about profits. As soon as the person pays late, they assess a late fee. If a person pays late two or three times, the finance company will significantly increase the interest rate. If the person fails to make payments for three or four months, the finance company begins a harassment program where they call the person dozens of times a day from eight o’clock in the morning to nine o’clock at night seven days a week. And since the person is unemployed and not able to pay, there is nothing that they can do. The finance company will only pursue the person for a month or two before they consider them in default. By that time the amount that the person has borrowed has increased significantly into the debt owed to the finance company.
Consider a person who has a credit card with a $1000 limit who has temporarily lost their job. Because of late fees, over-limit fees and excessively high interest rates (32%), the $1000 that they borrowed has doubled into a debt of $2,111.32 within 11 months. And even after the finance company declares the debt in default and totally ruins the person’s credit, they sell the debt to a collection company which ruthlessly and relentlessly pursues the individual even to court in order to collect the debt more than half of which is interest and fees. Even if the person obtains employment in month 11, it is too late. The wheels of Big Finance have moved and crushed the person. This must also be viewed within the context of multiple accounts all of which could double the person’s debt obligations. And now the person who became unemployed through no fault of their own and has struggled financially through eleven months of unemployment is faced with almost insurmountable debt and a dismal credit score.
| Month | Late Fee | Over-Limit Fee | Interest | Total Price for Money | Total Price as Percent |
| 1 | $30.00 | $30.00 | $28.27 | $88.27 | 105.9% |
| 2 | $30.00 | $30.00 | $30.62 | $90.62 | 108.7% |
| 3 | $30.00 | $30.00 | $33.04 | $93.04 | 111.6% |
| 4 | $30.00 | $30.00 | $35.52 | $95.52 | 114.6% |
| 5 | $30.00 | $30.00 | $38.07 | $98.07 | 117.7% |
| 6 | $30.00 | $30.00 | $40.68 | $100.68 | 120.8% |
| 7 | $30.00 | $30.00 | $43.37 | $103.37 | 124.0% |
| 8 | $30.00 | $30.00 | $46.12 | $106.12 | 127.3% |
| 9 | $30.00 | $30.00 | $48.95 | $108.95 | 130.7% |
| 10 | $30.00 | $30.00 | $51.86 | $111.86 | 134.2% |
| 11 | $30.00 | $30.00 | $54.84 | $114.84 | 137.8% |
This unfortunate person is now severely constrained financially even though he or she is now employed. Once they begin to make payments, they still have to pay over-limit fees in addition to the excessively high interest rates and that situation will continue for years. Also, they are now labeled by the credit bureaus as unworthy of any credit, they cannot consolidate their debt and they struggle if they can to pay all their debt most of which is interest and fees. And this scarlet letter of ‘unworthy of credit’ remains with them for the next seven years. Unfortunately, the government does not step in to help these unfortunate individuals, tens of millions of them and their families. But these severely financially constrained families have a significant effect on the economy. They cannot buy the goods and services which they need and want because they do not have any money left over after paying all their debt. This situation applies to the majority of the unemployed, the under-employed, those without health insurance who have experienced a major illness and many of those who have gone through divorce—tens upon tens of millions of individuals and families. And the aggregate effect of their significantly constrained consumption undermines the stability of the economy.
Virtually all credit scores are affected adversely by late payments. However, late payments do not indicate a failure to pay or even the potential for default. In other words, there is no risk associated with late payments. People who pay late obviously have a problem with their cash flow, not with their ability or intention to pay. Credit scores must distinguish between default and late payments. It does happen that a person gets a few months behind in making his or her payments. The credit card company cancels the account and sells the loan to a collection agency. The person subsequently pays the loan in full but his or her credit report shows a default from the over-zealous credit company who pre-maturely declared the account uncollectible. Credit scores are also based on the number of times a credit check is run. There is no basis for lowering a person’s credit score because of the number of credit checks done.
Credit bureaus also unjustly penalize spouses, children and others who have been given a secondary credit card on another person’s account. For example, an individual has a credit card account and wants to allow his or her daughter or son to have a credit card on this account. This card is actually a convenience card since the parent would typically allow their daughter or son to use their card. The credit account is solely the responsibility of the parent and the credit was based entirely on the parent’s creditworthiness. If the parent’s credit score decreases, the credit agencies will also decrease the credit score for the daughter or son who has the convenience card even though the daughter or son has nothing to do with the account. This makes absolutely no sense other than to the financial institution from which the son or daughter may go to some day in order to take out a loan or credit card on their own creditworthiness. This is a most unjust practice.
Credit scores are also based on past bankruptcies, foreclosures (even though there is no repossession), collections, tax liens, and periods of unemployment. These supposedly negative factors can be considered for up to seven or more years. That means that a person who has recovered financially and has paid all of his or her debts, is treated like a financial convict even though they have not defaulted on their obligations and have only paid late. Is this just? No! Is this good for the individual? No! Is this good for economy? No, because the individual is constrained financially from buying the goods and services that he or she needs and which the economy needs for stability and growth. However, this is good for financial corporations, since they can charge much higher interest rates based on these incorrect credit scores.
Finance companies use these inaccurate credit scores to increase interest rates even in the case when the poor credit score was the result of late payments to another finance company. In the event that the poor credit score was the result of late payments, there is no risk to the lender and no basis for raising the interest rate. A person with poor cash flow, who is punished by the various finance companies with higher interest rates, will experience even greater cash flow problems. Many situations of loan defaults are the direct result of these policies of increasing interest rates to the point where the borrower is ruined financially. These unfair practices need to be immediately eliminated by the government. Again, the only way to achieve independent, objective, fair and impartial credit ratings is to have the government take over the task of determining a person’s credit worthiness.
Late fees, over-limit fees, and over-draft fees represent other prices of money that are unjust and very detrimental to the economy. These are relatively recent schemes by Big Finance to maximize profits. If a person makes a payment late or after the due date, the interest is calculated up to the actual payment date. In other words, the finance company is already charging a person for paying late. Depending on the amount owed and interest rate, late fees can represent a doubling of the interest or price one is paying for borrowing money. While a late fee is a price one has to pay for the use of money just as interest is, financial institutions use the expression ‘late fee’ to avoid any possible legal restriction on the rate of interest. Over-limit fees are another price of money that is totally arbitrary. In general, a person should not be able to exceed their credit limit since the limit is monitored through electronic transactions. In the vast majority of cases a person who has reached their credit limit can exceed it when interest accrues or a late fee is assessed. Again, there is no just or moral reason to charge an over-limit fee. Often times a person is charged both a late fee and an over-limit fee. This is especially true when a person is unemployed, under-employed, not working due to health reasons or going through or having gone through a divorce. In such cases late fees, over-limit fees and interest can amount to over 100%.
The average household
