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The Credit Industry

Now let's look at today's credit card industry.

The number keeps growing, but as of November 2010 Americans owed about $836 billion in credit card debt. The average American household had $15,788 in credit card debt at an average interest rate of 14.48%.2

And the credit card companies have done really well, despite the recession. Credit card companies made about $18.5 billion in profits in 2010.2

One of the ways they made those profits is by taking advantage of, well, all of us. The terms and conditions you originally agree to are often quickly changed, and always in the bank's favor. Think about a recent credit card bill and the charges you see listed. You might have paid a late payment fee, a cash advance fee, a balance transfer fee, and an "over maximum credit limit" fee.

Sadly, credit card companies were at one time regulated to limit unfair practices. Up to 1978, most states had usury laws on the books ensuring that interest rates and fees were capped. In most cases, interest rates could not exceed 18%.3

Not anymore.

In 1978, the Supreme Court decided that when a national bank located in one state had credit card customers residing in a different state, the maximum interest rate allowed and amount of other fees was determined by the laws of the bank's home state, regardless of where its customers might reside.

What did the banks do? Packed up and moved to Delaware and South Dakota, states with no usury laws and no limits on credit card interest rates.

And you and I are the lucky recipients of that particular ruling.

In May of 2009 Congress passed the CARD Act that reins in some of the most offensive credit card practices such as double-cycle billing, universal default clauses, and over-limit fees, but the credit card industry is always one step ahead. They have already come up with new ways to charge additional fees such as an annual fee for not charging enough on our cards, or even a fee for paying off your balance every month!

Well, that's it for your crash course in the business of banks and credit. I hope you can see now that your credit card balance is unlike any loan you might have received from a friend or family member. The banks are playing a dirty game and the odds are stacked against you.

Now, let's see what you can do to even the odds a little.

2. http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php
3. R.K. Hammer Investment Bankers press release 1.3.2011

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