I’m the last guy you’ll hear calling for more regulation, but once in a while the government gets it right. The 2010 Credit Card Accountability, Responsibility, and Disclosure Act mandated that credit card issuers produce clearer monthly statements.
Relax, I’m not becoming a big government nanny stater – there was plenty wrong with the bill, too. New restrictions to “protect” consumers from various fees generally lead to one of two things – hiking other fees or protecting consumers from getting credit in the first place (sort of like how Obamacare will ultimately protect patients from seeing doctors). But revolving credit is not the easiest thing to understand, and given how widely available credit cards are there is value in ensuring that the information on balances is presented to consumers in a straightforward manner.
This is a bit of a personal soap box for me, as I spent a decade of my career working in a major bank’s call center. If in the mid to late 90s you called to complain about an issue with your Best Buy, Rhodes Furniture, or Costco cards and demanded to speak to the phone rep’s boss there is a chance it was me you were yelling at. Over the years I got all kinds of calls, many from reasonable people, some not so much, but one type of call that came up from time to time stands out in my mind.
I’d get the occasional call from someone requesting their last two years’ worth of statements. Of course, if there were specific charges being disputed we would investigate immediately. But otherwise we didn’t like just randomly sending tons of statements, especially if they were archived on microfilm (yes, this was the 90s). Generally the nature of this particular type of call was someone who has been sending their minimum payment in, might be late on an occasional payment, and is wondering why their balance never seemed to go down.
Anyone who has had a credit card with a balance can guess why – If you only make minimum payments most of your payment is going toward interest. If you miss a month not only are you not making any contribution toward your principal balance, but whatever late fees get assessed knock your progress back that much more. I generally could see around a year’s worth of statements online, and I would take time with the caller to go through every charge, every payment, and every closing balance to show exactly where their money was going. They rarely walked away from these calls happy, but at least most of the time I was able to help them understand that the only solution was the unpleasant option of paying more money against their balance each month.
This is why I like the new statement format so much – it very clearly shows the most important information in an easy to read format. In addition to basics like minimum payment due & due date it also estimates how many years it would take to pay off making just that minimum payment. It won’t save every credit card holder, but at least it’s a great tool to help some people who might otherwise get trapped under credit card debt for years to come.
This got me thinking, “What if we applied these same standards to our federal government?” Our government is all too ready to protect us from banks or insurance companies or energy producers, but we never see anything to protect us from a force exponentially more destructive – the federal government itself. Regular readers should remember my previous post about how we can balance the budget to calculate each tax payer’s fair share of our federal debt.
Here is a quick extract of what your personal bill looks like if you are in a two income home making the country’s median income. As with all of my other posts, click on any image for a larger picture: [1]
Like any bill that you can’t pay for immediately you set up a payment plan. Revolving credit is a bit tougher than an installment loan like a car or a home. Where the latter are one time purchases, credit cards can have new charges show up all of the time, sort of like how our federal government continues to add to the deficit. Assuming a two person household where both taxpayers are making the average US income of around $27,000 per person, your household bill is $21,358.[2] That is your fair share of our total current federal debt.
For any first timers who haven’t read my related posts, this is not paying anything toward our current budget. This only addressed debt already incurred. So in addition to your federal, state, local, property, and various sales taxes, this is an additional surcharge to your tax burden. Yes, this is what it will take from every tax payer to pay off our existing federal debt. And before you start complaining the people who make less money than you are paying less, but people in the higher brackets are paying more. And the people in the highest brackets are paying way more – both as a percentage of their income and in raw dollars. If you haven’t read it before check it out to seehow severe the problem really is.
Let’s say that you live in an are of the country where you make more money than the national average. Here is what it would look like for a two earner household making the average income for Washington, DC:
What if you’re one of those evil rich folk who make more than $200,000 per year? I went a little bit easier and assumed a single person filing in this case. For all of those years you spent getting your professional degrees or nights and weekend you spent working to land you in the $200K – $500K bracket, here is your bill:
And if you happen to be one of the elites in our top $5 Million plus bracket, here is your monthly bill:
That’s right. If you make over $5 Million per year your bill is $5 Million per month. Granted, a number of people in that bracket make far more but it stinks for you if you fall on the bottom of that rung. Or any of the rungs I listed, for that matter.
Keep in mind as well, like any credit card where you are adding additional charges, our federal debt keeps increasing. So you can keep making your minimum payments and expect to see your balance increase each month as long as our federal government continues to grow its rate of deficit spending. And let’s not forget something I also mentioned in my previous posts – I haven’t even tried to calculate what the multiplier effect would be for all of the money that is going to get sucked out of our economy to pay down this old debt.
The down side is that unlike your credit card you wouldn’t get to call and argue over any of the charges making up your balance – good luck disputing that half billion dollar failed solar energy company that showed up on your bill.
But at least people would start seeing the magnitude of our debt problem, and that would be a good start. Actually, you will get a chance to dispute your bill. It’s coming on November 6th – are you willing to do so?
1 This is one of the rare times I’m throwing out numbers without detailed calculations. I took our credit card statement and used rough ratios compared to what we have on our card. This isn’t meant to be a precise exercise, but rather one to show a concept. If anyone wants to make a detailed estimate please drop me a line.
2 Based on when the debt was “only” $15.652 Trillion. I haven’t updated the chart since then, so assume your bill is higher now
What would this article be without terms like “big government nanny stater”?
Great article, Brother Bob. The only “problem” here is that no one forced credit cards (and the accompanying responsibility to repay) on consumers. I have several credit cards, yet don’t remember anyone pulling a gun on me, or forcing me to take the cards. Yet, the government forces itself on my daily life in many ways, from mandatory taxes to economic policies to foreign policy failures.
So, I agree with you. It’s too bad that the most famous recent government action – ObamaCare – could not be evaluated prior to its being rammed down our throats, er, I mean, passed. And it’s too bad that it can’t be regulated out of existence, or at least be regulated so as to benefit us.
@Lib: Probably pretty much the same, only one sentence shorter =8^)
@WB: Yes, very different kinds of charges, and the reason I keep pounding at this subject from different angles is searching for a way to educate the people how serious the problem we have truly is