'Loan sharks and credit card issuers are much alike'

by David Grand
March 25, 2009

Both the Cosa Nostra (aka Mafia) and the credit card-issuers offer unsecured loans at high interest rates, designed to keep their customers eternally in debt, so that interest becomes almost an annuity.

Where they differ is in the interest rates they charge. For while credit cards currently have an average 14.03 monthly interest rate (and rising), loans from crime families charge interest rates of up to 20 percent weekly, in what is known as the six-for-five: you borrow five and pay back six at the end of the week.

When one can't pay the full amount, the loan shark would accept the interest payment and extend the loan for another week, with interest. That compounding interest often forced borrowers to take out another loan, with interest added on top of interest.

But where the worst things that can happen to someone who is late or misses making monthly payments on a credit card is to be charged a late fee and cause their interest rate to skyrocket, they're at least spared from having to worry about being visited by "leg-breakers," who were often employed by loan sharks.

Here's a few facts and stats gleaned from the CreditCardMonitor.com about the industry that may give you heartburn, if not apoplexy:

• At the end of 2007, U.S. consumers owed a total of $2.55 trillion in credit card debt, which tallied to an average of $7,300 per credit card holders and accounting for 43 percent of their purchases.
• Average cardholder has four bank credit cards, with 948 million bank-issued Visa and MasterCard credit cards, expanding at the rate of about 15 percent for the last five years.
• In 2006, the United States Census Bureau determined that there were nearly 1.5 billion credit cards in use in the U.S.
• Credit card delinquencies hit a new record for the second straight month in January, 2009, with 4.04 percent of consumers at least 60 days late, and write-offs by the issuers at 7.40 percent in that month.
• Last year, cardholders paid $19 billion in late fees and over-limit fees, expected to swell by nearly 8 percent this year.

Now, I only use two credit cards-Visa and AMEX. And when the bills arrive, I check the charges with a fine-tooth comb to ensure they're accurate and that I hadn't falling victim to identity theft, as a reported 9 million Americans have.

That happened to me sometime ago, when a monthly statement from AMEX indicated purchases totaling over $2,000 at three sports' stores.

To put it mildly, I was as furious as a wounded bull in an arena as I raced to the phone to alert AMEX of those bogus charges. Much to my relief they were removed. Perhaps because I'd been with them for over 30 years and always paid my monthly balance in a timely manner. Or that they felt I was too old to become a low-down crook.

But on the flip side, I was once told by a bank, that they would, with my agreement, write-off the entire $20,000 balance on my credit card, rather than eliminating it on a monthly basis in accordance with the unemployment insurance I had mistakenly signed up for.

Never in my life has an inadvertent mistake on my part paid off so handsomely, along with the added pleasure I derived from beating a bank at their game.

Now, I don't know what circle of Dante's Hell loan sharks and credit card issuers will end up in. But I would guess in the 3rd one for "gluttony," or the 4th one for "avaricious." But in either case, they won't be able to bamboozle the devil into freeing 'em from eternal damnation as they did people out of their money.?