Reduce the discussion to borrowers and lenders and it’s easy to see both parties in a bad light when they act without good faith. Obviously, our financial system is designed so that those with capital have power over those without capital. And this is not a new thing. The writer of the Old Testament’s Book of Proverbs put it this way: “The rich ruleth over the poor, and the borrower is servant to the lender” (Pro 22:7). It’s an old story.

A person who borrowers responsibly what he or she can afford to pay back and who repays the debt as contractually agreed is usually seen a good light. The person is usually rewarded with an improved credit score and enhances his or her ability to borrow more in the future. In a perfect world, that’s how it works.

But our world is not perfect. One can have resources and great intentions when he borrows, but life is unpredictable. Resources can be taken, lost or used up. Life happens. Borrowers lose jobs, lose health … we all know how unpredictable life can be. Lenders know this, too. And, therefore, they charge interest rates that, in a perfect world, accurately reflect the risk and earn a fair profit for lending.

Lenders know that some loans will fall apart because life happens. Large lenders spread this risk. You’ve seen it happen recently with the blanket increases in credit card interest rates that happened before Federal protections kicked in. To people who have been responsible and have been able to repay their debts, these blankets increases seem unfair. And they are. But capitalism isn’t based on “fair”. Capitalism is based on greed. It thrives on it.

What’s a borrower to do when they feel they’ve been treated unfairly by a lender? Jump ship. Find another lender. And this is exactly what credit card companies have hoped to have happen with those borrowers who caused them losses. Borrowers and lenders are two sides of the same coin.

It only becomes problematic when it becomes personal. The story of the disabled Chicago woman mentioned in the New York Times article is a personal slant. I don’t know. It probably all comes down to personal ethics. And you can’t expect a corporation to have personal ethics. Corporations have corporate ethics and responsibilities to shareholders.

If you’re a borrower, get to know a local, community banker or become a member of a local credit union. Borrow from community banks and credit unions and act responsibly.

If “life happens” and you cannot make a payment, don’t hide from it. Call the local banker you know and explain the situation. If you’ve acted responsibly, then you will have done all you can.

Just as lenders have risks, borrowers do to. It seems like five or six banks fail every Friday because of poor lending practices. Borrowers fail, too, because of poor borrowing practices.

The coin of capitalism has two sides. Someone wins and someone loses. Greed makes it difficult for both parties to win. And as someone said, “there may be something better than capitalism … but no one’s found it.”

Every article has a slant and story to tell. This one tells a story that isn’t pretty. It offers examples of lenders, credit card companies, and banks asserting their advantage over borrowers who cannot meet their debt obligations. Some “arrangements” are so outrageous that judges throw them out of court. An example offered in the article is of a “disabled Cleveland woman” who had paid nearly $3,500 on an original debt of $1,900. Discover sued her for $5,564 (late fees, compounded interest, penalties and other fees). Judge Robert Triozzi, who heard the case, called Discover’s actions “unconscionable” and threw it out of court.

Often, the garnishments are awarded simply because the debtor does not show up in court to explain their financial situation. Lenders simply win by default.

Arbitration clauses can prohibit individual and class action law suits against credit card companies, even if the credit card company violates the terms of the agreement.

Reminds one of the old Financial Golden Rule: “Those who have the gold, make the rules.”

The Philadelphia Enquirer has the story in “Advanta moves up card-freeze date“.

This article begs the question, what does a credit card company do when the default rate climbs so high that being in the business costs more money than it takes to stay in business? How many borrowers of the 79.85 percent who have not defaulted will default now that their credit card company offers no services? In this case, the article notes, “The company hopes customers will pay off their balances, but it is not clear what business Advanta will have after that.”

CNBC.com has the article: “Credit Card Defaults Reach Record Highs in April“

Eric Dash and Andrew Martin do a good job of explaining the extent of trouble banks are having and are going to have with credit cards. “Even the government’s grim projections may vastly understate the size of the credit card troubles in store for major U.S. banks.”

Bank of America and other banks have been reportedly increased credit card interest rates and tacked on or increased fees at will. This is to be expected of an industry that faces little regulation and is given permission by the State of Delaware to do as it wishes with interest rates.

On the other hand, reports indicate banks are trying to be helpful to credit card holders who are strapped for cash in this economic downturn.

In fact, a coalition of banks is running TV, web and print ads inviting credit-card holders who struggle with their payments to visit HelpWithMyCredit.org. There’s even an 800 number: call 1-866-941-1030. The coalition includes Bank of America, Citigroup, MasterCard, Visa, Capital One and Discover. (Chase and American Express are not participating because they wish to work directly with card holders.)

So which is true? Are banks being helpful or are they gouging account holders?

Both are partly true in a “partly cloudy” sort of way.

“Banks roll out efforts to aid strapped credit-card holders” MarketWatch’s take on the current consumer banking situation. The article states, “credit-aid effort (by the banks) doesn’t provide consumers the whole story.” It’s a must-read article if you’re in a credit card jam.

In fact, the helpful part appears to be self-serving. Banks know they’ll lose more money from bankruptcies than from offering ways for card holders to work out a payment plan.

It reminds me again of the famous, TANSTAAFL, from Economics 101: There ain’t no such thing as a free lunch!

If you want a great economic mind’s take on this banking initiative, check out Mike “Mish” Shedlock’s article, “Beware of ‘HelpWithMyCredit’”

What has stirred this sudden desire of banks to help card holders? I imagine it’s the current activity in both houses of Congress to increase regulation of a banking industry run amok with fees and outrageous interest rates.

Visit CreditCardReform.org and use the template to contact your legislators in support of credit card reform. It’s easy and the more your congress-critter hears you complain about credit card pain, the more likely he or she will be to support the initiatives in the U.S. House and Senate to reform the practices of credit card companies.

If you want to write your own letter, the bills to encourage lawmakers to support are S.392, S. 235, S. 414 and HR 627.

Do something for yourself

CreditCardReform.org is a site of Consumers Union, the Nonprofit Publisher of Consumer Reports.

The credit card companies created and enforce the Payment Card Industry (PCI) security standards that apparently failed to prevent cybercriminals from accessing the information of millions of consumer’s credit card accounts in the Hannaford and Heartland cyber attacks.

According to “Visa, MasterCard In Security Hot Seat” on Forbes.com, Rep. Bennie Thompson, chairman of the Homeland Security Committee, suggested the credit card company developed the PCI standards, not to prevent cyberattacks, but to shift the blame onto retailers.

What an odd thing. Certainly, a sign of our times. American Express Co is apparently offering a limited number of card holders $300 if they will pay off their balances and then close their American Express accounts.

So, if you’ve got an AmEx card you’re not using and don’t mind trading it in for $300.00, you might call the 800 number on the back and see if they’ll buy your account.