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When Sharks Smell Blood...

Not ones to rest on their laurels, credit card companies are taking advantage of the subprime mortgage problem. While the number of subprime mortgage defaults rise, credit card companies are increasing their pursuit of subprime borrowers. As lenders finally realize giving subprime mortgages is a bad idea, the option for borrowers to refinance is declining, thus leaving them unable to borrow against their homes to get extra cash for paying off bills. In steps the credit card company, more than willing to use a bad situation to turn a profit. How do you help a person drowning in debt? Give them more debt.

But card issuers say the flurry of marketing to subprime borrowers is a sign of healthy competition. Keith Leggett, a senior economist at the American Bankers Association, said direct mail offers were typically intended to lure customers who have credit cards away from competitors. This means better rates and terms for borrowers.

"Consumers should be grateful that we have a very competitive market," he said.

The reality is the subprime borrowers will mostly likely get a really bad deal on the interest rate because of their poor credit. Couple the high interest with the fact that they are also most likely to just make the minimum payments every month. The higher the interest rate, the smaller the percentage of the monthly payment going to pay down the principle. The less you pay to the principle, the longer the credit card company has you leg-shackled to them, paying out more in interest than what you borrowed in the first place. Which could conceivably put you in a worse financial situation than the one you were in before you signed up for their wonderful "deal". It's a lovely cycle, isn't it?

By min | September 6, 2007, 9:42 AM | Liberal Outrage


Comments

And who is going to bail out the credit card companies in a year when all their borrowers are declaring bankruptcy? We (taxpayers) are! YAY!

i'm pretty sure our government will just make it illegal for non-corporations to declare bankruptcy. they will just have to become indentured servants to the credit card companies.