Posted by Vaurn James on May 13, 2016 - 12:12pmEdited 5/13 at 12:23pm

Credit Cards: The Perfect Pyramid Scheme and Legal

A private individual may do anything except that which is legally forbidden; A government individual may do nothing except that which is legally permitted. Ayn Rand (1905 - 1982)The Nature of Government

So, are you using a credit-card to fund your home business opportunity or entrepreneurial venture? I am and millions of other serious-minded entrepreneurs; likewise, use this lifeline of credit to fulfill the dream of financial independence.  Unfortunately, credit-cards are like marriage, both are institutions endorsed by government because once you sign the contract getting out will cost you more than what you invested in the first place.  Think about when you said, “I, do” then, you have agreed to sharing your debt and/or wealth with another individual and the cost of dissolving the partnership will often involve 50% forfeiture of current and future assets (bye-bye 401K).  Now, credit-cards and their interests rates on average are 20% of your existing balance (make sure your debt is low).  Seems that borrowing the capital to fund the enterprise is more expensive than the actual operational costs but, that’s the economic reality. 

Funny, how the concept of Free Market Economics in the bedroom and kitchen can frequently resemble a criminal enterprise involving extortion and being made an offer you cannot refuse if, you value your health, wealth and personal freedom.  Hey, credit is part of all westernized economies, while fewer and fewer people make purchases using raw fiat currency.  In fact, you get scrutinized when you insist on paying cash and have no history of credit which puts you on the radar of Homeland Security or some other intelligence agency.  It’s no accident that credit-cards, bank debit cards or plastic are the standard method of payment, because paying cash or by cheque forces us to live within our means.  Businesses cannot profit by people who are disciplined shoppers; hence, no financial education in our schools because they want the kids to be as reckless as their parents who are currently in debt from spending (yes, this includes me).  Credit-cards are the middle-class version of welfare and like the poor, both credit-card companies and government cannot afford to allow their respective audiences to be educated consumers that use their product in a responsible manner that results in short-term use.                  

I am addressing this issue because a mentor of mine Jeffrey Combs of once said; “credit card companies are brilliant because they get people to pay interest on money that doesn’t exist”.  In essence, people are paying legal tender to access a line of credit that they don’t see, can’t smell nor touch.  Additionally, countless new transaction fees are implemented by credit-card companies and approved by government finance committee members because, “you NEVER bite the hand that gives you a bribe, I mean a financial contribution, I mean political donation and then, after your political career seek employment from the same industry you were regulating  as government official because their salary is higher and you as former regulator know how to circumvent that laws that are designed to protect the consumer”.   

Now, the concept is brilliant from a business/entrepreneurial perspective because when a product/service is intangible; yet, millions of people want it then, a collective sense of trust in the product has been established (at least in the past, but may be not today).  Well, credit-cards are no longer perceived as a positive but, more of a necessary evil; yeah, like marriage.  Oh yes, if, you tie the NOOSE, her debt will become yours so be careful.  Oh yes, learn about the danger of “compound” interest with credit cards because it exposes the true quasi-criminality of credit.

Now, if the credit card companies were prohibited by law from charging ridiculous interest rates to the loans of their millions of customers then, the national problem of credit-card debt would be significantly reduced.  Unfortunately, government and business have a relationship where “business lobbyist write legislation that is supposed to regulate the conduct of the same industry they represent”, yes a clear conflict of interest …forgive the pun but, business is business.  Now, in 2008, the US Mortgage and Financial Industries prompted by previous federal administration to extended home loans (line of credit) to people, who didn’t meet the financial litmus test and in reality couldn’t afford the monthly payments resulting in most defaulting. 

Hence, this Pyramid Scheme collapsed because no revenue was coming in and no interest could be charged so as to generate profit for the companies.  Basically, the gamble that people with marginal credit histories could pay their monthly bills plus interest proved to be wrong.  In retrospect the idea was poorly conceived but, when you make deals with politicians for special business privileges who are also, fighting for re-relation then, you sometimes are forced to offer loans to people who are on default.  Additionally, taxpayers always end up paying through a government bailout (you know, too big to fail) or increased fees passed on to them.  It’s safe to say much of Corporate America functions like a pyramid scheme with respect to unethical business practices and government regulations that in truth, fail to correct conduct the average individual would suffer criminal and/or civil sanctions but, “you get as much justice as you can afford”.  Needless to say, financial criminality remains more of a regulatory issue than criminal.      

“The Credit Card Accountability Responsibility and Disclosure Act of 2009 or Credit CARD Act of 2009 was signed by President Barack Obama on May 22, 2009”. “It is comprehensive credit card reform legislation that aims " establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes."[1]

One of the critical reforms (lol) absent from The Credit Cardholders' Bill of Right was any provision for price controls.  So, the most important feature of credit card reform is absent and consumers continue to complain and pay exorbitant fees they were complaining about in the first place.  We shouldn’t be surprised because a common practice for committee members who regulate industries involves them seeking employment at the same companies they once regulated after their political term expires.  Again, conflict of interests is like a bloody virus that gets worse.    

Long-term consumer activist Ralph Nader has spoken, lectured and testified countless times about the unholy and corrupt relationship between credit card companies and government at the annual meeting at Center for the Study of Consumer Financial Services (CSCFS).  Mr. Nader spoke about his experience not having any credit-cards and provided the following 10 reasons why he refuses to allow corporation to stop him from using legal tender:

  • Plastic lays the groundwork for massive, daily invasions of privacy
  • Once you enter the credit economy you fall under the controls of arbitrary credit rating and credit scoring merchants
  • The credit card economy, with its anti-competitive no-surcharge rules, etc. is inflationary and affects negatively consumer purchasing power as well as lower savings rates
  • Credit cards encourage impulse buying
  • Credit card terms…You sign on the dotted line, shut up and shop
  • Using cash/check encourages consumers to live within their means and not get caught in an ever deeper cycle of debt
  • Paying by cash/check avoids the gouging of fees, penalties, termination charges, and of course, sky-high interest rates for consumers
  • Paying by cash/check….it prevents the addition of any fraudulent charges to the bill.
  • Paying by cash/check avoids having to give away your personal property to the likes of internet companies
  • Credit card issuers often approve consumers for credit cards with maximum spending limits that are too high considering their salary or lack thereof

It would appear that Ralph Nader recognized long ago the culture of failure and economic control credit-card companies attempted and successfully continue to impose on the mases through daily financial commerce via plastic. Unfortunately, the situation continues to get worse not only with crerdit-cards but, with proposed laws like “Trade Secrets Protection Directive”, that serves to increase the secrecy of corporate criminality.    

Vaurn James