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Credit Card Debate Essay

2803 words - 12 pages

A. Introduction:
Who is to blame for the recent crash of the credit card industry: issuers or consumers? Numerous citizens think that credit card companies have greedy loan customs whose intent is to provide loans to unstable consumers. Others citizens think that consumers should be able to handle their purchases in a competent way. And others believe that the issue stems from both customers and credit card issuers. That each side of the debate generates a responsibility to be reasonable, lenders in their lending and consumers in their spending. This paper will examine a short history of credit cards, look at bank lending practices, consider consumer responsibility, and we will discuss the ...view middle of the document...

Credit card companies make millions of dollars in profits every year, except if they choose to lend to risky consumers, this then leads to many issues for our financial system. Since our financial industry has went drastically downhill, consumers are spending less which has a negative impact on our economy. This, combined with lenders not giving credit to worthy applicants, is making the state of our economy worse and needs to be addressed to turn things around into a positive direction. With lenders denying credit to worthy applicants and consumers tightening their spending habits both are working towards destroying our economy as we know it. Trust needs to be established between credit companies and consumers in order to bring about a mutual respect that will enhance spending and proper lending to advance our current economy. How can they trust companies that helped them into financial ruin?
Credit card use became frequent after WWII when Americans began to idealize using credit instead of cash to pay for purchases. The Diners Club credit card, created by Frank McNamara, was the first credit card that began shaping our economy, followed by Visa and American Express in 1958, and MasterCard in 1967, and Discover in 1986. According to an article titled "Credit Card", Americans have a projected debt of $1.1 trillion in 2010 ("Credit Card," 2010). This number portrays a false picture of the economy because with all of the Americans using credit to pay for daily living expenses, many have trouble paying them at the end of the month. Looking at the high unemployment rate, it comes as no shock that families are using their credit cards to pay for their utilities, mortgage payments, and grocery purchases. It is also possible that many consumers received their credit cards before times became hard and they have no choice but to use them to pay their bills. Why then do credit card companies issue so much credit to so many people? The answer: predatory lending practices versus consumer responsibility.
Do credit card companies offer American's an opportunity to purchase items they usually could not afford or do they help bury them in debt? According to Dickerson (2008), "just about anyone or anything can get a credit card" (p.138). He states that consumers do not fully comprehend their contracts with lenders because the contracts change frequently and the average person does not have the ability to decipher the legal jargon that is disclosed. He also believes that credit card companies target individuals that will profit them the most, which consists of high risk consumers that carry long-term balances such as: college students, elderly, poor, and even individuals that have lost their house because companies believe they need credit cards because they can no longer borrow from their home's equity. Dickerson also believes that consumers, since they do not understand their credit terminology, charge because they have the ability to do so, without...

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