Tuesday, January 3, 2006

Credit card bliss

cyber age: ND Batra

Credit card conundrum
From The Statesman

During the holiday weeks, millions of American consumers used credit cards to charge their gifts. Now that the bills have begun to pour in, many of them won’t know how to pay them. In spite of the recent legislation in the USA that makes personal bankruptcy rather more difficult, more than a million people would end up as bankrupt.

But never mind; they would do it again. Bankruptcy is no shame in the USA. It is a method of reorganising your life and business. But let’s not blame the holiday season for overspending because Americans love to use the card to make all kinds of payments: medical bills, groceries at the supermarket, college tuition bills; and even online porn. In fact, consumers are rewarded for using their charge cards.

Many card companies offer cash back, frequent flyer miles, or some other grizzly temptation every time the customer uses the card. Enter any major chain store, especially during a holiday season, a beautiful girl greets you: “If you open the credit card account now, you will get 10 per cent discount on all your sales today.” With very little background check, instant credit is issued to the customer and the spending spree begins.

Fortunately, the economy is very healthy; nonetheless, the total household debt of $1.7 trillion (2004) is a staggering sum. Without savings, how can a family balance its budget in tough times, except through more borrowing with the credit card? An average American family has several credit cards and borrowing from one to pay the other is a common practice among many delinquent debtors, until they reach the bankruptcy court.

Bankers do not feel that credit card delinquencies pose a serious threat to the American banking system because most card customers are good, so good that their business covers up not only the losses due to bankruptcies but also due to frauds.

A few years ago, there was a message on my office answering machine. An urgent female voice said: “This is not another sales pitch, but I urge you to call me back because twice last month someone charged your card in California.”

My credit card company, of which I’m a charter member (no big deal except that I don’t pay the annual fee), keeps an electronic eye on my purchasing pattern, and probably the computer shouted ‘foul’: Man lives in the East, charges card on the West Coast, how come? The Visa lady assured me that I won’t be liable for the fraud but they do want to catch the thief. I did spend my vacations in California the summer before with my family and left my electronic footprints wherever I went and someone thought it was a good time to rob me.

In any case, the cardholder liability is limited, but it is a terrible hassle to face inquiries. Every year, thousands of people become victims of card frauds. There have been several media reports, including an investigative report from the CBS “60 Minutes”, whipping the Nigerians for most of the credit card frauds in the USA.

The Nigerians or the Russians may be slick operators, but credit card thieves come in all colours and nationalities and they have the same modus operandi: access a computer terminal linked to national credit data banks maintained by one of the three nationwide credit bureaus. Once logged on, the crook can get a person’s social security, credit status, and address, and with his stolen ID he can live the other person’s life.

It seems that credit card companies are not much scared of frauds because they simply write them off as business losses or expenses, or they pass them on to their customers in the form of higher finance charges. The federal law limits to $50 the cardholder’s liability for unauthorised use.

So the usurer, the debtor and the crook, all are doing good business, but it is a continuous challenge to the American ingenuity that some foreign or homegrown variety of card thieves should outsmart one of the best systems in the world.

But imagine what would happen to India if credit cards were issued as generously (or irresponsibly) as they are done in the USA. Most Indians would be suddenly thrown into the consumer mainstream, with unforeseen consequences for the economy. Would it create an economic miracle or bubble bust? The American miracle depends on spending, not on savings. Would the American model work for India?

I am a trifle confused. I don’t know what Dante, the immortal creator of the Divine Comedy, was thinking when he placed the usurers in one of the hottest circles in Hell.Charles Lamb, the British essayist, too said in a letter: “All bankrupts, of whatever denominations, civil or religious, ought to be hanged.” The usurer and the bankrupt are doing well in America. So are credit-card crooks and con artists. So shall they flourish in India, as growing prosperity feeds the middle class hunger for consumer goods.

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