If you’re ever in need of amusement, read an op-ed by John Stossel.  If that doesn’t get you laughing nothing will.  The easily outraged Stossel, whom I note as an aside hates lawyers except when they’re his, has turned his attention to banks, and specifically their credit cards.  It’s not that he loves banks, though one might think he’s angling for a Black Am Ex, but it’s his devotion to the poor that propels him forward.  Here’s his latest brainstorm.

Credit cards are a demagogue’s dream come true. What better way to win public affection than to rail against banks for their harsh terms? In the politicians’ morality play, creditors are the villains and debtors their helpless victims.

A little context first: No one has a natural right to a credit card. Someone has to be willing to undertake the risk in issuing it. Banks issue cards in their quest for profits. Nothing wrong with that.

Didn’t I tell you that he’s shooting for a Black Card?  They are a privilege, not a right.  Got it?

Stossel then explains how credit cards make our life easier, more convenient and just downright wonderful, and we don’t show banks anywhere near enough appreciation for just being there for us. 

To appreciate credit cards, it is worth recalling that before they came along, people got personal loans from banks, finance companies, pawnshops and loan sharks. Such loans were less convenient, and repayment was less flexible. Some people bought things on layaway, which meant they didn’t take the goods home until they were paid for. Loan sharks sometimes broke people’s legs.

When’s the last time a banker broke your leg?  That’s right, never!  Banks are better than loan sharks.  Got it?  And still you don’t love them enough.  That, Stossel explains, is why credit cards are a “demagogue’s dream come true.”  Vilify the banks for making our lives easier with their plastic, and the ignorant huddled masses applaud.

Politicians are too short-sighted and vote-hungry to say such things. They want a “credit card holders’ bill of rights” that would prohibit certain billing practices, like raising interest rates on existing balances. The House could approve the “bill of rights” this week.

Understandably, these billing practices endear themselves to no one, but competition makes the worst of them far less common. And as for raising rates, revolving credit means that a balance is a fresh loan each month; as the terms state, the rate can change. If issuers can never raise rates on existing balances, even when economic conditions change, they will be likely to charge everyone a higher rate to make up for the risk.

It’s only fair to banks, ya know.  And really, we’re a fair people.  We want to be fair.  Fair, fair, fair.  Don’t banks deserve fair too?  This is where Stossel invokes the idea of Volokh Conspirator Todd Zywicki, who is bursting with pride for being the source of Stossel’s knowledge.

Politicians assume we are ignorant about credit-card terms. However, Zywicki points to evidence that people who carry credit-card balances are aware of the interest rate they’re paying, and “those who carry larger balances are even more likely to … comparison shop.”

It’s just like criminals, who know everything there is to know about playing the criminal justice system.  You know how “those people” are.  After all, the credit card business is very competitive, Stossel tells us, and they desperately want the business of poor people who fail to pay their bills timely and rake up a ton of interest on their outstanding debt.  It’s the American way.  And then they just shift a few numbers around and, voilà, the banks are flush again.  They’re just trying to help.

So what’s missing from Stossel’s analysis?  Maybe the competition for business is more about hooking the debtor at the outset, and once hooked, it’s about as much fine print, shifting interest rates, recalculation methods, all designed to create a debt hole that the credit card holder can’t claw his way out of.  Maybe the relative bargaining power after the honeymoon period is all in favor of the banks and the holder, despite Stossel’s attribution of great sophistication, doesn’t stand a chance of arguing against the impending financial rape.

As usual, Stossel manages to set up a paradigm that could only exist in the frontal lobe of the truly simple-minded, No one suggests that banks should carry credit balances without charging interest, but that what’s the problem with only charging the interest rate you tell people you’re charging on only the actual past due balance?  Why do banks get to change the rules, all the rules, at will and with impunity?  Loan sharks may break legs, but they risk prison for their business.  Banks get to charge usurious rates when you add up the interest and plethora of ancillary charges, and get to lobby Congress. 

Ironically, a study just came out on the subject of credit card rates by none other than Mike Cernovich at Crime & Federalism.  Talk about fortuitous timing!

I’ve studied credit card scams and abuses in the abstract.  I wanted to do an experiment to see how shady credit card company “accounting” really is.  My cynical self was astounded. 

My previous balance was $979.90.  Payment Activity (how much I paid) was $704.90.  Thus, should have had an unpaid credit card balance of $275 that I would pay interest on.  My annual percentage rate is 13.4%. 

Question: How much should have interest payment have been?  Answer: When dealing with credit card companies, forget what you think you know about math.

I was charged $13.63 in finance charges?  How?  My APR is 13.24%.   

Is there some hidden usurious rate?   

The answer is even more amazing. 

Even though I paid off all but $275 of my balance, I was required to pay interest on an “average daily balance”  of $1,211.03.  So American Express calculated my 13.4% APR based on money I did not actually owe them.  Remember, I paid them back all but $275.

How is that legal? 

This leads Mike to conclude:

Henceforth, I’m going to use credit cards as a litmus test.  Anyone who mentions “freedom of contract” within the context of credit cards has such an unrealistic understanding of how credit card companies operate that their opinions are per se invalid.

For some reason, I can’t help but feel that Stossel may be unfamiliar with the term “litmus test,” but will likely believe it to be another government conspiracy.

In any event, I have bad news for ya, John.  Your black card has been denied. You’re just not worthy.