American Express Credit Card Scam

I've studied credit card scams and abuses in the abstract.  I wanted to do an experiment to see how shady credit card company "accounting" really is.  My cynical self was astounded. 

I'll tell you what I did, and then show you what happened.  I'm sure some shyster can explain why this "accounting" was the product of "free choice" or "freedom of contract."  It's a shyster I won't listen to, as anyone who would defend this practice is unworthy of attention.

I always pay my balance off each month.  This month, I decided to carry a small balance to see what finance charge I would incur. 

My previous balance was $979.90.  Payment Activity (how much I paid) was $704.90.  Thus, should have had an unpaid credit card balance of $275 that I would pay interest on.  My annual percentage rate is 13.4%. 

Question: How much should have interest payment have been?  Answer: When dealing with credit card companies, forget what you think you know about math.

I was charged $13.63 in finance charges?  How?  My APR is 13.24%.   

Is there some hidden usurious rate?   

The answer is even more amazing. 

Even though I paid off all but $275 of my balance, I was required to pay interest on an "average daily balance"  of $1,211.03.  So American Express calculated my 13.4% APR based on money I did not actually owe them.  Remember, I paid them back all but $275.

How in that legal? 

I'm a smart guy.  I'm a jaded guy.  I don't believe in tooth fairies and gum drops.  I thought I had a pretty good idea how corrupt credit card companies are.  Credit card companies like American Express are so corrupt and scummy that even I couldn't foresee what they would do.

How then can anyone argue that people with IQs several standard deviations less than mine "freely" enters into contracts with credit card companies? 

There can be no principled defense of credit card company's "accounting" methods. 

Henceforth, I'm going to use credit cards as a litmus test.  Anyone who mentions "freedom of contract" within the context of credit cards has such an unrealistic understanding of how credit card companies opreate that their opinions are per se invalid.

P.S.  As a taxpayer, I bailed out American Express.  I bailed out American Express so that they and other banks can rob me.  As Don King would say, "Only in America!"

Comments

[Gloria Brown]

There are all kinds of ways the credit card companies can get you and raise your rates. One example: I pay my bills through my bank online. I tell them what to pay and they mail out the check. Long ago I put in the address for each credit card company. One month I got my bill from one company and my rate had been raised to 29.9% because I was a day late. I was a day late because they had changed the mailing address which I had no reason to look at because it was in my computer and listed with my bank. Because the check from the bank had to be re-routed to the new address, it was late and I was charged the new exorbitant rate. Complaints to the company were useless.

[Antonio Bassano]

A group of academics run a wonderful blog called "Credit Slips" dealing with credit issues. There was a startling one on "rate jacking" involving the perverse legal and institutional factors that permit, in fact encourage the gouging practices that are rampant.

[Robert]

Wow, that's shocking: seeing the numerical breakdown of your experience highlights how predatory the practices of credit card companies can be.

Luckily, Obama recently signed the Credit Card Bill of Rights Act. I wanted to point readers to a easy-to-read Bill of Rights comparison page put together by BillShrink that breaks down the Act and shows how credit card companies will be changing their practices. Here's the link: Bill of Rights Breakdown. It does a good job of explaining the basics.

I'd be very interested to read any future stories you might have about the positive impact these policies have at the individual level. Keep it up!