Wednesday, February 9, 2011

The strange moral universe of the usury state

I caught another article on Sioux Falls based First Premier Bank's 79.9% interest rate credit card. You know, the humanitarian effort to help people with "bad credit,"

"I had an accident on a motorcycle, went through bankruptcy to pay for medical expenses and my credit went to hell in a hand basket, so I was looking for credit cards for people with bad credit" Riss said.

They granted her a card with a $300 limit -- typical for new customers -- and a starting rate of 29.9%, which Riss said she considered decent given her credit score.

But about six months after opening the card -- at the end of 2009 -- she received an unwelcome surprise in the mail.

"I about had a heart attack when I got a disclosure notice saying that my starting rate of 29.9% was going up to 79.9%," said Riss. "It was ludicrous. Talk about a highway robbery."

At that same time, First Premier Bank launched a new credit card with the sky-high 79.9% rate.

The card proved popular with consumers, said First Premier Bankcard CEO Miles Beacom, but the performance was bad: "A lot of the people ran up the card, defaulted and went directly to charge off."

As a result, they dropped the rate to 59.9%. "We also tested it at 23%, 33%, 45%, but 59.9% is the one that shows the best performance and where the organization can market the product," he said.

"Where the organization can market the product"? What usurers essentially say is, "Hey, we just want to stand on rooftops and throw bags of money down to everybody. But really, really bad people just keep messing us up. You know, those bad people who don't want to roll with us when we raise their rate from 30% to 80%. And then there's that bad government,"

[Said First Premier CEO Miles Beacom,] "Before the new regulations we had the ability to hold specific individuals accountable for their own actions by charging these fees," he said. "Now we must spread this risk out among all our customers through higher APRs."

That's right, before last year's credit card reform act, revolving debt, "two cycle billing," hidden fees and charges for products nobody ordered ordered ("well, you didn't actually decline our special identity protection plan") didn't mess with anybody, except borrowers who didn't pay enough for lenders to profit on their revolving debt for a few decades. But now that government got involved, these afflicted lenders have to spread the hurt to everybody.

Except guess what? In 2008, when the new regulations weren't even a gleam in the government's eye, there were other baaaaaaad forces messing with the credit card companies' munificent desire to give money away,

The jump in credit-card charge-offs is linked in part to the credit crisis now in play. As banks have tightened lending standards, they have mostly done away with the once-popular roll-over options — usually at 0% introductory rates — that allowed borrowers with delinquent accounts to get new cards elsewhere. Larkin believes all that bad credit is going to surface quickly and could have a similar impact as the mortgage crisis has had on banking.

But credit-industry analysts shake those prognostications off, noting that the number of dollars involved in credit cards loans versus mortgages is substantially lower.

“Defaults on $2,000 or $5,000 in credit-card debt are entirely different than someone defaulting on a $500,000 mortgage,” said Greg McBride, senior financial analyst for

“I’m skeptical that the magnitude of credit quality is going to be as severe as some say,” he added.

The average credit-card debt is $2,200, according to the Federal Reserve. On a revolving basis, there was roughly $970 billion owed on credit cards at the end of July. However, because many people use credit cards for the rewards programs and pay off their debt each month, it’s unclear how much of that total is actually outstanding.

What’s more, as delinquencies rise — and they will because of the weakness of the economy — credit-card issuers will take steps to stem the tide. That will include cutting credit off from problem borrowers and tightening restrictions on new cards.

That's right, they can't give away all that free money because of housing market pressures. It's the economy, stupid.

Usurers love to shovel shame. There would be no problems if borrowers were responsible for their own debt. That's the 'murican way, like Jesus or somebody said.

Except when you read what usurers say about their actions, they are like amoral little kids. It's the deadbeats' fault. It's the government. It's the housing market. He hit me first. She's lying! I wasn't even there!

The people who market credit cards market other financial products. If one area is weak, they simply find a way to generate more profit in another. That's fine, that's prudent. But they need to be honest about it and not act like their credit card business is some philanthropic stand alone, victimized by the rest of us.

It's tough. South Dakota is not an easy place to grow an economy, and the conscious decision to let usurers set up big time shop here isn't going to be reversed without lost jobs and a lot of money no longer flowing into the state.

But revolving debt usurers, if we accept their proposition that borrowers are simply irresponsible, economically illiterate louts, are really no different than pimps or drug dealers. They market a "product" that is morally questionable and certainly not good to the stupid customer, the stupid customer's family or even the stupid customer's community in certain cases.

South Dakota hasn't made up its moral mind.

Is the state a libertarian theme park ("Ayn RandLand")? Then why stop at unregulated usury? Let Deadwood have prostitutes and small towns their narcotics production. Let Planned Parenthood market its "service" and do business outside of Sioux Falls. Repeal the "one man - one woman" marriage thingy.

Or is South Dakota New Jerusalem on the Prairie? If that's the case, then why build an economic base on usury - a practice that God has cursed?


The Archer of the Forest said...

But, hey, it creates jobs so it must be good!

Which, of course, is a logic that can be applied to the sex trade, gun running to mexico, etc., etc., but hey it creates jobs!

TLF+ said...

We have some similarities to 3rd World countries, where the desire to set up environmental standards clashes with the need of the people to farm, create jobs and survive.

This is not an easy place to wring out a living, I would concede. So how do we decide which questionable jobs pass the smell test?