A Credit Card Industry Insider Shares Truths; Why He Left After 20 Years

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Good Bye Credit Card

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The following guest blog is offered by Scott Taylor who spent nearly 20 years working inside the credit card industry. He worked with the 5 top tier credit card companies in Collections, Risk, Marketing and Customer Service. He is not an affiliate marketer for any credit card company -his mission is to simply share his perspective from the inside -out -hoping his knowledge will help the average consumer navigate and understand industry practices.  

Moral Compass Calibration- Why I left the Credit Card industry after nearly 20 years

By Guest blogger;
Scott Taylor

I decided after nearly 20 years to leave the industry due to having an epiphany and self revelation that I could no longer morally handle working in the credit card industry. The reasons for these self revelation and moral compass calibration were driven by several factors.

The first reason was since becoming a father to my son I wanted to always provide a positive role model to my son in the same manner that my father did for me. Frankly I no longer felt good about what I did so I could not feel proud of my daily actions.

Second, there was some level of "insider" understanding of credit cards that the general consumer can never really understand and I felt that this placed customers at a huge disadvantage in the relationship. The best example I can use is the buying a car and not knowing when it will be paid off. Credit cards are useful when used properly, however the banks and credit card companies provide less than adequate education and proper use of credit.  I mean to expect them to do so would be like cigarette companies placing warning labels on their products. Oh yeah, that's right they do.   

The big secret around credit cards is that they have always been the cash cow of nearly any bank or company. In fact, during the recession in the early 1990's credit cards kept many banks solvent when the mortgage businesses were failing. The revenue model for credit cards is so extremely lucrative that the only other type of business that could make more money would be a payday loan business. Let's not forget that the banks also have their hands in that pot.

A quick illustration of the revenue generating properties for credit card companies/banks:

Current Federal Discount Rate         .25%

Avg Cons Credit Card Rate Overall   13.89%

(Source: indexcreditcards.com)

If you have a balance of $5000 with the average interest rate at 13.89% and a monthly payment of $150- If you NEVER used the card again and made every payment on time and constant amount, it would take you a short 3.5 years to pay that balance off.

However, in the real world the banks know that 90% of consumers will pay just the minimum due, which will decrease as your balance goes down. What does this mean to you? It means that if you lowered your monthly payment to meet just the required monthly due it will take you at least 10 years to pay this card off.

During this time the bank is just reaping the benefits of the interest. Remember, the bank only paid .25% to borrow the money so the first stream of income is the difference between the rate you are charged and their rate.   It is important to note here that although the average rate is 13.89%, the true rate that an average customer with an average credit score would be more in the 19.99- 27.99%.

Another huge revenue stream for credit card companies are fees. Would you like to make that payment over the phone? $29 straight into the card companies wallet. Now, the urban legend behind these fees was to cover the costs to process the transaction in reality, it is nothing less than a revenue stream for the issuer.  

There is a huge overhead when it comes to employees in any call center, which was the primary driver for outsourcing 90% of call center type jobs to other countries.  Here is an insider tip, if your credit card company charges you a fee to pay your account online- you need to fire that company immediately. They are gouging you for fees that are absolutely not necessary.

During my career, I actually had responsibility for determining pockets of the portfolio which needed to be re-priced to a higher interest rate. Newsflash- virtually everyone will be re-priced in the next 12 months if you have not already. Raising the interest rates on customers involved several steps:

Identify any changes in Credit Bureau Scores month over month
Balance Changes with other creditors
Delinquencies with other creditors

If your account fell into any or all of these scenarios, you would be re-priced up to a higher rate. The internal reasoning and communication was analogous to car insurance. If you get more tickets or crashes you pay higher premiums, so if you didn't pay your bills or your credit score changed you were risky and therefore should pay more for credit. The fundamental flaw with this reasoning I would relate more to if you have a broken toe, we are going to cut your entire foot off. I know that sounds extreme, but looking back so was the logic that was used to justify kicking customers when they were down.  

As is often said, if I knew then what I know now, there would be no way that I would have spent as much time in the credit card business.  It is my hope that by sharing my experiences and understanding of how credit cards really work from an insider's perspective that consumers will become more empowered to handle credit responsibly.

Scott Taylor

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Why did it take you twenty years to figure this out? At least these card issuers and pay day loans allow some consumers to have access to credit that otherwise never could.

I don't think he's saying it took him 20 years to figure this out...he's sharing his knowledge from the inside out. And I can't agree on your opinion that getting credit with loan shark rates is a good thing. These companies prey on the needs of desperate people facing hardships.

The payday lending business model relies on trapping consumers on an perpetual debt treadmill. The typical borrower pays back $793 for a $325 loan, and APRs on two-week payday loans range from 390 – 780%.

See AFFIL.org on predatory lending -and pay day loans.

D King, excellent question on why did it take me 20 years. The honest answer is that during those 20 years I moved from 5 different banks and moved not only 5 different companies but easily 20 different lines of business as well. It wasn't until I ended up working at a sub-prime card issuer that I really began to understand the implications of $39 late fees, $25 pay by phone fees, not to mention the 29%+ interest rates on the customers. I have probably talked to no less than 20000 credit card customers in my career. When I first started it was easy because I only saw the bank's view of the customer, which was they charged it, signed the contract and they owe it plain and simple. It wasn't until I began to step back and take a more objective look at the entire industry when I had my "a-ha" moment, namely that the industry that I spent from 1986 through 2005 while it provided a much needed service, there was also a less than savory side of the business that I personally could no longer morally or ethically handle. Much like, I am sure the executives that work at cigarette makers do on a daily basis, they rationalize that the product they provide is much needed. Nevermind that it is the product most likely to kill someone, it is simply a job. Add to that the fact that I would rarely tell people I met where I worked at for fear of hearing a nightmare story with their credit card company, which in my experience was far more prevalent than a compliment. So am I justifying my 20 years, in some respects yes, but also keep in mind that I have left that industry behind over 3 years ago. It wasn't until I began talking to friends and relatives that it became obvious that my experience could in fact, help the average consumer.

I'm surprised that a 20 year veteran of the credit card industry doesn't know the difference between the discount rate, the prime rate, and rates charged by the commercial paper market. Your example above is very misleading. The discount rate of .25% is not the rate that banks are borrowing money at only to turn around and lend to the average consumer at 14%+. That .25 rate is paid only when banks have to borrow money from the government, to ensure that they are above their reserve limit. That loan is typically for 24 hours or less, and as bankrate.com puts it: "only a a last resort". The 11th District Cost of Funds, which is at 2.5% is a somewhat better analog for the wholesale cost of borrowing, but I guess that doesn't sound as good as .25%. Banks are also paying a much higher rate to investors when they try to monetize their customer's credit card debt on the commercial paper market, a market that was virtually wiped out six month or so ago. Believe me, I'm not crying tears for the banks, they've been acting as predatory lenders for quite a while, but if you're going to take them to task, at least be fair. Now as to consumers living beyond their means and running that debt up at 14-17-29%? How about actually saving before you buy something? When will you blog about that?

Another thing many customers do not know is that when they transfer balances at 0% promotional APR and make payments by phone and are charged for it or withdraw cash from an ATM, those charges are being charged interest. So ultimately the customer thinks he is benefitting when transferring balances, but future purchases and phone pay service fees and cash transactions are charged at the purchase APR or Cash APR which not many of them are aware of. In such cases a part of his balance is at a promotional APR and the other part is at the purchase APR. So when he then makes payments, his payments go towards the promotional balance, while the rest of it accrues interest at the purchase APR or cash APR. However these are not explained to most customers while doing transfers. Of course the transfer fees usually vary from 2% to 4/5% of the balance to be transferred. what a rip off, isnt it? No wonder it takes people years to pay these cards off. People seek help in using offers from Banks on their credit cards, what some of them dont realise is that they are putting themselves in a worse situation than before.

It just seems that it's always an uphill battle for consumers to have a fair playing field. Consumers don't make the rules and they don't have the power to change them, they just try to live withing the parameters given to them -and ask for a fair playing field. See my opinion here: http://weblogs.sun-sentinel.com/news/opinion/theslant/blog/2009/03/how_credit_card_companies_are.html

And do borrowers a responsibility for their over extending themselves-absolutely. But that doesn't negate the greed and fraud that brought us to where we are today.

I watched Dateline's Sunday expose on the mortgage meltdown and look forward to Friday's show on the credit crises.

Denise, the predatory, abusive, anti-consumer nature of the major credit card issuers is so patently obvious to most consumers, as well as folks like Rep Carolyn Maloney and Sen Carl Levin, and Harvard law professor Elizabeth Warren. How can it be that the federal financial regulators don't see it -- and actually try to shield these banks from restrictive legislation and state consumer protection laws? Jim Wells

You know what Jim...that's the question we've been wondering about for years! And the point we need to get out there and I think Elizabeth Warren is trying to do just that! She is my hero -she says it like it is -and isn't afraid to! It's not (in my opinion) that our regulators and legislators don't see it -I think that we oftentimes we just end up with have the best laws money can buy -because of powerful lobbyists! Maybe they will put aside politics and put this country first -and realize regulations deter fraud -because whenever big money is involved it breeds greed & corruption! Regulations protect all of us!

Case in point, For years, I have been trying to get mortgage servicing companies to allow every consumer access to a monthly statement in order to track and verify their payments. The mortgage servicing industry says it's too expensive. Yet, we receive monthly utility and credit card statements! The mortgage servicing company is totally without regs. How can that be? See earlier blogs and report on this with Katherine Porter here http://www.givemebackmycredit.com/blog/2008/07/fromer-emc-employee-tells-the.html

Thanks Jim!

Denise, you said: "And do borrowers a responsibility for their over extending themselves-absolutely. But that doesn't negate the greed and fraud that brought us to where we are today."

There's a simple answer for consumers to stop "the problem": stop using credit cards as a vehicle to finance their lifestyle. Don't carry a balance, and the problem of high interest rates and minimum payments disappears. Same advice goes to buying a a house you can't afford. Consumers need to stop looking to congress and President Obama to "fix the mess", and start looking in the mirror.

Kevin -I can't believe you mean "consumers" should stop looking to Congress and the President to "fix the mess" -the billions/trillions in bailout funds didn't go to consumers.

Kevin said: "How about actually saving before you buy something? When will you blog about that?"

Read my blog, then. In fact, read the entire blog. http://torreylisa.blogspot.com/

We have no choice but to save in order to make any type of purchase.

My husband served his country with honor and sacrifice. Because of what we went through financially during his recovery from a gunshot wound to the head, we don't even get courtesy of consideration from lenders...prime or not. We are forced to become the "cash and carry" consumer you are seemingly promoting as the "fix" to our economic demise.

You better believe I will look to Congress and the President to fix this mess. When I look in the mirror, I see a consumer ravaged by a system that was clearly broken. Despite this, my integrity is intact.

It's hard to be objective, but I think I am doing a much better job than those living in glass houses. ;)

For anyone interested, here is the link to view the Dateline NBC episode (part 1 in the series) by Chris Hansen.


It demonstrates very clearly that the onus is not JUST on the consumer, though this episode covers some consumers that refused to accept their own portion of the responsibility. The consumer was just a SMALL part of a bigger picture.

Torrey -thanks for posting that link. I wish that Dateline profiled many truly innocent families that lost homes purely due to greed -and corruption. And lost pensions, jobs, health insurance and savings through NO fault of their own. There are many out there! You and your family for one!

"Kevin -I can't believe you mean "consumers" should stop looking to Congress and the President to "fix the mess" -the billions/trillions in bailout funds didn't go to consumers."

Yes, I do blame consumers because they put us in this mess in the first place. Consumers were the ones buying houses they couldn't afford. Mortgage brokers did allow them to finance that home because those brokers knew they weren't going to have to clean up the mess, but when happened to good old common sense? What happened to budgeting and looking at a long term view? We aren't talking calculus. Were talking arithmetic.

Consumers were also running up their credit cards because they don't know (or can't be bothered) to save for that new TV or that vacation.

I want people to be responsible for the situations they put themselves in, not look to the government as a nanny to keep us form hurting ourselves.

I live in a house that I can afford and I don't use credit cards to prop up my lifestyle. I'm not going to see a penny of this bailout other than the bill. And yes, I'll be forced to pay it, instead of financing a trip to Disneyland at 17.9%.

Why aren't you willing to direct some of your outrage you have towards consumers -to those who used white-out to make their income appear more than it was, or those who tricked consumers into low teaser rates, those who had incentives to close on loans "at all costs" so they would then receive vacations and/or cash rewards for doing so and those who perpetrated fraud against innocent homeowners? Why aren't you willing to accept that someone other than consumers played a far bigger role in our economic crash than you want to look at. Where's your outrage towards those, whom you state yourself "...did allow them to finance...knew they weren't going to have to clean up the mess"...

You certainly have a right to your opinion -but you should base that opinion on facts not emotion. Read a few stories of truly innocent people caught up in this nightmare -purely due to fraud and greed -and then ask yourself -what about them?

"Innocent people"?, these same people who can't balance their checkbooks, but are OK with buying something they can't afford? Do you think this mess we are in is simply the result of 8 years of the Bush administration's ineptitude, or do you think that our society has become fundamentally flawed? I think its the latter. "innocent victim" is a social security recipient getting mugged at the ATM. No one, last time I checked, was forced at gunpoint to buy a house. Or forced to buy that HDTV at Best Buy at a 24% interest rate with a minimum payment that will take 20 years to pay off.

I guess my point is that people (consumers) need to be accountable for their actions. Should we as a society look at the government to save us from own ignorance, or, sadly stupidity? Let's look at the "Octomom" as an example. Is the next step for government to give permission for the number of kids to have? Or what to eat? Or how to dress?

Believe it or not Kevin -No, I am not for big Government -not at all. I am for equal representation... a fair and honest system that is enforced and regulated by the government. Remember by the people for the people? Whenever there is money involved -or incentives for those who can profit from corporate wrongs -trouble will surely follow -if and when left to police themselves!

Greed is a tempting -and destructive deadly sin. We are all taught as kids to stand up and take responsibility for our actions -take accountability! Yet that simple yet vital lesson gets thrown out the window in the corporate world. Rather, they work hard and spend a lot of time and money finding ways to beat the system and escape accountability.

And btw, what happened to our privacy rights? When did my information become someone else's product to buy, sell and make hefty profits off of -whether the product (our information) is defective or not? Blaming consumers for all the ills of our world and twisting the facts to fit that scenario -doesn't do anything to help find a solution -it's simply creating smoke and mirrors.

I see your point and enjoy your blog.

My last comment on this is my first. If you're in a situation where you're getting foreclosed on, or you're facing a credit card bill that's finally come do, are you taking responsibility for your actions or are you looking to someone else to fix it for you?

There are tons and tons of people living in the US that are in houses they can afford, who pay their credit cards off every month; they live within their means. At the end of the day, they'll be the ones that pay the price for this mess. Not the idiots that can't figure out that they bought a house they can't afford, the ones that bet (wrongly) that houses will always appreciate, or the crooks that sold them a mortgage.

Mr. Reynolds:

I understand why you arrived at your conclusions and why it appears you are looking at the fallout end of this mess - rather than its root cause. You and others unknowingly became the intended victim of false information.

First consider where your information came from. Secondly, consider who controls the information going to and from your sources. It's not the media or your government - it ultimately came from the financial institutions and their many, many accomplices.

In 1997, I was debt-free other than my monthly mortgage payment, which was only 6% of my monthly income. Did I buy more house than I could afford?

Also at that time, my credit score was 798 out of a possible 800. I paid all my monthly expenses in full and on-time every month. Was I a deadbeat?

Moreover, I had bank accounts at 5 different banks with a combined total of deposits of just less than $200,000.00. I kept most of my money in $100. bills in a safe. Would you consider me financially irresponsible?

Then why did I lose my home?

I lost my home because my legal case and its evidence were about to expose a billion dollar fraud that Bank of America and Bear Stearns' EMC Mortgage and others were concealing. I initially had the money to fight for my rights, but I didn't have more than the $1.5 million the banks spent litigating me into poverty and ill health. Concealment involved controlling the judges, lawyers, government, media, law enforcement and removing admissions of guilt from court transcripts. As a result, I am now homeless, penniless and don't even own a car.

Shutting innocent homeowners down allowed them to continue pillaging the equity, homes, investment and retirement funds of the innocent to satisfy their greed. They targeted those they thought could not fight back. The banks are not too concerned that it collapsed; they already got their money and are about to get more from the(unwilling)taxpayers.

Recent research has indisputably revealed the fraud "willfully" created by the banks - not the homeowners or investors - is actually into the trillion(s).

The success of this illegal enterprise demanded a "false" truth be planted in the minds of anyone who could potentially turn off their money spigot. For now... you are proof that it worked.

Read some of the articles and more at www.msfraud.org

Kevin, in addition to tons of people who live here in houses they can afford and who pay their credit cards off every month, there are tons of people who have catastrophic life experiences that change their economic status. And there are opportunistic mortgage servicers who took advantage of a hot REO market and the equity to be captured by targeting vulnerable borrowers.

A lot of subprime ARM loans were written for people with credit scores that would have gotten them a conforming, fixed rate loan. Not surprisingly a disproportionate share of those went to minorities. And the beauty of the ARM was that another loan origination was almost guaranteed, either through a refi or a foreclosure.

As a business, when all you do is originate new loans, you have to make more and more new loans or you go out of business. There are people who made themselves millionaires in originations, and when that kind of money is involved, unscrupulous people WILL be drawn to it. Those people WILL take advantage of borrowers and will also engage in anything they think will make them more money.

The industry had their garbage disposals (special servicers) running full speed, in some cases even manufacturing foreclosures to rid the system of toxic mortgages that might have consequences for the originator.

It was a win-win for the industry but it needed more and more victims to continue to thrive. The only thing that really put a halt to it was when the inflated house values bubble burst. If there was any equity still out there to be captured by foreclosures the game would still be running.

And consider in a larger perspective that higher interest rates actually subsidize the lower rates for those who do not face economic challenges. Without millions of people and their 600-something FICO scores, those people with so-called "perfect credit" would be paying more.

The system is designed to prey on people, Kevin. Until we start educating students in high school about that fact, there will always be a thriving market for the opportunists.


Torrey Shannon's (torreylisa) comment, "We are forced to become the 'cash and carry' consumer you are seemingly promoting as the 'fix' to our economic demise."

Your comments might carry more weight if you remove your Youtube vid of the Lotus you're driving.

Don't get your comment -or whom it's directed to. There isn't a -video nor is there a lotus that I am aware of. But I do agree with Torrey's comment...And why not leave your name, why leave anonymous comments?

Denise and readers, I apologize for the inappropriate comments left on this site regarding my reputation to speak about consumer issues. This person has been stalking my every move on the internet and lately has taken their actions to a whole new level. The fact is, we bought a car (paying cash, as I have already discussed) and they feel we are not entitled to having any assets to our name even years after going through our financial hardships.

I shared a link with another car enthusiast about a casual drive we video taped, and they have now decided this is a reason to continue their harassment.

My guess is they are upset that people who have met adversity are able to overcome and conquer. :)

Regarding this comment:
Anon said:

Torrey Shannon's (torreylisa) comment, "We are forced to become the 'cash and carry' consumer you are seemingly promoting as the 'fix' to our economic demise."

Your comments might carry more weight if you remove your Youtube vid of the Lotus you're driving.

I'd like to add one more comment, if I may. This is just another example of how we save up and pay cash for everything we buy. Even cars. :) SO in reality, I am thankful you pointed this out for all to see, as it gives MUCH weight to the topic at hand, and fully demonstrates how one must conduct financial transactions by saving and/or paying cash for anything they buy, especially large purchases.

Next time, do us the honor of sharing your name. People who use anonymous as their 'handle' really can't stand behind their word like I choose to do.

Hey Torrey -I agree with you regarding the "anon" post you are responding to. People should stand behind their comments and their beliefs when posting and use their real name or at least real email address. I always believe that when people post angry or disparaging remarks about someone else's views, through the guise of using fake email addresses and anonymous postings, then there are usually other motives and agendas at play -and those types of remarks then loose credibility and weight.

He has his reason for leaving the industry and based on this post I don't blame him, that is his choice after all.

I can see that there is a rift between the, respectively valid, parts of the equation that ultimately leads to the horrific financial states of many, many people in the US. Kevin's philosophy of economics, which, I must say, would bring a smile to the face of Hayek and many a Libertarian, is one that would benefit many of us here in a nation where a great lot of us are perpetually chasing after the Bigger, Better Thing. Many, many people DO live beyond their means.

Conversely, Denise and company are also speaking the unholy truth in regards to how we have been taken for quite a ride. Banks, CC companies and other financial institutions have come to resemble junkies; they do whatever they have to to get more. No matter the cost, no matter the atrocities they beget, and no matter how many are left financially maimed and left for dead, they do not care to glance back and look at their disgusting wake. Like the junkie, they only look toward the path that will lead them to their next fix.

So, really, the way I see it, we graze the fields, consuming as much as is possible while we slowly follow the lush, delicious green path, heads down, munching ourselves straight into the hands of those who man the slaughterhouse.

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