Credit Cards

using wireless connections of neighbors by Paul Boutin.

Mock Textbook disclaimers.

NYT article about the “universal default clause” on credit card agreements.

Elizabeth Warren, author of the Two-Income Trap, wrote: How Credit Card Companies distort contracts:

What’s changed is [that] when credit was deregulated in the early 1980s, the contracts began to shift. And what happens is that the big issuers, the credit card companies who have the team of lawyers, started writing contracts that effectively said, “Here are some of the terms, and the rest of the terms will be whatever we want them to be.” And so they would loan to someone at 9.9 percent interest. That’s what it said on the front of the envelope. But it was 9.9 percent interest … unless you lost your job, or 9.9 percent interest unless you applied for a couple of other credit cards, or 9.9 percent interest unless you defaulted on some other obligation somewhere else that doesn’t cost me a nickel. And at that moment, that 9.9 percent interest credit suddenly morphs to 24.9 percent interest, 29.9 percent interest, 36.9 percent interest. Well, you know, … nobody signs contracts to buy things that say, “I’m going to pay you $1,200 for the big-screen TV unless you decide, in another month or two months, that it should really be $3,600 or $4,200 or $4,800.” But that’s precisely how credit card contracts are written today.

…. I went into this research with my finger out and sharpened, ready to say to American families, “Bankruptcies are up because you’re spending too much on stuff.” … The problem is, when you look at the data, you really actually look at the numbers … what were a mom, dad and two kids in the early 1970s spending on clothing compared with what a mom, dad and two kids are spending on clothing today? You know what I found? Adjusted for inflation, today’s family is spending 22 percent less than the family a generation ago.

How about food, eating out? Surely families are spending much more today than they did a generation ago. No. What the numbers actually show is that they’re spending about 21 percent less than they spent a generation ago. Appliances — today they’re buying microwave ovens and espresso machines. … Turns out, families today are spending 44 percent less on appliances than they spent a generation ago. We could go through the whole list — furniture, … floor coverings, tobacco. … We spend a little more on alcohol, but all those other things are down, down, down. …

In other words, families aren’t going broke because of ordinary consumption. It’s just not what the numbers show. Where are families going broke? The mortgage, that’s up about 70 times faster than a man’s wages over the last 30 years. Health insurance, also up about 70 times faster. A second car, because now Mom and Dad are both in the workforce, and they’re more likely to live in a more distant suburb. Child care … and after-school care, college tuitions. … Today’s family has put two people into the workforce, but for the medium-earning family, they’ve got 75 percent more money than their parents had a generation ago. But by the time they make those four basic purchases — the mortgage, their health insurance, their cars and their child care — they have less money to spend on everything else than their parents had a generation ago. American families are under the gun financially, but they’re under the gun because of big purchases, mortgages, health insurance … two cars, child care. … They’re not under the gun because they spent too much when they went to the mall. Families are just trying to make it in the heart of the middle class, and expenses have just shot out of the reach of the medium-earning family.