A few days ago I my friend asked for my advice when she received her most recent credit card statement. The minimum payment requested was for $0. A disclaimer at the bottom of the pay slip said (and I paraphrase) “you don’t have a minimum payment this month, but any payments made will be credited towards your balance. We will continue to charge you finance charges.” To me, this was a transparent scam and what bothered me more was that it was not transparent to her. Her credit situtation isn’t what I would call desperate, but imagine for a second what a credit card statement like that would look to the unwitting and incurious. To them, it would look like a decent “break” from their responsibility, but to anyone who knows the way credit cards work, it’s a huge rip. Let me explain:
Assume the outstanding balance of $5000. Minimum payment is around $175. April’s payment was $175. Finance charge for this May statement was $103.
Let’s say you bite their offer and not pay for the June deadline. The finance charge for June will, for the sake of simplicity, be $103. In July, your minimum charge will be around $175 again. But now, your minimum payment of $175 not only pays against the finance charge from May of $103, but also the finance charge of the June statementof $103. So, $206 minus your minimum payment of $175 for the July deadline nets the credit card company $31. Imagine this repeated across hundreds of thousands of incurious borrows. Now consider: these $31 are added to the outstanding balance and will contribute to further increases in finance charges. This calculus applies whether your minimum payment is $175, or $15. If you skip a payment, they will make money off of you without them lifting a finger to charge you a late fee and risk your ire.
TANSTAAFL, folks! This is the equivalent of a crack dealer giving you a free hit and then raising the prices on your next purchase. I could think of so many other metaphors to illustrate the kind of travesty that this credit card company intends to perpetrate. Frankly, I feel little sympathy for those who trust lenders to make financial decisions for them, essentially ceding their personal sovereignty to the banks who are all too willing to hand out fake money to make a little bit more real money. Despite my lack of sympathy, I do believe that there will be no revolution, no upheaval on any scale, unless there are open eyes. The silence of the knowledgable is just as contributory to evil as the passivity of the incurious and the belligerence of predatory lenders.