Thursday, May 7, 2009

Can Obama Force Credit Card Industry Change or Should You Burn Your Cards?

Ran across this interesting article by William Reed, contributing writer for the Washington Informer. Reed said that the stakes (for credit cards and prepaid) couldn’t be higher and the purveyors of plastic don’t intend to be forced into financial submission. The industry annually collects an estimated $3 trillion in annual credit and debit card transactions, plus billions more in late fees and other charges. America is a nation propped up on credit card debt.

According to Reed's article,

In 2001, 59 percent of African American families had credit cards, compared to 82 percent of White families. Although African American households have lower rates of credit card ownership, African American cardholders are more likely than Whites to have credit card debt. Credit card debt has caused African American families to use critical financial resources to pay mounting monthly interest payments instead of saving or acquiring assets.

Unfortunately, most of the debt African Americans have accumulated is used for items that depreciate in value, such as cars, furniture, electronics, and appliances. This is an indication that Blacks use credit inappropriately - to stretch their incomes. Historic redlining by traditional banks has left high-interest credit cards as one of the few easily accessible sources of loans for minorities.The high levels of un-banked and under-banked Blacks have spawn affinity and co-branded prepaid cards marketed primarily to them. One example is record industry mogul Russell Simmons’ Visa RushCard.

Though Simmons wasn’t in the White House meeting on credit cards, his company is a symptom of the problem. He claims to be solving problems for under-banked communities, which often lack access top a bank account, but complaints are mounting about the fee structure of his prepaid Visa RushCard. To utilize Simmons’ RushCard and “live the American Dream” requires an activation fee of $19.95, a daily convenience fee of $1 (capped at $10 a month) and a $1.95 ATM cash withdrawal fee.

Read Can Obama Force Credit Card Industry Change or Should You Burn Your Cards?

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1 comment:

Keith Kirkpatrick said...

It's pretty easy to pile on the industry regarding fees, but realistically, how else will these types of companies make money? Traditional depository institutions can offer "free checking" and other incentives because they have alternative revenue streams that will more than offset the lack of revenue coming from basic account-maintenance fees.

In the end analysis, the old adage of "there's no free lunch" applies here. For the Rush Card were to significantly reduce their account activation and maintenance fees, they'd probably need to raise revenue through another source, which is unlikely to be easily accomplished by a non-diversified product.