 4 percent of the balance due.
Consumers are already sacked with higher bills for gasoline, home heating and health care. Now they’re going to have to allocate more for debt service.
Americans owe about $800 billion on their credit cards, and many consumers are irresponsible with them.
About 7 million people consistently pay the minimum due, according to a survey by the American Bankers Association. They are the ones who will suffer when the minimum payments rise.
Some consumer advocates applaud higher minimums because paying the current minimum will never get consumers out of debt. Some pay only the minimum because they’ve lost jobs or run up huge health-care bills.
“It’s just going to hit them between the eyes,” said Siebert. “I just hope that people have flexibility.”
Me too. Because so far, it looks like the credit-card companies, with their bankruptcy reforms, are just pushing more people into bankruptcy court.
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-820-1967 or alewis@denverpost.com.
