Revealing the Hidden Cost Of Credit Cards

Sen. Christopher Dodd (D-Conn.) wrote the bill aimed at stemming abusive credit card lending.
Sen. Christopher Dodd (D-Conn.) wrote the bill aimed at stemming abusive credit card lending. (By Harry Hamburg -- Associated Press)
By Michelle Singletary
Sunday, May 24, 2009

Credit card users who crow that they're seldom charged interest on purchases because they pay their bills on time may not be able to crow much longer. President Obama is about to sign into law new restrictions on the credit card industry that lenders say may lead to the return of widespread annual fees.

Perhaps that's how it should be.

Wait, wait, hold your ire! Don't write me a nasty letter or e-mail just yet. Hear me out.

I know many of you feel entitled to use a credit card without any cost because you diligently and responsibly pay off the bill before the due date. But did you ever stop to think what that is?

You probably never considered that the credit pushers made your access to "free" money possible by gouging the less fortunate with hideous penalty fees and wicked double-digit interest rates. Effectively, the most financially vulnerable consumers have subsidized the low interest rates and rewards programs that the more financially secure enjoy.

I know what some of you may be thinking: "Good for me; too bad for them. That's how capitalism works."

Right you are. That is how capitalism works. And at times it's a selfish system.

We live in a society where many people who do well can't sympathize with those who don't. We've created a culture in which people live by "I pulled myself up by my own bootstraps" or "I got mine; it's up to you to get yours."

The recent push in Congress to halt some of the industry's most egregious practices was aimed at helping less-fortunate consumers buried under credit card debt. Certainly many lower- and middle-income people irresponsibly racked up unnecessary charges, but others resorted to credit to pay for medical expenses because they lacked health insurance. They were using credit to buy groceries or make needed car repairs so they could get to work.

Demos, a nonpartisan public policy research and advocacy group, took a look at which credit card users were the worst hit by credit card practices. In a report called "The Winners and Losers of Credit Card Deregulation," the organization pointed out that low-income and lower-middle-

income cardholders were about five times more likely than the wealthiest cardholders to pay more than 20 percent interest.

The Demos report separated credit card users into four categories:

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