If you've spent any time in our eye-opening Credit Center, you probably realize that the credit card industry does everything it can to make money off people who carry plastic in their pockets. Grace periods? They've gotten shorter. Teaser rates? They don't last too long. Annual fees charged on no-annual-fee cards? They've been known to appear.
So maybe you won't be surprised to learn that credit card issuers are going after newly bankrupt Americans. That's right. And right now, there are a heck of a lot of bankrupt Americans. According to The New York Times, the credit card industry spent $100 million over the past few years lobbying for changes in bankruptcy law. It got what it wanted, and before the new bank-friendly, not-so-consumer-friendly laws went into effect in mid-October, a record number of Americans had filed. In 2005, more than 2 million people have filed for bankruptcy.
The Times reported that many of these folks are regularly getting tempting credit card offers in the mail. It might not seem to make sense, since these folks tend to be bad risks, but considering that the new laws make it much harder for people to get out from debilitating debt, it's not so unreasonable for lenders. (Although we might imagine that most people in steep credit card debt are there because of irresponsible spending, many actually end up there from life's hardships, such as costly illnesses or job losses.)
Banks will explain that offering credit to bankrupt folks is the right thing to do, since it can help them build a good credit record. They may not point out, though, that they're lending money to these folks at rather steep rates. As I detailed earlier this year, some credit card-issuing companies have been charging eye-popping amounts of interest:
. as of October 2004, these were the top penalty rates for some major card issuers, at least one of which has probably issued that card in your wallet: . MBNA
(NYSE:KRB), 24.99%; JPMorgan Chase (NYSE:JPM), 26.74%; Morgan Stanley's (NYSE:MWD)Discover, 24.99%; Capital One (NYSE:COF), 25.9%; and American Express (NYSE:AXP), 26.74%.
Some well-known banks were charging close to 30%! With interest rates in general having risen considerably since then, many of those top rates may have been exceeded by now.
The Times pointed out that "While bankruptcy filings increased 17% over the last eight years, credit card profits went up 163% to $30.2 billion, according to a report filed with the House Judiciary Committee by opponents of the new law." This may discourage you as a citizen, but perhaps it will titillate you as an investor. This industry is making some big bucks, and it might be worth looking into.
Learn more about the fascinating credit world in these articles:
- Credit Cards Sabotaging Mortgages
- How to Owe $40,000 by Doing Nothing
- Beware of Canceling Credit Cards
- $24 Billion to Card Companies . for What?
- Sneaky Credit Card Tactics
- Are You Wearing a "Kick Me" Sign?
You'll also profit by spending some time in our Credit Center, which features tips on getting out of debt, along with guidance on how to manage your credit effectively. (We even offer a spiffy Motley Fool credit card.) Really. I mean it. There's some great stuff in there, and it's all free reading.
You can also read about all things credit-related on our Consumer Credit / Credit Cards discussion board.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.