The Blame Game - Who is Ultimately Responsible for Runaway Consumer Debt?

Credit card issuers are oftentimes accused of tempting consumers into carrying more debt than their income justifies by using questionable marketing practices such as false 0% offers, "miles" and even gifts to entice consumers into filling out an application. Then, when the consumer is doing their best juggling act to make even the minimum payments, late fee's are heaped on, interest rates are excessively raised and then the dreaded collector starts to call, using even more questionable practices.

The lenders claim this as just being business. They need to collect as much as they can as the consumer becomes riskier.

The borrowers insist that with just a small, inadvertent misstep, the card company will destroy any hope of financial survival.

The finger pointing over record consumer debt, and the default that follows, leaves both sides at what appears to be a stalemate.

What the banking industry and consumer advocates both agree on is that the abundance and convenience of credit cards get consumers in trouble because they are uninformed and uneducated about credit, credit cards and debt management. Financial education is not a part of any reform of education, and some feel that the credit card companies are to blame. They want the consumer unaware because they make money off of them that way. The bulk of profits that are made by these banks make up most of their revenue.

The banks and credit card companies lobbied hard over the last several years to pass The Bankruptcy Reform Act that makes filing bankruptcy more difficult, if not impossible, for consumers, forcing them to attend counseling sessions with a Consumer Credit Counselor. What most people fail to realize though is that the "non-profit" CCC's are nothing more than the collection arm of the credit card company, with most of their funding coming from the banking industry.

The effort to raise financial literacy is a very important step but it would be better served if it was provided before a consumer gets into financial trouble. Credit card debt is at the highest level ever in America today, with consumers using their credit cards to pay bills, their taxes, even their hamburgers at McDonalds. It is a proven statistic that when a diner pays for their fast food bill with a credit card, they spend an average of 25% more, which leads to another problem: Obesity

Giving consumers a credit card is like giving people key's to a car without driving lessons. Consumers are in the driver's seat when it comes to managing their personal finance. Yet we realize that these drivers shouldn't take the wheel without first learning the rules of the road. The bottom line is that an uneducated consumer makes the best bank customer. It's in the industry's best interest to make sure consumers do not understand the responsible use of credit and the importance of savings. Consumer advocates say that there is much for consumers to learn through financial literacy, including being more aware of what they are using credit cards for.

People are people. They don't change. What has changed is the marketplace. Years ago, credit wasn't widely available. Today there's a much greater opportunity to obtain credit cards, but also a much greater opportunity to spend large amounts of the generous credit lines that are extended.

Credit is no longer viewed as an earned privilege, where you had to have a job and demonstrate that you were worthy of a loan. This generation has been trained from an early age to feel that it's an entitlement to have these kinds of lifestyles. They don't have to earn it. They don't have to be disciplined to save. As a result, credit cards have become a kind of way of life. That's a real serious problem in terms of trying to teach basic financial literacy skills on this generation where they see all these abundant things in society that they think they deserve.

While credit card mailings can be tempting, alternately offering teaser rates, rebates and rewards, it's ultimately up to consumers to evaluate whether they are in the position to accept them. But this way of thinking isn't necessarily in line with how consumers view credit card offers. The tendency to place blame on the credit card issuers has become part of the discourse because the concept of personal accountability has been ignored. The credit card industry is not forcing people to buy things. There has to be some consumer responsibility.

The industry has long argued that consumers know what they're getting into with a credit card. Laws since the 1970s have increased disclosure. It's all spelled out in increasingly fine print, the balance, minimum payment, and grace period. Cardholders are even told they can be assessed a default rate for failing to pay another creditor on time, what the industry calls "universal default,' although most consumers are unaware of the practice.

But for some, the fine print doesn't cut it.

Consumers and credit card issuers both need to be held accountable. A consumer needs to know how long it will take you to pay off their credit card balance if they make minimum monthly payments

They don't because the credit card companies won't tell.

What will be your interest rate in six months? No one knows because the credit card companies are burying legalese in their contract that lets them change the interest rates at will. I believe in personal responsibility, but I also believe that the credit card companies don't have adequate disclosure.

As America increasingly evolves towards a cashless society, the old line "Don't leave home without it" is now not just a choice, it's a necessity. Consumer's can't rent a car for the weekend or a movie down the block without a credit card.

The credit card also has become less of a discretionary purchasing tool and more of a financial management tool. Cards are frequently used as bridge loans between paychecks in the form of costly cash advances, and they have replaced savings accounts as the source of emergency funds. Research has shown showed that people who own more credit cards make larger purchases per department store visit, tip better at restaurants, and are more likely to underestimate or forget the amount spent on recent purchases. Consumers may not even be aware that they do this, but even when they are, they can't stop themselves from doing it.

Using credit cards to meet daily expenses is a huge warning sign that you have a problem with credit. If you think you might have a debt problem, you probably have a debt problem. If banks are overlending and the majority of consumers are guilty of living beyond their means, how can the situation improve?

The problem is that credit card companies want to have it both ways. On one hand, they want unfettered access to new customers, irrespective of whether these new customers are financially literate, or have the ability to repay the debts they incur. At the same time, they want to be protected when they overextend credit to these very same customers.

The solution: Education.

Consumers need to know the power that credit and credit cards carry. Financial literacy is the key.

Know the rules before you play the game.