Islanders Snared in Credit Trap
Sunday, May 02, 2004
By REGINALD PATRICK
STATEN ISLAND ADVANCE
Fully half the 10,000 cases handled by the Staten Island Civil Court last year dealt with credit card debt.
A random review last week of more than a dozen of these suits filed in the West Brighton courthouse since the start of this year found that credit card firms are seeking to recover, on average, about $3,000 from defendants here.
The figures are in line with national trends. At the end of 2002, the average American household owed a balance of $8,940 and was shelling out an average of $1,000 to $2,000 in finance charges annually.
While credit-card cases are clogging the local court calendar, the federal bankruptcy court in Brooklyn is also seeing its share of Staten Islanders floundering in a sea of red ink.
In the two-month period from Feb. 19 to April 19, 233 Islanders — an increase over the same period last year — filed for Chapter 7 bankruptcy protection, citing credit-card charges as their undoing.
Attorney Paul Hollender of Korash and Hollender, a Bloomfield bankruptcy specialist, said the filings show many cardholders “don’t have any cushion” and seem to suffer from the “illusion” they can charge indiscriminately without the final bill skyrocketing out of sight.
The local numbers are a sign that on Staten Island, as in other parts of the country, revolving credit is proving a tricky double-edged sword for many consumers and perhaps some changes should be made in how the consumer industry operates.
CAUTIONARY TALES
One morning last week, Civil Court Judge Philip Straniere found himself fielding more than two dozen credit-debt cases — out of a total calendar of 47 cases. A similar theme ran through most of the suits — the cardholder got into a jam after a financial or personal reversal made it impossible to keep up with payments.
With two jobs, Jessica James, 22, of Grant City, an operations supervisor for a bank who moonlighted in real estate, felt at ease using her Citibank Master Card with abandon last year. “But I got lulled into a false sense of security,” she confessed, wiping her eyes. “That second job fell through and before I knew it, I was facing $13,000 in debt on the card.”
With only $1,200 a month coming in from her bank job, she was hard-pressed to make even a dent in the debt. “The court is advising me to just declare bankruptcy,” she said. “But I don’t want to do that because of my age. I don’t want to mess my credit up at this age.”
In November 2000, Ava Fullenweider of Stapleton, reeling from a marital split, owed $5,700 on her Master Card and thought she had reached agreement with the firm to pay $161 a month, in exchange for a moratorium on interest charges.
“But they never did stop the interest,” she complained. “They’re telling me I never had a payment deal. They really turned the tables on me.” She now owes $10,911.
“A credit card can be a terrible thing,” she said. “They’re good if you know what to do with them. But they’re bad if you don’t.”
For Jeannie Gonzalez of Eltingville, also a divorcee, her more than $17,000 in credit card debt is simply part of a bigger load that includes tens of thousands in back charges for water bills and other home expenses.
“I’m afraid I could lose my house,” she sighed. In the hallway of the courthouse a bankruptcy attorney slipped her his card. “Call me,” he advised.
Bob Smith of Oakwood was out of work for a year, leaving wife Jane, who works with handicapped children, to single-handedly support the household. A credit card became a financial life preserver. But the balance is now $1,038.
“We were barely able to pay our utilities and put food on the table,” Mrs. Smith said. She said the credit-card company had been “nasty” in demanding their money. In court last week the Smiths reach agreement to pay $30 a month on the bill for the next six months and $75 a month thereafter until they clear the balance.
Frank Mignano, 32, of South Beach who, ironically, handles small-business loans for a bank, struck a similar deal. He had been having some marital problems for a year (things have been fine for the past few months) and the credit card bills mounted to $10,000.
“The fees they hit you with are sickening,” he complained. “You know, before this all happened, I had perfect credit.”
PLASTIC PREDATORS
Consumer advocates, such the New York Public Interest Research Group (NYPIRG) and the Neighborhood Economic Development Association Project, point to a number of industry practices they say can foist hardship on unsuspecting cardholders.
“The companies know most people really don’t know how to use credit cards,” said NYPIRG’s Susan Craine.
“They get fooled into making only the minimum payment of say $10 or $20 on a rolling balance, not realizing that most of the payment goes to interest not principal. And the rolling balance keeps building.”
According to Bankrate.com, a consumer assistance Web site, cardholders who have a balance of $2,000 with a 13 percent annual interest rate — about the average for credit cards — and opt to pay the minimum payment each month, will need 14 years to pay off the balance and the $1,350.60 in accrued interest.
If the annual interest rate is 18 percent, that minimum monthly payment will take the cardholder 18 years to pay off the balance and a whopping $2,615.43 in interest.
“This is pretty predatory,” Ms. Craine said.
Cat Aaron, a spokeswoman for NEDAP, said the “credit card trap” is starting to snare large numbers of college students — consumers just beginning to create a credit history.
“Campuses are inundated with solicitations from credit card firms,” she said. “They come around offering free T-shirts and radios. But students are getting no education on how to use cards wisely and they’re creating bad credit reports that can follow them around for the rest of their lives.”
PITFALLS AND SOLUTIONS
Cardholders young or old face numerous pitfalls, many hidden in the fine print.
Credit cards bill on a 30-day cycle. Miss a payment by one day and face a late charge of $35. Go over your credit limit and face a penalty of $35. If you want a cash advance, be ready to cough up a surcharge of 3 percent. Want to transfer the balance from your card to a card with a lower rate? Expect a transfer fee.
And watch out for the expanding adjustable percentage rate (APR). A number of cards offer an introductory zero APR that quickly balloons to upwards of 20 percent. Companies can also jack up your interest rate if you miss a payment.
A recent NYPIRG survey of 13 cards found the average APR for bank-issued credit cards was 12.82 percent and the average APR for a store-issued card was 20.2 percent.
Civil Court Judge Philip Straniere wonders if some changes in the industry might be in order.
“Obviously the creditor is entitled to be paid the money that is owed and the interest on that money,” he said. “But the problem seems to be the accumulation of fees that mount up rapidly and then make it impossible for a person to settle the account.
“Perhaps lawmakers can devise a system to better inform people of these fees or devise a method for stopping these fees from accumulating when someone gets into financial trouble and can no longer make the payments.”
Two weeks back, the judge’s brother, Republican Assemblyman Robert Straniere, put in a state bill that would place consumer-friendly restrictions on interest, late charges and over-limit fees for delinquent accounts. The bill is now before the Consumer Affairs Committee and, at least in concept, has attracted the attention of Senate Majority Leader Joseph Bruno.
“We’re concerned about anything that unfairly impacts consumers,” said John McArdle, a spokesman for Bruno. “We want to make sure that credit card issuers don’t unfairly target consumers with excessive fees and interest costs.”
A spokesman for Assembly Speaker Sheldon Silver, leader of the Democrat-controlled Assembly, said last week the speaker also wants to take a look at the bill.
Meanwhile, credit card companies insist the playing field is already level. The problem is consumers just don’t read that fine print. A spokesman for a Manhattan firm representing Capital One, said most consumers don’t take note of the “interest rate and the price for having the card.”
“This doesn’t concern them until the card goes into default,” Anthony Williams said.
Reginald Patrick is a news reporter for the Advance. He may be reached at [email protected]
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