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Matt KramerThe high cost of cheap credit
By Ellen Ruppel Shell | June 7, 2009
THE NEW credit card law has been widely hailed as a David vs. Goliath victory of hapless consumers over venal lenders. "People can feel a lot more comfortable about the rules of the game," Adam Levin, chairman and founder of Credit.com, told the Associated Press. "But there will be some fallout, and it might be a short-term negative."
Among the negatives Levin cites are higher introductory rates and fees. But when it comes to credit cards, is raising the price of entry and ownership really such a bad thing? You don't need a credit history or even a job to get a credit card. Kids typically get their first solicitations in high school - one out of three high school seniors use them, and half of those carry cards in their own name. Seventy-eight percent of college students have credit cards, and, according to student loan maker Nellie Mae, typically carry a balance of $3,200. One out of 10 college students is more than $7,800 in the hole to at least one credit card company, and only 19 percent manage to graduate free of credit card debt. Yes, students and easy credit can be a dangerous combination, but not necessarily the most dangerous. That would be easy credit and the bankrupt.
In a shocking study titled "Bankrupt Profits: The Credit Industry's Business Model for Postbankruptcy Lending," Katherine Porter of the University of Iowa found that 96 percent of those polled were offered new credit in the first year after they declared bankruptcy. Porter concludes: "The modern credit industry sees bankrupt families as lucrative targets for high-yield lending, a reality that has important implications for developing optimal consumer credit policy and bankruptcy law."
Lucrative targets, yes, but whose fault is that? Surely some of the blame must fall on consumers willing to take lenders up on these "unbeatable" offers. Over the past 18 months or so, thousands of foreclosures and bankruptcies have made clear that what seems like cheap credit is anythi
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