Bankruptcy Reform and the Sweatbox of Credit Card Debt

[catleg]

This is interesting reading:

http://works.bepress.com/cgi/viewcontent.cgi?article=1013&context=ronald_mann

[Dst1]

This is interesting reading:

http://works.bepress.com/cgi/viewcontent.cgi?article=1013&context=ronald_mann

Obvious cat is obvious. The number one reason we have a debt crisis is a little thing called FICO. Credit scoring is about identifying customers that make the most money for credit card companies, it's not a pro-consumer development.

Credit card companies have only two ways of making money: interest and fees. People who pay their bill every month make no money for the companies. Yes, the companies do make money from merchant fees but the 2-3% they get basically pays for infrastructure and overhead; there is no profit in it. Profit comes from people who can't pay on time or pay in full.

What is most interesting is that when you look at BK often time upwards of 50% of the so called actual debt is not principle; it's interest and fees jacked up by 30% default rates, a problem compounded by universal default clauses. Banks aren't losing nearly as much in reality as the are on paper. It's like when the government cuts the budget only what they are cutting is merely requests but in real terms the debt keeps rising. Same principle but in reverse.

Once when I was bored I sat down and calculated that there were certain BK cases where the banks actually made money over the life of their relationship with the customer despite the fact that there were listed as a creditor in the BK proceeding. By the time you added up all the interest and fees the banks had collected over the years, it more than made up for the money they supposedly lost in the BK. Their ROI wasn't very high, and when you factored in inflation you could make a case that in economic terms they still were in the red, but their situation wasn't bad.