Ethics And Credit Cards

Last year, I took some time to think about the ethics of reward card deals.   I encapsulated my thoughts in somewhat of a manifesto on the subject, The Ethics Of Reward Card Deals.   Since then, I have referred back to this piece on numerous occasions in order to decide where a particular deal falls on the ethical spectrum.

Ethics And Individuals

I take ethics and morality seriously as I strive to be a good person and do the right thing in my daily life and  I would like to believe that all people have an obligation to do so.    Unfortunately, the world can be a very tough place, and such moral beliefs are a luxury that some can not afford.   When given the choice between survival and morality, many choose survival, such as in the classic case of a thief who steals food to feed one’s family.

Currently, many people are deciding to walk away from their mortgages in a practice called strategic default.    I do not see any moral problem with strategic default, as default it is essentially a right you are exercising, and the bank accepted that risk when it offered you the loan.  You placed your home as collateral to secure the bank against default.

When it comes to credit card debt, banks grant individuals unsecured loans.    If the borrower defaults, the bank cannot reposes  your purchases, they have to go to court to secure a judgment.     Nevertheless, there have been reports of banks trying to make moral arguments for survivors paying the debts of the deceased.   I can’t fault a bank for using guilt trips for collections, but I certainly would never pay a debt that I did not incur.

Ethics And Business

On the other hand, what about a corporation?   Public corporations, by definition, have an obligation to their shareholders to make a profit.    They are not in business for the good of society.  Over at the University of Redlands School Of Business Banta Center For for Business, Ethics and Society, they seem to be devoting a lot of thought to these issues.   I recently came across this paper When Businesses Do Bad Things.    It was originally written about the Enron bankruptcy, but it seems to apply equally to the bank collapses of 2008 and the current Gulf Oil Spill.   This quote from Professor Jeffrey Smith of the California business school stands out:

“So what is our assessment of recent events? Don’t they show that such ethical norms are not only absent from business life but intentionally neglected by managers? From time to time it certainly appears so. This is surely the motive behind the development of securities laws, accounting regulations and other attempts to reign in the incentives toward irresponsibility.”

The fact is that a business is not a person, and they will not do the right thing if it is not in their interest.  We saw this during the debate over the CARD Act.    There is no doubt that credit cards were, and to some extent, still are employing tricks and traps that are clearly unethical.   These practices damaged individuals and society as a whole, yet they were going to continue as long as the law permitted them.

There was no ethical consideration by the banks as to whether or not it made sense to have a payment due on a weekend or a holiday when it could not be processed.   Someone figured out that profits increased due to late payments and interest, and the corporation had an obligation to maximize profit.   The same is true when a bank reorders checks to maximize insufficient funds fees.

Setting The Proper Expectations

Once you realize that banks only have an obligation to their shareholders, you should no longer expect your credit card company to act in any way ethical or moral as you would define those terms for an individual.    In the same way, you should be honest and ethical, but otherwise play by the same rules when you deal with your bank.  Treat individuals bank representatives with courtesy and respect, but otherwise feel free to aggressively pursue the best terms and best rewards out of each of your credit cards.   When you do not get the service you require, do not hesitate for a moment to switch banks for a more competitive credit card.

A bank’s obligation is to maximize profit for it’s shareholders, while your obligation is to safeguard the wealth of yourself and your family.   They will never loose sight of their responsibilities, and it is up to you not to loose sight of yours.