THE ESSENTIAL
IMMORALITY OF THE CREDIT CARD BUSINESS
Christopher Ebbe,
Ph.D. 3-12
ABSTRACT: The immoral nature and
socially destructive consequences of financial aspects of current credit cards
is explained. These moral issues are
explored in terms of possibilities of a more caring, cooperative society
through an ethic of voluntarily not taking advantage of others.
KEY WORDS: credit, free, no cost,
cooperation, competition, caring, concern, morality
The current structure of credit card arrangements allows the card
holder to borrow funds from the credit card company for payment to creditors
(businesses). The borrowed money is
transferred promptly by the card company to the business, and that borrowing is
repaid later by the card holder. A few credit
card companies charge a monthly fee or an annual fee for use of the card, in
addition to interest charged on unpaid balances of borrowed money.
Most card companies do not charge interest on the loans for the first
month or partial month of the borrowing, so if the card holder pays the card
company for the borrowed funds at the first opportunity (at the end of the
current monthly cycle), he pays no interest.
If he does not pay at the first opportunity, then interest is charged
for the borrowed amounts. At the same
time, the business that accepts credit card payment pays the credit card
company a fee (usually two to three percent of the purchase price, though this
has been lowered by federal law recently).
The card company therefore makes money in two ways—from the businesses
that accept credit card transactions and also from the card holder if he does
not pay back the borrowed money right away.
There are several reasons why this arrangement is essentially immoral
and socially destructive. For purposes
of this essay, a behavior is deemed immoral if a person using the behavior aims
to gain something from another person while also, by the same behavior, harming
that other person. A behavior is deemed
socially destructive if it leads to greater distrust, less social harmony, and
less desire to wholeheartedly cooperate with others in the larger group.
Economically Helpful and Moral Aspects
(1) Providing a simple alternative to using cash for all purchases can
be useful for many people (although, as you will see below, it should be paid
for and not a free service). It can also
be argued that not charging interest to the borrower if the loan is repaid
quickly is an incentive that encourages people to repay borrowed money quickly,
which is generally to their advantage.
Immoral and Socially Destructive Aspects of Credit Cards
(1) Credit card companies know full well that many people in our
society will over-purchase (buy more than they can reasonably expect to pay
for) if given an opportunity. This is due
to our desire to have what we want now rather than waiting for it or saving for
it. Credit cards provide that
opportunity, both because credit limits are routinely higher than the
re-payment power of credit card holders and because credit card holders can
obtain multiple cards in order to buy even more. Over-purchasing complicates the lives of
those who do it and can lead to financial ruin in a fair number of cases. Thus, credit card companies knowingly attempt
to profit from a weakness of credit card holders that will make the lives of
those credit card holders more difficult, and this is immoral. This outcome results also in defaults on debt
and is therefore socially destructive.
(2) A significant amount of income for the credit card companies comes
from relatively high interest charged to card holders on the borrowed money. While a number of card holders pay their
credit card bills every month and therefore do not pay interest, a sizeable
number of card holders carry a balance and pay considerable interest every
month (often paying only interest or so little that the total bill keeps
getting larger). This group of card
holders is in perpetual debt, since they use credit cards to purchase items
that they want to have now (instead of saving for them) but that they can’t
afford, in the sense that they don’t have current income sufficient to pay off
the borrowed money quickly and that hence they end up paying whatever they can
month after month, in effect paying exorbitant amounts for their purchases when
the interest on those purchases is added to the purchase price.
Credit card companies know full well that this group of card holders
exists (people that will borrow beyond their means and will therefore rarely
ever pay off their balances) and consider them, therefore, to be a long-term,
captive source of income. Credit card
companies have constructed their business model to gain from the inability of
this group of card holders to manage their money (and their buying behavior)
better. Since they aim to gain from
offering credit (borrowing opportunities) to these arguably monetarily
incompetent people, and since they cause harm to these people by enticing them
into paying exorbitant amounts of money for their purchases (purchase price
plus months of interest), they are seeking to gain from taking advantage of an
incompetence (or disability) of these people, and the business model is
therefore immoral. (Of course, the
business model is perfectly legal, and it would not be immoral if we did not
define as immoral efforts to gain from someone while at the same time harming
him.)
Credit card companies (and many other businesses that benefit from the
inabilities of a sizeable group of consumers to manage their money better)
would argue that no one is forcing these people to use credit cards and that
everyone is responsible for his or her decisions and behavior. The underlying issue, though, is the
immorality of designing a business on purpose to take advantage of some consumers.
Another example of this sort of “taking advantage” of consumers is
price-fixing by businesses that have a monopoly, such as real estate agents
that charge a percentage of the house sale price rather than a fee relating to
the work that they actually do. Real
estate agents would defend themselves by saying that consumers could look for
sale-by-owner houses and avoid the agent fee, but most consumers do not have
the confidence in their understanding of the legal issues involved to take that
route, so they go to real estate agents, who charge unfairly. Real estate agents would also say that agents
are not required to charge a percentage of sale price, but, of course, if they
do not, they are restricted from using the multiple listing service, which is
the best resource for buying and selling houses. The incentives are arranged so that almost
all agents go along, happily, with the prevailing arrangement and therefore
charge consumers more money than they actually earn (if we assume that prices
in general should relate to the actual cost or work done). A similar argument can be made about the
transaction fee the credit card companies charge to businesses, because it is a
percentage of the borrowed money and not a standard transaction fee. There is no rationale for charging a
percentage of the borrowed money as a transaction fee, except to make as much
money as possible.
Businesses would argue strenuously that in our “free country” people
must take care of themselves, including avoiding getting themselves into
financial trouble, but I am suggesting that we have more moral responsibility
for our fellow men than to allow each other to figure out ways to take
advantage of others based on their ignorance or inabilities.
(3) The credit card business model requires that large numbers of
people use credit cards, which will cause large numbers of businesses to feel
that to compete with other businesses who do accept credit cards, they also must
accept credit cards from consumers (and therefore lose money by paying the
transaction fee required). The group of
consumers who cannot manage their buying behavior well may not be large enough
to to induce large numbers of businesses to accept credit cards, so credit card
companies offer the use of the cards free to those who pay their balances
monthly (and hence pay no interest on their borrowing), so that the number of
credit card users will be large enough to leverage most businesses into
accepting credit cards for payment. (Credit
card companies might argue that businesses that accept credit cards get enough
additional business from doing so that it offsets the transaction charges that
the businesses pay, but I have seen no data to support this.)
Offering the use of cards for free is fundamentally immoral, since it
distorts the proper relationship between buyer (credit card users) and seller
(credit card company), which would be for all credit card users to pay a per
transaction fee, so that they know clearly what they are getting and at what
price. The reader might wonder in
amazement how offering something free could be bad. It is “bad” because it is not motivated by a
desire to give as many people as possible a free service, but rather it is
motivated by the need to “use” those free users as bait for businesses that
will then feel unable to resist accepting credit cards as payment and therefore
will pay credit card companies the transaction fees that form an important part
of their income. This enables the credit
card companies to “feed off of” that smaller group of people who cannot manage
their buying behavior well, are therefore constantly in debt, and therefore pay
endless amounts of interest to the credit card companies. Those who manage their money well (pay loans
off quickly) benefit, and card companies benefit, all at the expense of those who
cannot manage their buying in such a way that they do not pay excessive
interest.
This behavior (offering things for free) is similar to the come-ons
used by other businesses when advertising a small number of items for reduced
prices in order to attract larger numbers of people (most of whom will arrive
too late to get the reduced price but may still buy something else from the
store). The store is not motivated to
provide any product as cheap as possible, but rather it “uses” the desire for
something “free” to motivate people to come to the store, even if they do not
get anything free.
As noted above, the honest (that is, clear and straightforward)
behavior would be for everyone to pay directly the (same) cost of whatever
product or service they receive (rather than getting something free or getting
a discounted price). Otherwise, the
transaction is dishonest, and this dishonesty is inevitably harmful to
individuals and is therefore immoral. Some
business people would argue strenuously that they are free to charge any price
they want to any consumer, and it is true that this behavior is currently
legal, but charging different prices is always for purposes of manipulation of
others on the part of the seller.
(4) Even more fundamentally, the credit card business operates (as do
most businesses) on the principle of making as much money as possible (in as
many ways as possible) rather than on the principle of charging what a product
or service costs, plus a reasonable profit.
The credit card transaction charge to businesses might be sufficient to
pay for the costs of the credit given plus a reasonable profit, but card
companies charge interest to borrowers as well.
The interest charges to borrowers might be sufficient by themselves to
pay for the borrowing and provide a reasonable profit, but the card company
charges merchants also. The payment(s)
to the card company have no necessary relationship to the cost to the card
company of providing the credit. They
are simply as high as they can be and still induce enough people to use the
credit cards to make the enterprise profitable.
This is part of “the American way,” of course, which is to get as much
money from others as they are willing to give, which means that any profit
level is justified. Since providers of
products or services never tell consumers what the product actually costs to
make or provide, consumers never know what the profit level is and therefore
never know if it is reasonable or not.
We say that we are “protected” from overcharging by competition between
various makers and providers, but as we permit more and more product makers and
service providers to get larger and larger (justified by economies of scale and
promises of better, unified operations), we knowingly reduce the amount of
competition that “protects” us. Our
desire to get as much money as possible, morally or immorally, also prompts
businesses to conspire in uniformly charging enough to make unreasonable
profits, even if there is no communication among them and they all just
increase their prices to keep up with the others.
Advocates of free markets argue that an appropriate price will be
determined by the interactions of competing providers and consumers,
essentially arguing that whatever price consumers are willing to pay is a
“fair” price and that there are no “unreasonable profits.” According to this position, a bread supplier
charging $100 for a loaf of bread in a disaster area is justified in doing so
if people will pay this price, though this ignores the fact that only a few
people can pay this price and most may go hungry.
Basic Societal Issues
The basic social problem with free markets is that they accept the
assumption that all members of society are competing with all other members of
society to gain from a pool of limited resources. This drive to gain and acquire motivates
people to strive to do more or better than others, as well as calling forth the
willingness of most people to deceive, defraud, and overcharge others, and free
market philosophies accept these selfish and harmful behaviors as the price of
“freedom” and of getting people to produce more. The positive side of this drive is that
people expend considerable energies in finding out what others will pay for and
then supplying that product or service, perhaps (if there is some true
competition), in increasingly efficient and inexpensive ways.
An alternative market philosophy would assume that people can function
basically as cooperators rather than competitors. This cooperation might suggest that people
seek only “reasonable” profit margins, rather than seeking to get rich quickly
by making profits as high as possible, since to seek only “reasonable” profits
would make that product or service available to others at a lower price. This view has been a staple of socialist and
communist societies, and unfortunately history suggests that
government-controlled economies have enough corruption in their design and
oversight and lead to enough lethargy among workers that they have not succeeded
over time. (Actually they have been
capable of sustaining those societies, but the desire of members of those
societies for more freedoms and more products and services has eventually
eroded the will to impose cooperation on the populace.) It is clear that self-interest on the part of
all participants in a modern economy is necessary, but that self-interest need
not extend to taking advantage of others, by lying, withholding information, or
psychological manipulation.
An argument can be made that advertising that is designed to induce
consumers to buy is immoral, since the aim of the advertising is to induce
consumers to buy more than they otherwise would (more than they would if they
simply regarded their own needs in the absence of advertising). It becomes
immoral if we assume that buying more than one otherwise would buy can be
harmful (from the increased but induced buying). (Seeking the personal information needed to
do targeted advertising, as is being done and debated on the internet, could
also be seen as immoral, since the purpose of such personal information is to
assist businesses in selling more to consumers than consumers would buy in the
absence of such advertising.) A large
economy needs methods of informing consumers about consumption opportunities, but
our current form of advertising aims to psychologically manipulate consumers to
buy, which at times is not in the best interest of those consumers.
To generalize from seeking only “reasonable” profits, not using
psychologically manipulative advertising, and not misrepresenting products, the
basic ethic suggested here is simply not taking advantage of others, which
means not trying to deceive them, not trying to appeal to emotions unrelated to
the product or service at issue (usually pride, status, and superiority
feelings), and only charging costs plus a “reasonable” profit.
Americans like having the opportunity to make large amounts of money,
by any legal means possible, including deceiving and lying to consumers (viz.,
much of what we see in advertising; the privacy policies and contracts that no
one can understand; etc.). Perhaps we do
not want to require anyone else to tell the truth or to disclose the complete
truth so that we ourselves can also remain free to deceive and lie to our
fellow citizens (since we fear deep down that if we tell the truth and are
transparent about our behaviors, we will lose our “competitive advantage,” others
will criticize or turn away from us, and others will use our honesty and
transparency to take advantage of us).
You may be concerned about shifting from our current moral stance,
which is that each person is completely responsible for her own behavior, so
that the rest of us are free, morally, to try by everything but outright lies
to induce others to buy from us or to use our services. I am not suggesting that people should be
less responsible for themselves, but rather that in addition to that, we would
have a happier and more happily interrelated society than we do now if we also
were responsible ourselves for not trying to get others to give us money (in
return for products or services) when to do so would harm them (directly, or
indirectly by putting them in more difficult circumstances because of our
transaction, such as excessive debt). It
would be a change from “sell if at all possible” to “sell if it is
appropriate.” You may scream, “But only
that other person can know if more of my product or service will be in his best
interest,” but I would suggest that in some instances, you, the provider or
seller, can in fact see that more of your product or service is not the best
choice for the consumer. This need not
be an excessive burden for you, the seller.
An example might be declining to sell an expensive car to a mentally
deficient (but still legally competent) man who has just barely enough income
to live on but has just received a small inheritance that is just enough to pay
for the car (but not the insurance or upkeep).
Another example might be requiring a couple who have declared bankruptcy
twice to get financial counseling before you sell them a house. A further example might be deciding not to
sell cigarettes in your store because you believe the health consequences of
smoking to be considerable. The moral
requirement would be to take some action (additional information or advice for
the buyer, discussion to ensure that the buyer “knows” what she is getting
into, etc.), out of concern for the buyer.
In some of these examples, the seller might also decline due to
unacceptable risk for the seller, but the moral issue is having concern for the
buyer as well. (It is part of the
ethical code of professional psychologists to terminate treatment if the client
is not benefiting, and the ethical codes of other professions, including
salespersons, could be similarly modified.)
This concern follows from the growing realization in our rich society
that people at least sometimes and perhaps even often do not know what is in
their best interest and do not act in their best interest, as has been
demonstrated by our problems with obesity, substance use, and over-spending in
general. It is becoming clear that our
innate or evolutionarily-developed capacities are not really up to the task of
coping with having more than we need, which has become possible in developed economies. If we were not so rich, and if we did not
have so much preferentially-disposable income (but had to use almost all of it
on food, basic housing, and other essentials), this would not be as much of a
concern.
This little bit of additional concern and caring for others would make
our society a more comfortable and less anxious social context in which to
live, because it would reduce the constant vigilance that is currently needed
to protect ourselves from the many around us who we know are always looking for
ways to take advantage of us, and it would allow us to be more relaxed and
friendly with each other, because of the lessened resentment we would feel
about those efforts to take advantage of us.
After considering the arguments in this essay, one could still think
that since human beings are biologically incapable of having a caring attitude
toward everyone, we should therefore simply continue with our competitive
society and enjoy its material fruits, but it does not seem proven yet that
people cannot expand their circles of caring significantly. It might even be that the fears of not having
enough, when that was an ever-present reality, as it was for people prior to
the modern age, were too great to permit a more caring society, but it may also
be that having enough, as many of us do now, does allow us to relax those fears
and give our natural capacities to care the chance to apply to more of those in
society (to enlarge our circle of those we care about enough to avoid taking
advantage of them). It could be that
eliminating “sell if at all possible” and eliminating manipulative advertising
and free credit card use might reduce our Gross National Product somewhat, but these
things might also lead us to be happier.
There are many, many people in this country who feel that they have some
moral responsibility not to take advantage of others by any means--with
excessive charges or profits, with lies or fraud, or with psychologically
manipulative advertising. These people
generally do not “make the news” and remain anonymous to our public perceptions
of society. Also, the desires of the
recent “Occupy” movements seem to be consistent with the focus in this essay—to
have a society that is more cooperative and less predatory. The keys to having a more cooperative society
are (1) to decide that we want the kind of society that is produced by higher
standards of honesty and transparency with others, (2) that we want the kind of
society that involves more citizens having concern for others, (3) to accept
the possible slightly lower standard of living that might occur if everyone did
operate in a caring and cooperative way rather than competitively, (4) to
accept the restrictions on ourselves of not using personal contact, false
information, and advertising to “take advantage” of others, and (5) to begin to
negatively reinforce (protest to, boycott, publicly criticize, personally
complain to, etc.) sellers that try to take advantage of others and to gently
point out the options for caring more for others as they present themselves.
essays\unfinished\creditcardimmorality
