What’s on TV

Frontline has a program on tonight about the credit card industry, which may be a useful accompaniment to the regulatory reform debate. They include this juicy paragraph in their press release:

“They’re lower-income people-bad credits, bankrupts, young credits, no credits,” Mehta [former CEO of Providian] says. Providian also innovated by offering “free” credit cards that carried heavy hidden fees. “I used to use the word ‘penalty pricing’ or ‘stealth pricing,’” Mehta tells FRONTLINE. “When people make the buying decision, they don’t look at the penalty fees because they never believe they’ll be late. They never believe they’ll be over limit, right? … Our business took off. … We were making a billion dollars a year.”

Rings true to me.

By James Kwak

14 responses to “What’s on TV

  1. Financial innovation is wonderful, isn’t it?

  2. One of the three preview clips include a banking industry advocate arguing that there should be no caps on credit card interest rates because that would interfere with the operation of the free market.

    Apparently, extortionist usury is vital to the health of free markets.

    I’m sold.

  3. Yet another reason for attempting to make credit applications in plain English with fees and conditions written simply and in bullet point form. Though I doubt that it would make a difference.

    I once worked for a company that sold Oil-related securities (drilling deals). The state securities board came in and insisted that every prospectus that went out had a plain English page listing every well the company had ever drilled and its status as to whether they had paid-out to the investor…no well had ever paid-out (i.e. returned 100% of the initial investment)…yet this addition did little, or nothing about slowing the sales of the next deal.

  4. “Next time will be different” is a powerful thing!

  5. I remember a Sunday NYTimes Business section front page in the early 90′s (IIRC) about this guy. They portrayed him as a mathematics PhD genius who used computers to find people to whom other credit card companies would not issue cards because he found out he could charge significantly higher interest rates and make up for the loses. I remember thinking he was preying on the poor but now everyone is doing it.

  6. Is this true? Consumer spending accounts for 70% of the US economy.

  7. Yes, and stupid way to run an economy. BTW, it’s also not sustainable, duh!

  8. Frontline is a great show. I also like to watch Judy Woodruff on Bloomberg. You can download her show on Itunes.

  9. It’s interesting that Senator Shelby was on there arguing against doing anything to harm the banking institutions since he stood up a year ago arguing against the TARP program and for letting the big banks fail.

  10. Frontline is always good.

    Watched it tonight. I missed about a 3rd of it because I was busy screaming at many of the blood-sucking scum people I was seeing on the screen. Maybe I’ll try watching it again later when I calm down.

    The banker line seems to be, “No need for regulation, the market will sort out any problems.” We’ve seen how well that is working on so many levels. Sure… no need for laws and police either. Why did anyone ever think that was necessary?

    Seems our systems are incapable of pulling in the reins on even this demented business model. Years of evolving practices that would make Guido blush. This should be obvious and simple compared to the twisted derivatives and so forth at the top end of banking and Wall Street.

    How much of our remaining economy is based on the fiction of credit card balances that will never be repaid? In the short term the banks turn the screws to squeeze out the last remaining real money from their most troubled clients.

    I vaguely remember a world where the majority of the economy seemed to be based on interactions where everyone got some benefit and there was a sense that society was moving forward.

    Maybe 2012 is about right for the whole mess to come unglued.

  11. Interesting comment by Marc Sobel

    “I remember thinking he was preying on the poor but now everyone is doing it.”

    It would be better said “I remember thinking he was preying on the poor AND now everyone is doing it.”

    The “but” preceding the last phrase almost gives license to preying on the poor as long as everyone is doing it.

    I am confident that Marc was not advocating that.

  12. They are preying on the poor, but they are also taking a bigger risk and asking for more returns to even it out.

  13. Sorry I cannot agree with Kay4. Although I agree that someone or entity should be compensated for taking a bigger risk, NEVER should that result in preying on the poor.

  14. I watched the show and was actually frustrated at the slant against the credit providers. Don’t misunderstand me, I do think there needs to be improvement and greater consumer protection. However, consumers should be held accountable for understanding terms and conditions of the contracts they enter into just as credit providers should be held accountable for transparency into their products. It appears that we, as a country, are working to require more transparency from credit providers but are doing nothing to “regulate” the accountability of credit consumers.

    The example of the lady who carried a balance on her Nordstrom card made me livid. There is NOTHING at Nordstrom’s that falls into the “need to have” column of life. Empty your closet, have a garage sale and pay-off your card..done. You are not a victim of anything but your own unwillingness to accept a “lower” standard of living.