Usurious Returns on Phantom Money: The Credit Card Gravy Train


Usurious Returns on Phantom Money: The Credit Card Gravy Train

Hello Everyone!

It’s great to post again.  Here is a very interesting article on credit card Banks and their banking operations by my friend Ellen Brown, yes the very same Ellen Brown that is running for State of California CA Treasurer in 2014.  Ellen Brown Is the Green Party candidate for State of California Treasurer in 2014.  Take a look at some of the books Ellen has published.  Ellen is the current President of the Public Banking Institute.  How do you feel about public banking for the state of California?

Sincerely,

Ed Reidhead

The credit card business is now the most lucrative part of the banking industry, and it’s not just from the interest. It’s the hidden fees.

You pay off your credit card balance every month, thinking you are taking advantage of the “interest-free grace period” and getting free credit. You may even use your credit card when you could have used cash, just to get the free frequent flier or cash-back rewards. But those popular features are misleading. Even when the balance is paid on time every month, credit card use imposes a huge hidden cost on users–hidden because the cost is deducted from what the merchant receives, then passed on to you in the form of higher prices.

Visa and MasterCard charge merchants about 2% of the value of every credit card transaction, and American Express charges even more. That may not sound like much. But consider that for balances that are paid off monthly (meaning most of them), the banks make 2% or more on a loan averaging only about 25 days (depending on when in the month the charge was made and when in the grace period it was paid). Two percent interest for 25 days works out to a 33.5% return annually (1.02^(365/25) — 1), and that figure may be conservative .

Merchant fees were originally designed as a way to avoid usury and Truth-in-Lending laws. Visa and MasterCard are independent entities, but they were set up by big Wall Street banks, and the card-issuing banks get about 80% of the fees. The annual returns not only fall in the usurious category, but they are returns on other people’s money — usually the borrower’s own money!     Here is how it works . . . .

The Ultimate Shell Game

Economist Hyman Minsky observed that anyone can create money; the trick is to get it accepted. The function of the credit card company is to turn your IOU, or promise to pay, into a “negotiable instrument” acceptable in the payment of debt. A negotiable instrument is anything that is signed and convertible into money or that can be used as money.

Under Article 9 of the Uniform Commercial Code, when you sign the merchant’s credit card charge receipt, you are creating a “negotiable instrument or other writing which evidences a right to the payment of money.” This negotiable instrument is deposited electronically into the merchant’s checking account, a special account required of all businesses that accept credit.  The account goes up by the amount on the receipt, indicating that the merchant has been paid.  The charge receipt is forwarded to an “acquiring settlement bank,” which bundles your charges and sends them to your own bank. Your bank then sends you a statement and you pay the balance with a check, causing your transaction account to be debited at your bank.

The net effect is that your charge receipt (a negotiable instrument) has become an “asset” against which credit has been advanced.  The bank has simply monetized your IOU, turning it into money.  The credit cycle is so short that this process can occur without the bank’s own money even being involved . Debits and credits are just shuffled back and forth between accounts.

Timothy Madden is a Canadian financial analyst who built software models of credit card accounts in the early 1990s. In personal correspondence, he estimates that payouts from the bank’s own reserves are necessary only about 2% of the time; and the 2% merchant’s fee is sufficient to cover these occasions. The “reserves” necessary to back the short-term advances are thus built into the payments themselves, without drawing from anywhere else.

As for the interest, Madden maintains:

The interest is all gravy because the transactions are funded in fact by the signed payment voucher issued by the card-user at the point of purchase. Assume that the monthly gross sales that are run through credit/charge-cards globally double, from the normal $300 billion to $600 billion for the year-end holiday period. The card companies do not have to worry about where the extra $300 billion will come from because it is provided by the additional $300 billion of signed vouchers themselves. . . .

That is also why virtually all  banks  everywhere have to write-off 100% of credit/charge-card accounts in arrears for 180 days. The basic design of the system recognizes that, once set in motion, the system is entirely self-financing requiring zero equity investment by the operator . . . . The losses cannot be charged off against the operator’s equity because they don’t have any. In the early 1990’s when I was building computer/software models of the credit/charge-card system, my spreadsheets kept “blowing up” because of “divide by zero” errors in my return-on-equity display.

A Private Sales Tax

All this sheds light on why the credit card business has become the most lucrative pursuit of the banking industry. At one time, banking was all about taking deposits and making commercial and residential loans. But in recent years, according to the Federal Reserve, “credit card earnings have been almost always higher than returns on all commercial bank activities.”

Partly, this is because the interest charged on credit card debt is higher than on other commercial loans. But it is on the fees that the banks really make their money. There are late payment fees, fees for exceeding the credit limit, balance transfer fees, cash withdrawal fees, and annual fees, in addition to the very lucrative merchant fees that accrue at the point of sale whether the customer pays his bill or not. The merchant absorbs the fees, and the customers cover the cost with higher prices.

A 2% merchants’ fee is the financial equivalent of a 2% sales tax — one that now adds up to over $30 billion annually in the US. The effect on trade is worse than either a public sales tax or a financial transaction tax (or Tobin tax), since these taxes are designed to be spent back into the economy on services and infrastructure. A private merchant’s tax simply removes purchasing power from the economy.

As financial blogger Yves Smith observes:

[W]hen anyone brings up Tobin taxes (small charges on every [financial] trade) as a way to pay for the bailout and discourage speculation, the financial services industry becomes utterly apoplectic. . . . Yet here in our very midst, we have a Tobin tax equivalent on a very high proportion of retail trade. . . . [Y]ou can think of the rapacious Visa and Mastercharge charges for debit transactions . . . as having two components: the fee they’d be able to charge if they faced some competition, and the premium they extract by controlling the market and refusing to compete on price. In terms of its effect on commerce, this premium is worse than a Tobin tax.

A Tobin tax is intended to have the positive effect of dampening speculation. A private tax on retail sales has the negative effect of dampening consumer trade. It is a self-destruct mechanism that consumes capital and credit at every turn of the credit cycle.

The lucrative credit card business is a major factor in the increasing “financialization” of the economy. Companies like General Electric are largely abandoning product innovation and becoming credit card companies, because that’s where the money is. Financialization is killing the economy, productivity, innovation, and consumer demand.

Busting the Monopoly

Exorbitant merchant fees are made possible because the market is monopolized by a tiny number of credit card companies, and entry into the market is difficult. To participate, you need to be part of a network, and the network requires that all participating banks charge a pre-set fee.

The rules vary, however, by country. An option available in some countries is to provide cheaper credit card services through publicly-owned banks. In Costa Rica, 80% of deposits are held in four publicly-owned banks; and all offer Visa/MC debit cards and will take Visa/MC credit cards. Businesses that choose to affiliate with the two largest public banks pay no transaction fees for that bank’s cards, and for the cards of other banks they pay only a tiny fee, sufficient to cover the bank’s costs.

That works in Costa Rica; but in the US, Visa/MC fees are pre-set, and public banks would have to charge that fee to participate in the system. There is another way, however, that they could recapture the merchant fees and use them for the benefit of the people: by returning them in the form of lower taxes or increased public services.

Local governments pay hefty fees for credit card use themselves. According to the treasurer’s office, the City and County of San Francisco pay $4 million annually just for bank fees, and more than half this sum goes to merchant fees. If the government could recapture these charges through its own bank, it could use the proceeds to expand public services without raising taxes.

If we allowed government to actually make some money, it could be self-funding without taxing the citizens. When an alternative public system is in place, the private mega-bank dinosaurs will no longer be “too big to fail.” They can be allowed to fade into extinction, in a natural process of evolution toward a more efficient and sustainable system of exchange.

Capital One Is The Most Complained-About Credit Card Company- Can you say, Predatory Lending Practices…


Hello!

Does anyone out there have a Capital One Credit card?  I use to until Capital One increased my interest rate for some unclear reason even though I was making regularly scheduled payments to them for years.  Can you say, Predatory Lending Practices?  Please feel free to post any experiences you like to share about Capital One and their business practices.  In this article, it appears that Capital One is the Champion of credit card companies in that it has caused more complaints to be filed than any other credit card issuer.  Here’s a link to the Consumer Financial Protection Bureau web site and complaint portal.  I invite you to stand for yourself and everyone else and document predatory credit card practices to the US Government.

Ed

Capital One Is The Most Complained-About Credit Card Company – Source Article

Since the Consumer Financial Protection Bureau opened its credit card complaint portal in Sept. 2010, more than 25,000 complaints have been filed with the CFPB. And while the 10 largest credit card issuers account for 93% of all those complaints, one company is responsible for more than 1-in-5 of all complaints filed with the Bureau: Capital One.

That’s according to the Ohio Public Interest Research Group’s new report [PDF] that analyzes some of the available data about the CFPB complaint portal.

With 5,625 complaints filed between Sept. 2010 and Nov. 2013, Capital One cards accounted for 21% of all consumer gripes. Citibank’s credit cards were the second most complained-about (4,514 complaints, 18% of the total), followed by Bank of America (3,320; 13%).

Problems with Capital One cards appear to be a nationwide issue, with Cap One receiving the most complaints from consumers in 43 states. In six of the remaining states — Connecticut, Maine, Maryland, New Mexico, New York, Utah — Citi earned the most complaints, with Bank of America being the most-hated card issuer in Alaska.

The complaint portal isn’t just for consumers to scream into a black hole about their credit cards. The idea is that the card company is supposed to respond to each complaint within a given time frame. Of course, the cardholders aren’t always pleased with the card companies’ responses.

If the consumer is unhappy with the card issuer’s response to the complaint, he can file a dispute. Once again, Capital One cardholders filed the most disputes (1,044), meaning about one out of every five Cap One complaints were disputed. This may have been the largest number of disputes, but it’s not the highest rate. That belongs to American Express, where cardholders disputed 26% of the resolutions suggested by the card issuer.

What Lies In Your Debt?® It PAYS To Know!


What Lies In Your Debt?

 

This information is to present options to people that are faced with debt.  Enjoy,  Ed

 

Drowning In Credit Card Debt….               Relax!

Well you can stress out trying to find a way to make the minimum payments every month or you can get them to pay you. The facts are simple; you will never pay off credit card debt while making minimum payments!

 

www.whatliesinyourmortgage.com/

Most people out there offer what is normally called a “Mortgage Audit”.  Most of these types of audits are just a waste of money and time with most allowing you to pick a few TILA or RESPA violations that will put a few thousand dollars in your pocket (if you actually prosecute) but do nothing for you in the way of defending your property from the banksters.  At best there is not much you can do with one of these types’ audits to stop or slow down your foreclosure.

The differences between a Securitization Audit versus a Mortgage Audit are vastly different….

Unlike a Mortgage Audit which seeks to find TILA and RESPA violations, a Securitization Audit looks through filings that are required by the Securities and Exchange Commission (SEC) and filed into the public record. It’s meant to follow the chain of title and it makes sure that the transfers as required by the PSA (Pooling and Servicing Agreement) were done and if not, then the plaintiff might have no right to foreclose.

By auditing these filings we can find whether the security was dissolved, the closing dates of the trust, and if the assets to the distributed to the certificate holders and the Trustee no longer has any authority to pursue foreclosure.  All of this can help you win your case.

If you have an alphabet soup plaintiff such as U.S. BANK NATIONAL ASSOCIATION AS TRUSEE FOR MARM 2006-O-A2 then without a doubt your mortgage has been securitized.

If that is the case then you more than likely have a great chance that your mortgage was bifurcated (separated) from your note. This will cause your mortgage to be an “unsecured mortgage”, meaning the lien on your home will no longer be secured by you’re the mortgage and your mortgage now becomes an unsecured debt such as a credit card would be.

A securitization audit will find the chain of title to the trust and whether the Trustee still has any authority to foreclose.

Will I benefit if I have already been foreclosed?

The Card Game PBS: Frontline


I learned some new things and I share some of the experiences recounted here. Ed

The Secret History of the Credit Card.

Follow-Up to ‘The Secret History of
the Credit Card’

Uploaded by Stronnius
February 6, 2012

As credit card companies face rising public anger, new regulation from Washington and staggering new rates of default and bankruptcy, FRONTLINE correspondent Lowell Bergman investigates the future of the massive consumer loan industry and its impact on a fragile national economy.

In The Card Game, a follow-up to the Secret History of the Credit Card and a joint project with The New York Times, Bergman and the Times talk to industry insiders, lobbyists, politicians and consumer advocates as they square off over attempts to reform the way the industry has done business for decades.

“The card issuers could do anything they want,” Robert McKinley, CEO of CardWeb.com, tells FRONTLINE of the industry’s unchecked power over consumers. “They could change your interest rate. They could impose an annual fee. They could close your account.” High interest rates along with more and more penalty fees drove up profits for the industry, Bergman finds, as the banks followed the lead of an aggressive upstart: Providian Bank. In an exclusive interview with FRONTLINE, former Providian CEO Shailesh Mehta tells Bergman how his company successfully targeted vulnerable low-income customers whom Providian called “the unbanked.”

“They’re lower-income people-bad credits, bankrupts, young credits, no credits,” Mehta says. Providian also innovated by offering “free” credit cards that carried heavy hidden fees. “I used to use the word ‘penalty pricing’ or ‘stealth pricing,'” Mehta tells FRONTLINE. “When people make the buying decision, they don’t look at the penalty fees because they never believe they’ll be late. They never believe they’ll be over limit, right? … Our business took off. … We were making a billion dollars a year.”

It took the economic collapse in the fall of 2008 to set the stage for potentially historic change in the consumer credit business. President Obama and his team pushed through a credit card reform bill in May, and they’re now looking to establish a new Consumer Financial Protection Agency. But the banking and financial services industries contribute huge amounts of money to Congress — and the jury is still out on whether the new regulations can pass. “It’s a step in the right direction, but it’s a modest step,” says Harvard law professor Elizabeth Warren. “It’s a set of very discrete new laws. And the credit industry instantly set to work on how they could run around them. By itself, that set of rules won’t change the game.”

“It’s hard for them to get a bill through the U.S. Senate when the industry is pouring money into Washington,” says Martin Eakes of the Center for Responsible Lending of the banks’ political clout. “As Sen. [Dick] Durbin from Chicago recently said, ‘the banks, even as unpopular as they are right now in this crisis, still own this place.'”

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