Consumer Protection

While I'm a strong believer in free enterprise, capitalism and democracy, I think we could do a better job in the consumer protection area. We recently received a catalog in the mail and I noticed the payment options showed a credit payoff chart. This is something we didn't see a few years ago. It was an item required by law to help people understand what they are paying in the way of finance charges.

Many years ago finance companies were allowed to calculate the APR (Annual Percentage Rate) using different formulas and the result was, you couldn't tell which of the rates were better. It was possible that an advertised 14% rate was actually less expensive than a 13% rate. But you couldn't tell this because of the way the calculations hid the final amount you would pay. The consumer protection movement helped bring a change about that required all companies to display the actual, final APR for all credit. This put consumers in the position of being able to compare apples to apples, which is the way it should be.

Back to the credit payoff chart in the catalog. A purchase of $3,200 required a monthly payment of $96, for 31 years. The total paid would be $15,903. If you paid an extra $50 a month, you'd pay a total of $5,321 and it would be paid off in 5 years. Having this information displayed puts people in the position of being able to decide if they want to pay $15,903. or $5,320 or just save up and pay cash of $3,200. People are free to choose, but at least they can make an informed decision.

We've Always Done It That Way

In the business world it's bad form to say "We've always done it that way" as an explanation for a process, procedure or method of doing business. In general I agree. But, as an example of how this can somtimes be a good thing, I realized my wife and I don't know any of the terms, conditions or interest rates on any of our credit cards. Normally this is the type of information you need to stay on top of, but the reason we don't is because we always pay our credit cards off in full, every single month, within a few days of the monthly statement being issued. This one single habit saves us money (by not paying interest), time (we don't need to keep track of "payment due" dates) and any grief that might come about from getting behind on debt payments. Why do we do this? Because we've always done it that way!