Friday, April 16, 2010

Chase to Kane: Spend Money You Don't Have

In the midst of a financial crisis, Americans have been following common-sense rules that should have been followed for the past few decades.  These include balancing checkbooks, reducing debt and credit purchases, and essentially not spending money they do not have.  While the means to which we reached this end (failing financial institutions, skyrocketing unemployment, "The Great Recession") are far from ideal, if any good comes out of this whole ordeal, it is the rise of fiscal responsibility beginning at the grassroots level.

But herein lies the problem.  Financial institutions like large banks don't make as much money when they have smart, fiscally responsible consumers.  In 2009 banks stood to make over $38 billion in overdraft fees; fees that they raised during the recession to rake in more money.  The overdraft situation got so out of hand that Congress stepped in to regulate the way banks go about charging customers for spending money they do not have.

Credit card companies also were on the receiving end of Congressional action when Rep. Carolyn Maloney (D-NY) spearheaded legislation to protect the consumer against such practices as retroactive rate increases and overdraft fees.  Credit card companies saw about $10 billion of revenue from these former rules.

In other words, banks and financial institutions are in place for one thing and one thing only: to make money at any and all costs.  I'm reminded of this periodically when I get a letter from Chase regarding one of my credit cards.  I took out two cards with the bank, one for everyday purchases and the other for online purchases.  I don't really use the online one because I hate to pay for shipping.  Well, Chase does not really like the fact that I'm not using this card as often as they would like, so they send me crap in the mail like the letter above, urging me to "Write a check now. Pay it off later."

I'm a recent college graduate, saddled with debt from tuition, and I live in New York.  Those three things should tell Chase that I have no money.  Which is exactly why I get these letters.  I write a check associated with my credit card, I "pay it off later" and pay interest on it, which helps the bank's bottom line.  Now I'm getting screwed, because I'm spending money I don't have and accruing interests charges I can't pay for, but who cares because now I have some sweet new shoes or a PS3.  And it's not just the letters.  I'll go to the bank to deposit a check and get hounded like a hot chick at a dive bar by the bank employees looking to whisk me away to their cubicle to "verify my information" while they deposit my check.  And what do you know, almost every time I do this I am pre-approved for one of their cards.  I now stay in line and shoo them away to avoid their persistent card hawking ways.

It all boils down to fiscal responsibility.  But the consumer is behind the 8 ball when large banks are urging them to spend money they don't have now and pay it off later with fees attached.  They're essentially preying on consumers who (they hope) do not know any better.  So the fault here is twofold - the banks ought to act more like corporate citizens than corporate predators and the consumer needs to realize his/her limits financially when spending money or taking out loans.  Otherwise the two parties feed off of each other and both go bust (and we know which party the government bails out in that situation).

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