The article in the url below generates contradictory feelings (Issues: Finance, p180; Investing, p184; Loans, p188). At first, when I read it I thought firms were innovatively expanding access to credit to previously excluded segments of the market (a positive). Then I realized that less affluent customers are more likely to use credit heavily and get caught up in cycles of repayment and high interest rates (a negative). It is important, however, to recognize that consumer credit is far more preferable to the “neighborhood loan shops” that can charge “more than 200% annual interest” and having a credit card helps build credit history (positives). But, then I read that such private label cards tend to charge higher interest rates than regular credit cards (negative). In general, however, I like the Citigroup policy:
“Citigroup lets consumers build a credit history with a MasterCard secured with money the consumer puts in a certificate of deposit. After 18 months, consumers deemed creditworthy may be offered a regular Citigroup credit card, and the original deposit, plus interest, is put into the holder's credit-card account. Others can renew the CD or close the account and get the deposit back, with interest.”
And also aspects of the GE plan:
“The issuers say they are treading carefully and tracking payment habits closely, so they aren't saddled with bad loans to nonpaying customers. GE, for example, calls new customers to make sure they understand their bills, interest rates and potential late fees.”
The oversight role played by consumer advocates, discussed in the article, should help keep the banks reasonably honest. Ultimately, I think extending the banking system to serve the huge number of people in the US who do not have either a bank account or access to credit of some sort, providing them with legitimate alternatives to the “neighborhood loan shops,” generates a great deal of social value:
Take care
Dave
Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther
Private-Label Card Program From GE Offers 'Road to Credit' To Tap Greater Portion of Market
By Kathryn Kranhold and Robin Sidel
1104 words
6 July 2006
The Wall Street Journal
C1
http://online.wsj.com/article/SB115214210537198943.html
A freely accessible version of this article can be found at:
http://www.nabble.com/Article-(07-06-2006):-Private-Label-Card-Program-from-GE-Offers-'Road-to-Credit'-p5210720.html
