• Town Talk

I live upstairs in a building in Aspen with a McDonald’s downstairs, so I come here often. Some mornings, when I can’t get sufficiently awakened to even dress, I stumble down to McDonald’s in my bathrobe for the senior coffee, plus a senior Coke.

I’ve got my computer with me today to do some research on President Obama’s economic stimulus package, which he is supposed to sign into law in Denver today. 

My deadline is 3:30 p.m., so I’ve got another four hours of drinking free Cokes and coffee refills. I ought to be pretty wired by the time I finish this.

Much of Obama’s $787 billion stimulus will benefit ailing credit card companies and banks that issue credit cards. My Uncle Clarence taught me early on that sometimes a person can make too good a deal for himself. And it looks like some banks and credit card companies made too good a deal for themselves. They got massive numbers of consumers to pay sky-high interest rates on their credit card charges and now, as you’ll see if you keep reading this drivel, the consumers aren’t coming across with the bucks. 

Life with an Exxon card

I got my first credit card when I was a senior in college. It was an Exxon card and it just came in the mail one day. Besides gasoline, the card allowed me to charge stuff at Howard Johnson’s and Ramada Inns, too. So, the following summer I hit the road. I drove all over the Western United States charging gas on that card the whole way and eating sometimes three T-bone steaks a day at no place else but Howard Johnson’s and Ramada Inns. 

When I got back home from my trip out west my family was not happy. They’d been receiving my Exxon bills and, by reading over them, could see where I’d been and what I was throwing money away on. The bills came to more than $1,000. 

I read page after page of charges in stunned disbelief. Some of those towns listed I didn’t even remember being in, but I had been doing quite a lot of drinking. 

At the bottom of the bill, there was a note that said it would be OK if I just wanted to pay $22.75 for the month. I was ecstatic. I could send them $22.75 easy. 

My aunt and uncle warned me that the interest I was paying was more than 20 percent, which was an unheard-of rate to me. They also told me they’d bet that very little of the $22.75 would be applied to the principal amount I owed. Not initially anyway, they said.

I was 22 when all this happened. Aunt Odessa told me that if I kept making those monthly payments of $22.75, I might get the card paid off before I was 80. She was prone to sarcasm. She envisioned that only $1 would go toward the principal and the rest would be interest.

Then at the end of a year I would have paid about $260 in interest to Exxon and reduced my $1,000 debt by only $12. She was wrong. Exxon as it turned out was fair and square, but Aunt Odessa to her dying day never trusted credit cards.

How it used to work

Now, of course, Aunt Odessa would be right. CNN says if you owe just $2,000 on a card and pay the minimum amount, together with 14 percent interest, it’ll take 14 years to pay the thing off. Picture paying 30 percent interest on $20,000. It’s boggling, but even more boggling is CNN’s report that American consumers charged $2.2 trillion in purchases and cash advances in 2007. Remember how hot the economy got that year? Too bad it was fueled largely by the expectation of money that has yet to materialize. Ever wonder about the last person to buy into a chain letter? 

The CNN report also says the number of credit card delinquencies is higher now than it’s been in several years. Some 12 million Americans have yet to pay off their 2007 holiday debt and 5 percent are behind in payments. 

The report said that, “should current trends continue,” the credit card companies won’t collect even a buck for every $10 owed and will wind up writing off $100 billion in uncollected debts. Some credit cards are increasing their interest rates because of all the no-pays. 

40 percent interest?

Capital One raised rates for some cardholders last month some 7 percent to a whopping a 26 percent. Hell, 19 percent is no cakewalk. Our economy is 70 percent consumer, and consumers show signs of being tapped out. 

I’ve heard horror stories of credit card interest rates up to 40 percent, but have only been able to confirm 30 percent. The report came from a think tank in New York called Demos, which bills itself as a nonpartisan public policy research and advocacy organization. Anyway, with that new bankruptcy bill Dubya signed during his second term, there’s a 30 percent ceiling on interest. What a relief, right? 

The credit card holders who’ve quit making payments for whatever reason — lack of money or even as a protest — are part of this “toxic debt” you hear about. By sheer numbers of no-pays alone, it stands to reason the credit card-related institutions are sweating. I mean, who’s going to pay 30 or even 20 percent on a loan for very long — particularly when the money that the borrowers have already sent in amounts to several times the figure they paid for the items charged on the card?

Time’s running out

But here’s what really sticks in a credit card company’s craw: Every day, more and more debt is lost to collectors because of the statute of limitations.  That’s my guess as to why the politicos were in such a big hurry to pass this stimulus package. The longer they wait, the larger the number of delinquent consumers who will slip under the fence. 

If the feds take over the toxic debt, it stands to reason that the long arm of the U.S. government could soon be after people with long-term credit card debt. If you’re a delinquent borrower and feds — dubbing themselves the Bad Bank — wind up owning your debt, and they’re hot on your trail, there’s one thing you can do. Just say you want a bailout like the Wall Street banks got. They’ll understand. 

Sterling Greenwood is the editor of the Aspen Free Press.

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