Why Credit Makes People So Freaking Mad: A Theory

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No one really likes reading about credit, credit scores and credit reports. As editor of a publication devoted to teaching people about these things, it’s a fact that I’ve had to learn to live with, and it’s not a surprising one. There’s plenty for people to get mad about. Credit is confusing, credit report errors can be hard to fix, and the whole business is generally considerably less fun than watching a kitten escape from one kennel into another one occupied by his/her puppy friend.

I think there’s more to the story, however. There’s often a disconnect between the credit business and the people they report on and score. It’s not that people don’t understand the value of credit reports and scores. They get it. If you haven’t paid some of your bills in the past, banks will think that there’s a greater risk that you won’t pay your bills in the future, so they charge you higher interest rates. It makes sense, and all things being equal, you might understand why, from a bank’s perspective, credit scores are really all about accountability. Except all things aren’t equal.

Credit’s Not a Two-Way-Street

The credit business is a one-way street. Banks can penalize us for failing to pay our bills on time, but what happens when a bank — or any business for that matter — fails to deliver on promises it has made to us? What’s our recourse?

This subject came up in a recent Credit.com editorial meeting. We were discussing a story from Consumerist about a reader who was owed nearly $1,800 by Comcast for almost two years. They wrote:

“Nearly two years after Consumerist reader Robert shut down his business-tier service with Comcast, he’s still fighting with the nation’s largest broadband provider over a $1,775 early termination fee that should not have been assessed. Comcast even admits the money shouldn’t have been debited from Robert’s bank account, but now says it’s his responsibility to sort the mess out with his bank.”

So, Comcast reportedly admitted that it owed him the money, but rather than pay him, the cable company decided to direct the consumer to enlist the help of his bank to try to get the money from them — however that might work. The dispute dates all the way back to 2014, and according to the story, Robert endured multiple rounds of back-and-forth with Comcast before learning that he would ultimately have to try to force them to pay.

The Consumerist reporter, Chris Moran, reached out to Comcast for comment, and they told him “through some error the refund check never generated,” and that a new check would be received within 7-10 days, though they’d reportedly issued similar explanations and guarantees in the past (before telling Robert to ask the bank to help him get his money back). Which brings me to my point …

Let’s assume Comcast does send Robert his money. (I reached out to Comcast, and a spokesperson confirmed that the check was cut.) Let’s say they were to even pay him back with interest (which, if compounded monthly at a 20% APR— not an unreasonable penalty rate— would add up to about $2,639.27 over 24 months … it gets worse for them if you start assessing monthly late charges, too). That’s all fine and good. But what will the long term consequences of this behavior— which arguably demonstrates a high likelihood for default of one form or another in the future?

Well, of course, there are no consequences. And that, my friends, is why people tend to get so angry about credit scores. Because one little late payment by me or you can mean years of higher interest rates (try out this lifetime cost of debt calculator we put together if you need proof), but a company can hold onto your dough for years, and the only consequence for them is that at some point a reporter might shame them into paying you back.

We’re All Creditors

When you think about it, we’re all creditors. We buy goods and services— like cable, cell phone service, internet, etc.— and big companies deliver those services to us. When they fail to do that effectively or at all, we become creditors. We’ve essentially given them money for services they haven’t delivered.

Case in point: My internet service provider/cable company. For the past few months, the internet in my house has been slow and at times, non-existent. How bad, you ask? Let’s ask my 8-year-old daughter how she feels when she can’t watch “Liv and Maddie” on Netflix (this happens about every other day).

“It’s annoying, it’s frustrating and I don’t like it,” she says. “If I have to, I will go to the cable company.”

They don’t want that.

Here’s the thing, if I was slightly less lazy, I’d be on the phone with said ISP and lodge a complaint. I haven’t done that because, as I said, I’m lazy, and beyond that I’m reasonably sure no improvements will come of it (unless of course they manage to up-sell me to their faster service. In addition to being lazy, I am also cheap). But in this case I’m willing to just suck it up. I reckon I’m missing out on about 5% of my service, give or take (though a whining 8-year-old can make it seem like 25%).

I could, I suppose, withhold 5% of my bill payment, in lieu of services not rendered, but the ISP would just carry that balance over to the next month, I might get hit with finance charges, and ultimately, my failure to pay that amount could result in my credit getting dinged, and I might end up paying more for goods and services in the form of higher interest rates as a result.

But do the service providers of the world suffer similar consequences when they fail to deliver or, as was the case with Comcast, allegedly withhold money from a consumer? No. There’s no algorithm that takes this information in and translates it into a score that can impact their bottom line, as credit scores do with us. (You can check your free credit scores, updated monthly, on Credit.com, to see how your bottom line is being affected.)

That, I believe, is one of the biggest reasons why credit seems to make people so mad: Consumers are held to one standard, and companies to another.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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Even the Tech-Savvy Prefer Paper Bank Statements, Study Finds

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There’s a new push to slow the paperless revolution, and no, the paper manufacturers aren’t behind it.

The National Consumer Law Center recently issued a report saying electronic bank statements can make it difficult for people to get information about their financial accounts, particularly for lower-income accountholders who tend to have limited access to technology.

Even people you might consider tech-savvy — younger consumers and those who prefer to pay bills online — still show a preference for receiving paper bills. The NCLC report cited a few studies that showed people opted for paper-based communication for accounts requiring monthly payments or payments upon receipt of a statement. In an analysis conducted by a major utility company in the eastern U.S. that serves a major metro area, 91% of consumers opted to receive paper bills in the mail, even though 71% of customers paid bills electronically. (It’s worth noting this figure came from a report from the U.S. Postal Service, which has an interest in the vitality of paper mail.)

The Consumer Financial Protection Bureau has also reported that only a quarter of active credit card accounts have opted for paperless statements, showing a preference for paper.

From an organizing standpoint, it makes sense. People get a ton of email, making it easy to overlook an important account notice. Sure, you might be able to set up email filters to flag certain senders or try to stay on top of your inbox, but there are plenty of other obstacles to electronic statements. Reviewing an electronic statement often goes like this: You get the email notification that your statement is ready, then you need to go to an account login website, then you need to log in — do you remember your username and password? No? That results in more emails and passwords, or perhaps you get to try and answer some security questions. Once you’re in your account, you have to find the statement, which, depending on the user interface, can slide somewhere between easy and difficult. Even before all of that, you have to have a computer, tablet or smartphone readily available.

Conversely, you could check your physical mailbox and open an envelope. In addition to highlighting these barriers, the NCLC report notes that the paper statement can serve as a tangible reminder to pay the bill. The report highlights examples of consumers who have missed payments because they overlooked an electronic statement, resulting in a hit to their credit scores. Bad credit has wide-reaching implications, like limiting further access to credit, lower insurance and interest rates, and even the ability to get housing or a job. (You can see if late payments are impacting you by viewing your two free credit scores each month on Credit.com.)

In light of that, it’s understandable that so many people who make electronic payments haven’t made the move to electronic statements. The NCLC report argues that consumers should not be pushed toward paperless account management, asking the CFPB to prevent banks and credit card issuers from making electronic statements the default preference, charging a fee for paper statements or incentivizing paperless statements.

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