Plastic peril

August 15, 1999|By Robert Reno

THE credit card, the legal gambling casino and the stock market all have been among the spectacular growth industries of the 1990s.

Issuing plastic has been a favorite cash cow of the banking industry since Citicorp bought out the pioneer issuers, Carte Blanche in 1978 and Diner's Club in 1981.

The perils of gambling and investing are well known. We were recently reminded of what can happen when the line between the two is blurred: A Georgia day-trader went on a homicidal rampage.

Addictive debt

The addictive nature of credit card debt is less well recognized. But it exceeds both gambling and day-trading as a leading cause of household bankruptcy.

Now the Consumer Federation of America has produced a study that shows credit card issuers are making it even harder for cardholders to dig their way out of situations in which they have maxed out one or more of their credit lines and find themselves faced with finance charges alone that may hog most of, or even exceed, their disposable incomes.

When cardholders get into this sort of trouble, many of them declare bankruptcy, shed their debt and move on to other ways of wrecking their finances. They may be the smart ones. The Consumer Federation study found that many of the cardholders who chose not to shirk their debt and to commit to a repayment plan can end up spending 18 years, and in some cases a lifetime, paying off a mere $25,000 balance.

CFA assumed debtors could make payments of $350 a month. Paying off $25,000 at Citibank, which charged these troubled customers 9.9-percent interest, or Fleet, which charged 9.5 percent, would take you about nine years. Paying the same balance at MBNA would take 18 years. And at Capital One, which charged 19.8 percent, it would take a lifetime.

Locking some poor customer into a lifetime of $350 payments is a juicy prospect. But in an era when bankers are supposed to be smarter and more imaginative than they used to be, it's a sorry way to make money.

Robert Reno is a Newsday columnist.

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