Need For A Credit Card example essay topic

Society is rapidly leaning on credit cards. More consumers prefer to carry plastic instead of cash. Moreover, the privilege of holding a line of credit is convenient and useful in today's world. From hotel reservations and apartment rentals, to ordering online products, families are relying on credit as a time saving devise.

As the importance of credit soars, money hungry creditors are taking advantage of the public's reliance on credit cards. Credit cards are essential for the escalated pace and demands of today's society. Consumers are increasingly using credit cards to simplify their spending. In addition, carrying cash is more dangerous than carrying credit cards and cash is more difficult for record keeping. In Fact, Hickey (2000), states that cards are safer than cash and necessary for online shopping.

In regards to record keeping, reasonably, 45% of the consumers feel comfortable with using cards for the purposes of daily living ("Using Credit", 1998). In short, because most families are busier than they used to be, limited time necessitates credit card usage for accurate records and time management. Credit card companies are creatively abusing the American consumer. Robert Heady (1999), founding publisher of Bank Rate Monitor, contends that creditors are making substantial profits from various unfair practices. Heady identifies the strategies as late charges, over limit fees and inaccurate account information.

For example, one consumer states that his creditor claims that it takes thirteen days for the company to post the payment, resulting in a late charge, but the creditor sends the bill without adequate time to pay thirteen days in advance (Heady, 1999). Moreover, "fees have soared by 75 percent in the past four years, according to Consumer Action, the San Francisco-base consumer advocate" (Heady, 1999, p. 16). Furthermore, inaccurate information posses an equal threat to consumers. To illustrate, Heady (1999) purports that an individual called the automated teller for his required payment and was given the dollar amount, but not the change owed. However, after paying the acknowledged amount, the consumer received a late charge. When the credit holder questioned the company, their response was that the automation did not include the change owed because it would result in extra air time charges on the creditor's eight hundred number.

Another consumer was devastated when he accepted an offer for a card with a $1,200.00 limit from First North American Bank, but after reaching the limit the creditor began to lower the limit and raise the interest rate. Therefore, he acquired a higher amount owed in interest, plus over limit fees (Heady, 1999). Furthermore, Weber and Palmer (2000), state that when a consumer pays late, the creditor has the right to raise interest rates, however, if a consumer does not use a card, the creditor may charge inactivity fees. Cut up the card and the creditor is entitled to charge a closing fee. A consumer with flawed credit suffers the most. Although creditors are happy to issue a credit card, creditors aggressively demand unfair funds from the consumer.

Nelsons Reports, states statistics concerning Providian Financial Corporation, claiming that their net income grew by 86% when they authorized forty five-million users of which 30% were considered non-prime customers (Weber & Palmer, 2000). A non-prime customer is an individual that has a low credit rating or other flaws on her / his credit file. In fact, companies like Providian are capitalizing on non-prime customers by charging excessive interest rates. However, these tactics including poor customer service have backfired on Bank One when the company lost 69.4 billion due to consumers that closed their accounts. As a result, Bank One's stock dropped from 63.00 dollars per share to 30.00 dollars per share (Weber & Palmer 2000). In contrast, Weber and Palmer (2000), claim that because Providian has capitalized on the non-prime consumer, it posted a gain of $18.71 billion.

Credit card companies target young students, ripping their lives from them before they even have time to start a career. Paul Richard who states that "Credit-card companies are preying on students who are financially naive". (Hickey, 2000). Hickey investigates the matter and reports that creditors use campuses as sign up sites and offer gifts to students for applying. By using lures, creditors are receiving funds of ill-gotten gain from innocent students.

For example, according to Hickey, an unfortunate young student dashed his education and his dreams of medical school to pay off his debts. Furthermore, Vickers (1999), reports a tragic story of a student who acquired debt because the student fell for the fallacy that he would pay them off when he graduated, but he was not able to make his minimum monthly payments and had to work three part time jobs, in addition, his parents had to assist. Nellie Mae, a nonprofit provider of student loans, states that 10% of students are carrying balances of more than 7000 dollars. (Hickey 2000). Credit card companies have become willing to grant credit to poor underprivileged consumers to make a profit. One of the saddest facts concerning the recent greed of creditors, is the carelessness that they use when they issue a low income family credit.

Unfortunately, it is this class that is hit the hardest. In contrast, baby boomers are able to pay off their debts in entirety each month, thereby boomers obtain lower interest rates (Weber & Palmer, 2000). However, fat creditors do not target the baby boomers, instead they freeload credit to the poor. Edward Bird and others, completed a study that accessed in 1989 17% of poor families owned a credit card. In contrast, by 1995, 36% of poor families owned credit cards. Moreover, in the recession of 1990-1991 poor families increased their credit expenditures, while middle class families brought their spending habits down (Koretz 2000).

In addition Koretz (2000), implies that former welfare recipients have started using credit to maintain their previous level of income. In short, welfare reform may be a fallacy because creditors opened their doors at higher unfair rates to the poor. Again, Providian has made a killing off the backs of America's poor (Weber & Palmer, 2000). What needs to happen in order to change the growing problem While the Federal Trade Commission has set standards for creditor rates, in light of the abuse it is important for the government to intervene by creating more detailed restrictions on creditors. Limits need to be set for mailings of pre-approved offers and consumers need awareness of the costs of credit card debt. Hickey (2000), states that some college campuses are forbidding creditors to set up tables.

This is an action that can prevent young adults who are vulnerable to the lure of free money. In addition, the use of debit cards issued by banks can replace the need for a credit card. Consumers are able to keep track of their spending by using the debit card as a credit card, but the funds come directly from the client's account. Debit cards are also permissible for hotel rentals and any other credit card requirements. Those that are in debt need to start paying the debt down by adding to the minimal payment per month while the economy is still lively.

In conclusion, awareness, government intervention and pro-active consumer behavior will destroy the power of unfair and abusive credit card companies. Bibliography

Bibliography

Hickey, M.C. (2000, September 25).
Majoring in Debt Many College Students aren't ready for plastic. BusinessWeek Investor [Online]. Available: web Business Week Online. [2000, September 25].
Using Credit" (1998, November).
Using Credit Cards for Daily Expenses. (brief article) USA Today [Online]. Available: web [1998, Nov.
Heady, R.K. (1999, July 5).
Some Credit Card Firms Play Dirty Ball. Sun-Sentinel Company [Online]. Available: web Weber, J. & Palmer, A.T. (2000, February, 14).
Finance: Consumer Debt: The Perils of Plastic. Vol. 3668, Business Week. P. 27 Vickers, M. (1999, March 15).
A Hard Lesson on Student Credit Cards. Businessweek Online [Online]. Available: web Koretz, G. (2000, January 10).