Up Front: December 2008

He doesnít take plastic

I wanted to see the Old West, but it looked as if my initial vista might be through the bars of a hoosegow. Iíd rented a car through a travel agency in Charlotte, and in the Albuquerque airport, the unhappy man behind the Hertz counter explained: No credit card, no keys. But I paid in advance, I protested. Yeah, he replied, but youíre not going anywhere until you give me a credit card. Something about security. Voice rising, I offered my Visa debit card. Nope. Cash? No way.

As our faces got redder and voices grew louder, people in line began backing up, the way they do in the movies right before the barkeep pulls out the 12-gauge. I started yelling something about calling the Better Business Bureau, and he threatened to call security. Finally, I was forced to admit the truth: I donít have a credit card. Never have.

I once was embarrassed to admit that. People looked at me as if I lived in a cave. But these last few weeks, I just drag my knuckles and grin. After all, when it comes to worrying about the perils of plastic, I have an ally ó no less than Ken Lewis, chief executive of Charlotte-based Bank of America.

On the heels of the mortgage meltdown, he says heís fretting about credit-card defaults. The nationís banks have about $50 billion in credit-card loans theyíll never see hide nor hair of, a default rate of nearly 5.5% in the last quarter. Thirty percent of BofAís credit cards are held by subprime borrowers, who would be safer drawing a six-gun after swilling rotgut than pulling an embossed piece of plastic out of a billfold.

I learned early that if you donít have money for something, you donít waste time wanting it. But credit-card issuers figured a way around that. Putting it on plastic, they told us, isnít like spending real money. Thatís why, studies show, people will pay 12% to 18% more for an item with their credit card. If they miss a payment, they hand over the strongbox ó a rate of 35% or more. Another point that riles me: the idea of renting my own money back while paying nearly 14%, on average, for the privilege. The rate on a CD is 3% or thereabouts. Even if I donít play their game, Iíve got banks paying me next to nothing for my money in order to lend it to people at exorbitant rates to buy things they wouldnít buy with real cash.

The moral is this: Live by the credit card, die by the credit card. Ask the late Washington Mutual. Nearly half its credit cards were issued to subprime borrowers, and their defaults helped leave the bank face down in the dust. Now pardon me. Iím going back to Albuquerque, where, by the way, I finally did find another rental-car company willing to treat currency like real money. Iíve got a score to settle, and Iím still packing. Cash.


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