This morning, the national average APR stands at 14.66%. For consumers with bad credit, the average APR is 23.95%.
Economist Thorstein Veblen posits that credit card companies are purely parasitical, charging numerous fees and penalties amounting to over $90 billion in revenue each year. According to a BCS Alliance study, credit card companies rake in profits of $30 billion each year. Penalty fees alone added up to some $20.5 billion in 2009, according to industry consultant R.K. Hammer.
Credit card companies exploit consumer whims and the lure of cross-class lifestyles by featuring celebrities in advertisements and by pushing certain experiences as fundamental to the American way — experiences that are “priceless” regardless of the cost, according to Freeman.
To woo subsistence users, credit card companies conduct massive mailings of pre-approved cards, preying on low-income people’s fears that they may not be credit-worthy.
“Many blacks have internalized stereotypes that lead them to believe they have bad credit when they do not,” Freeman pointed out, “and this leads black consumers to agree to bad terms and conditions in credit card agreements without investigating the possibility of finding a card with better terms.”
She added: “Consumer protection is necessary to ensure equitable access to credit, reasonable rates and fees, and nondiscriminatory lending.”
Many opt for credit cards in part because cash now carries a stigma of association with criminality and poverty, whereas the use of a credit card “confers privilege that can overcome class or racial discrimination,” Freeman said.
A card deemed by CNNMoney to be among the nation’s “credit cards from hell” due to its exorbitant rates is the First Premier Bank MasterCard, which has an APR of 59.99% and fees of more than $120 a year.
Even though there’s an over-saturation of credit cards in the U.S. market, there are 8 billion solicitations for new accounts each year, many of them dangling zero interest rates to unsuspecting consumers. These rates can explode into high annual fees after a set period of time.
Debt disparities between African Americans and whites is attributable in part, “Credit Card Ills” finds, to racial discrimination by credit card issuers in the form of “redlining,” the practice of varying credit card contract terms based on the applicant’s zip code and other signifiers of race, such as names and appearance.
Card issuers insist they do not discriminate based on race. In fact, federal law does not allow credit issuers to inquire about an applicant’s race or ethnicity. Betty Riess, credit card spokesperson for Bank of America, told the Atlanta Post: “In general we base lending decisions on stability, ability and willingness to pay.”
“In accordance with federal law, such as the Equal Credit Opportunity Act we don’t discriminate on the basis of race, color, religion, national origin, sex, [and] marital status.”
In 2006, however, the Boston Federal Reserve Bank published a study revealing significant differences in credit card terms based on the racial makeup of the users’ neighborhoods. The practice of redlining later was associated with the subprime mortgage crisis, which kicked off the latest recession.
Relatively little has been done to shield groups from “price discrimination” by firms that charge higher APRs to late-payers who revolve balances, a practice that adds billions to companies’ profits, helping to make credit card services a lucrative financial service. The 2009 CARD Act imposed significant limitations on industry practices, including prohibiting the use of universal default, which previously allowed a change in credit score to lead to increased interest rates on all of an individual’s credit cards.
But the act does not address racial debt disparity.