0:01

There was this brief moment a couple years ago

0:03

when it looked like Americans just might finally get

0:06

their credit card spending in check. We

0:08

were spending less during COVID and those federal

0:10

stimulus checks meant a lot of us were

0:12

actually making more money. But then

0:14

when those ended and inflation

0:16

reared its ugly head and came back around,

0:18

it really caught people off guard and they're

0:20

digging themselves deeper and deeper into debt in

0:23

order to make ends meet. Over

0:25

the past year and a half, as Americans were

0:27

putting more on their credit cards

0:29

than ever before, interest rates rose

0:31

on those cards by nearly a third.

0:34

I could put all of

0:36

my entire paycheck towards paying

0:38

it off for

0:41

the entire year and it would still

0:43

take me about two years

0:45

to pay it all off plus

0:48

interest. How Americans racked up

0:50

over a trillion dollars in credit card debt

0:52

and what it'll take to get us out

0:54

of it. Coming up

0:56

on Today Explained. Support

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why's. wise.com. Why's dot

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com. Today

15:46

Explained, we're back with CNET's Nick Wolney,

15:48

talking credit cards. Okay,

15:50

Nick, wasn't

15:52

there legislation post-financial

15:55

crisis that was supposed to fix

15:57

all of this and ease the burden? on

16:00

credit card holders? I

16:02

mean, there was, and it did ease some

16:04

of the burden. But when

16:06

you're 100 feet down the rabbit hole and you get

16:09

a law that gets passed and you come 10

16:11

feet back up, you're still quite far

16:13

down the rabbit hole. The

16:15

CARD Act. Credit card

16:18

accountability, responsibility, and disclosure act.

16:20

That was in 2009. Statements

16:23

will be required to tell credit card holders how

16:25

long it will take to pay off a balance

16:28

and what it'll cost in interest if they

16:30

only make the minimum monthly

16:32

payments. We also put a stop

16:34

to retroactive rate hikes that appear on a bill

16:36

suddenly with no rhyme or reason. It

16:39

gave consumers at least 21 days from

16:41

the date of statement to actually pay their bill. And

16:44

this law ends the practice of shifting payment

16:46

dates. This always used to bug me. You

16:49

know, when you'd get like, suddenly it was

16:51

due on the 19th, when

16:55

it had been the 31st. It

16:58

limited excessive marketing to young adults. There was

17:00

a lot of marketing towards college students, right,

17:03

who might be more susceptible to, you

17:05

know, to getting a credit card before

17:07

they have, you know, fully robust financial

17:09

education, financial literacy. So it

17:11

did make a little bit of a dent, but unfortunately

17:13

we're dealing with quite a large boulder here. And so,

17:16

you know, there's more work to be done certainly. How

17:22

did we get to the point

17:24

where there can be these wild,

17:28

wild interest rates? Regulations

17:30

have loosened on credit card interest rates.

17:32

And there are a few reasons why.

17:35

So some history here, there was a Supreme Court opinion

17:38

that came out in 1978, Marquette National

17:40

Bank versus First of Omaha Corp. And

17:44

this opinion allowed national banks

17:46

to be governed by the usury laws of

17:49

the state that they are headquartered. And

17:51

so famously in the late seventies,

17:54

Citibank was just absolutely drowning. You know,

17:56

inflation was extremely high circa 1980. It

18:00

was actually so high that banks like Citibank

18:02

were losing money on every single dollar that

18:04

was on a credit card because they were

18:06

capped on how much interest they could charge

18:08

their consumers. So Citibank famously courted

18:10

the governor of South Dakota and said,

18:13

hey, we'd love to move our headquarters

18:15

to South Dakota. Will your

18:17

legislature invite us to come to South

18:19

Dakota? And they agreed. So

18:21

they abolished the usual laws in South Dakota. Citibank

18:23

moved there. Several other banks moved there. Delaware

18:26

followed. Nevada followed. And

18:29

so as a result, no matter what state you live

18:31

in, if you have a credit card from

18:33

that bank and that bank is headquartered in

18:35

Delaware or South Dakota, that bank can charge

18:37

whatever it wants to on on the

18:39

credit card. And as a

18:41

result, you have this very deregulated

18:44

landscape that allows national banks to

18:46

jack up those credit card rates. So

18:51

we're at a record high right now.

18:54

But have Americans always carried credit card

18:56

debt since these cards have been

18:58

available? Of course. What

19:01

else is it for? Right. Like

19:03

all the way back in the 1950s, you know,

19:05

those very first credit cards that came out, there

19:07

was a card called Diners Club, which

19:10

was one of the first forms of a credit

19:12

card. It's easy to spot a member of the

19:14

club. Last year, Diners Club members

19:16

had over 10 million fine meals, took over 500,000

19:18

vacations and

19:21

saved many helpings of chop suey. And

19:23

it was really it was very

19:26

much branded as this social club

19:28

card. Right. You could go out,

19:30

you'd be in the Diners Club and things like

19:32

that. And it was

19:34

branded very much as an identity.

19:36

That was also akin to just a lot of the marketing and branding

19:39

in general in 1950s. Like when you

19:41

like when you put your Amex on the card and

19:43

was like, oh, it's so heavy. It's metal.

19:46

You know you made it when your cards go from sounding like

19:48

this to sounding

19:50

like this. Or

19:53

do you see this as a trend on TikTok now, Gen

19:56

Z or is showing off their Amex's as a

19:58

flat. That sounds like a good way

20:00

to get. your credit card information stolen. Right? That's what I

20:02

thought. Don't flash your Platinum Amex to me.

20:05

That's interesting for them as well. It's

20:09

like the social clout of having the Platinum Amex is

20:11

worth the $695 annual fee to that. But

20:15

if you look at the total credit card debt

20:17

in America, it's just gone up and up and

20:19

up and up and up. We had two corrections.

20:21

We had a correction in the housing crisis, and

20:23

then we also had a correction during COVID, where

20:25

people were like, oh crap, I better pay this

20:27

down in case I lose my job. And

20:30

so we did see corrections there, but

20:32

otherwise we have seen that

20:34

number steadily go up. Another reason we're

20:36

trying to sound the alarm now is

20:38

that people are really struggling right now.

20:40

Historically, in Q1 of each year, we

20:43

see a little bit of a payoff. People come

20:45

off the holidays, they're like, oh God, what have

20:47

I done? And they're actually responsible.

20:49

There's some of that New Year's resolution energy as

20:51

well. People tend to pay down some of the

20:53

balance. So we usually see a dimple in that

20:56

line graph. And for the last two years,

20:58

so Q1 of 2023 and this Q1 as well, people

21:02

didn't really do that. So even

21:04

most recently we went from 1.13 trillion dollars to

21:08

1.12 trillion dollars. And

21:10

this is the quarter where people are supposed to

21:12

be really making a dent and paying down their

21:14

balances. So it's concerning

21:17

to some economists that people are

21:19

not following that usual behavior, that

21:21

people are actually needing their credit

21:23

card in order to make ends

21:26

meet. And there's also some concern

21:28

that in terms of consumer spending,

21:30

which accounts for a large part

21:32

of overall GDP, that that is perhaps

21:35

being propped up somewhat by people using

21:37

their credit cards and spending money that

21:39

they don't necessarily have. Are

21:42

there states or lawmakers who

21:44

are advocating for capping these

21:46

interest rates right now? Yeah,

21:50

I mean, it's happened multiple times. It tends

21:52

to die in legislation or when it gets

21:54

to a certain House committee or a Senate

21:56

committee, we have a

21:58

couple of different ones that have. been introduced over

22:00

the years. And the most recent one is

22:02

the capping credit card interest

22:04

rates act that was introduced by Senator

22:06

Hawley of Missouri, which was not on

22:08

my bingo card that he would be

22:10

the one to introduce that. 18% ought

22:12

to be the cap. My

22:15

bill would cap it across the board, all credit

22:17

cards, cap fees as well so the credit card

22:20

companies can't come in through the back door and

22:22

charge you more. This is basic fairness for

22:24

working people in this country. The last time

22:27

it was introduced, it was introduced by Bernie

22:29

Sanders and AOC. Sometimes

22:31

politicians will introduce these laws, even

22:33

though they know they're going to die

22:36

in a vote because it's

22:38

a good political gambit for them. So

22:41

Senator Hawley, when he's out on the campaign trail, people

22:44

say, you're not fighting for the little guy. He'd be like, yeah,

22:46

I did. I introduced this

22:48

bill, even though there's a

22:51

tremendous amount of lobbying money

22:53

from banks, understandably, that is

22:55

flowing through DC at

22:59

any given moment. So while

23:01

we do see some of these different

23:03

pieces of legislation emerge, you

23:06

go online to look at the status of the bill. And

23:10

it's been introduced, the stage that it's in,

23:12

is it OK? It's been introduced and it's with the committee.

23:14

And it's unlikely that it's going to see

23:17

the light of day again. Is there

23:19

a policy fix to this? There

23:21

is. There is a policy

23:23

fix. Whether or not we can

23:25

bring it to fruition, I think, is

23:28

the challenge. So the most immediate policy

23:30

fix would be to

23:32

cap interest rates and

23:36

to just allow us to

23:38

stop the bleeding in terms of consumers

23:40

falling deeper and deeper into debt, taking

23:42

a really good look at what are

23:45

the limits that we are extending to

23:47

consumers. We've got

23:49

another, I'll just say it, we've got another

23:51

villain in the picture. And that villain's name

23:53

is Buy Now, Pay Later. Explore

23:55

your favourite stores in the Klarna app. Once

23:58

you have chosen what you would like, to buy or

24:01

if you know how much you'd like to spend, select

24:03

pay with Klarna to create a one-time

24:05

car. The Klarna of it

24:08

all. Yeah. And so what's tricky about

24:10

Buy Now, Pay Later is that those

24:12

companies have been skirting,

24:15

reporting requirements. And

24:17

so for many people, we can't even

24:19

see how much that they have out on Buy Now,

24:22

Pay Later. Bloomberg did a

24:24

Harris poll last month where they found that a

24:26

third of respondents said they have over $1,000 out

24:28

on Buy Now, Pay Later. And

24:31

this is for payments over six weeks. It's

24:34

purposely for payments so that they can skirt

24:36

under the Truth in Lending Act, which once

24:38

you get to five payments or more on

24:41

any form of debt or any kind of loan,

24:44

then you have a bunch of additional regulatory requirements

24:46

that you have to adhere to. So

24:48

that's why you almost always see it be

24:50

four payments, usually over a six-week period. And

24:53

so it's sort of a cousin to the credit card, right?

24:55

So now people already have all their credit card debt. And

24:58

you can use your credit card for Buy Now, Pay Later as well.

25:01

Is there a way to get off this

25:03

credit card ride? Is there a way you

25:05

can just opt out and say, I'm not

25:07

doing this? No. No. If

25:10

you have credit card debt, then it's just going

25:12

back to the bones of personal finance, right? I

25:14

like to say that when we gum

25:16

down, do it personal finance, it's just eight words. Make

25:19

more money, lower expenses, invest the

25:21

difference. And so if

25:23

you're trying to pay down that debt and

25:26

you want to put some extra money toward

25:28

that debt, then taking a good look at

25:30

your budget, seeing where you could lower expenses,

25:32

perhaps bringing some extra money into the picture,

25:35

that's going to be the most impactful way

25:37

to make a dent on those balances. Stop

25:40

using the credit card. Maybe if you're someone

25:42

who uses the digital wallet a lot, maybe

25:44

it's time to take those cards out of

25:46

your wallet just so that you're not tempted

25:48

in the moment to shop or

25:50

to spend, things like that. It could also

25:53

be time to do some of those maybe more unsavory

25:56

financial activities. You call

25:58

your cell phone company to see if you can get your bill. lowered.

26:00

You call the credit card company to see if

26:02

you can get the APR lowered. There's plenty of

26:04

free scripts and stuff like that online. I

26:07

know it doesn't sound like much, but 50 or 100 bucks

26:09

a month of savings, it really adds up. It's over a

26:11

thousand dollars a year when you add it up. And

26:13

for many people, that can help make the biggest difference.

26:18

We need some policy change that is

26:20

about the cost of living as well,

26:23

not just about the credit card as the instrument,

26:25

because I think, despite their best intentions, consumers are

26:27

going to keep using that tool to make ends

26:29

meet for as long as it's available to them

26:31

and for as long as prices are at where

26:33

they're at right now. That's

26:46

CNET's Nick Moulney. You can read his latest

26:48

on credit cards, maxed out,

26:50

inside America's credit card debt crisis

26:52

and what we do next over at

26:55

cnet.com. Today's episode

26:57

was produced by Victoria Chamberlain, edited

26:59

by Matt Collett, fact-checked by

27:01

Laura Bullard and Amina Alsati and

27:04

engineered by Andrea Christian's daughter and Patrick

27:06

Boyd. I'm John Glenn

27:09

Hill, and this is Today Explained.

27:12

And when I'm not filling in for the

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own podcast for Vox. In the

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from how to redo the Constitution to

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