Banks have been getting bad press for raising credit card interest rates - sometimes doubling them - and slapping fees on borrowers who have not met repayment terms or have developed credit problems the issuer learned of. Last week The New York Times and the Public Broadcasting Service's "Frontline" ran a full-page story and full-hour program on the topic.
Much of the criticism is justified. Banks have issued card after card with high debt limits to people who cannot repay. In fact, the Times and "Frontline" interviewed a consultant who encourages banks to reduce monthly minimum payments to 2% of the balance, from 5%, so the customer will be in debt seemingly forever.
To highlight the folly of some issuing banks, "Frontline" pointed out that people who have defaulted on their cards are still receiving offers of new ones from other issuers. No wonder so many people have multiple cards and have maxed out on all of them by paying the minimum on one with the next. But the TV program and the front-page Times story mentioned the word "bankruptcy" only a few times, and neither discussed what bankruptcy means for the bank or the borrower.
For a bank it means recovering 3 to 5 cents on the dollar, if that much - so banks go out of their way to moderate terms and develop repayment programs for borrowers who get in over their heads.
It may seem unfair for the banks to hit delinquents with hefty fees and charges, but the overall credit card operation must make a profit. Bankers therefore believe they must get what they can from delinquents before they go under.
As for the borrowers, you might think a full-page article and an hourlong program would spend a little time explaining that bankruptcy can taint a delinquent's credit standing for years. Such an explanation might do more to help card addicts than all the horror stories about rates and fees.
You might also think such coverage would point out that "zero percent financing" is impossible, and that the fine print of the contracts does not constitute bait-and-switch. Even the most naive borrower knows that someone must pay for his loan, and that there is no one but himself to do it.
Maybe the banks that offer these teaser rates should emphasize the gimmicks that make them work, instead of hiding them. That might lead to a portfolio of borrowers far less likely to default.
I owe Melissa J. Cabocel, the director of the Consumer Bankers Association's Graduate School of Retail Bank Management, a thanks and a wait-a-minute for her letter to the editor on my column on banking schools.Thanks, Ms. Cabocel, for pointing out developments of great value (computer simulations, e-mail contact between teachers and students) since the three decades I taught in those schools.
But my column was not just "a nice trip down memory lane for retired bankers." Many still active in banking, in high positions and low, attended schools that operated as I described them. Many ideas and approaches presented there remain part of the fabric of today's industry.
Mr. Nadler, an American Banker contributing editor, is a professor emeritus of finance at Rutgers University Graduate School of Management in Newark, N.J.
