VISA Debit Cards: An Economic Solution and the Decline of Credit Cards

If you are still wondering why your stock portfolio plummeted 50%, why your IRA lost 60%, why your home lost 40%, why your business grosses 50% less today than it did  2 years ago, or why your credit card company has unexpectedly closed your account or transferred it to another banking institution, the answer is simple: we outspent.

How?

Outspending may be chalked up to a lack of control over personal and business expenses:  an inability to balance a checkbook, a willingness to take a loan for a car or house without the ability to afford the loan payment, or depending on credit card balance transfers to maintain a lifestyle.

Accountability is a worldwide and community effort. It is also not solely credited to the consumer. There are many underlying factors involved leading to the current economic swing and preventing these circumstances from happening again is essential. To understand the causes of the economic situation more clearly is to also understand the influence of marketing, media, and major financial institutions. It is also important to see how the media operates. Given the amount of money companies spend on advertising, how credit card companies incessantly drive credit card applications to consumers, and how spending control is rarely, if ever, encouraged throughout our culture, it's not surprising the global economy has swung negative.

Every loan agent generates revenue from a car, home loan, or approved credit card application. Therefore there exists a blatant conflict of interest between credit card companies who encourage consumers to spend money they don't have, and the ability to repay the debt to the lending bank. The credit card company does not maintain an account balance. The cash owed from and paid to the issuing credit card company is held by a partner bank who temporarily loans the funds to the credit card holder until the credit card holder repays the debt to the lending bank. The credit card company profits each time the consumer makes a purchase by charging an interchange fee or merchant fee to the merchant. The credit card company also benefits when the credit card holder fails to pay off the credit card debt each month. In such situations the credit card company's partner bank answers for the debt of the credit card holder putting the lending bank at risk.

As a result, the bank’s capacity to loan money to other clients, and cash stability is dramatically reduced since paying the merchant reduces the amount of cash in the bank's vault (also known as current assets). The credit card company generates additional revenue from interest fees and penalty charges until the credit card holder pays the full balance.

The relationship between the partner bank, the credit card company, and the consumer become a triple conflict of interest. One party's benefit is at another party’s expense and liability. Media advertising through sponsorships and paid ads presents the most attractive benefits to the consumer market on behalf of the credit card company and merchants promoting consumer-driven shopping. At the same time there is an abundant lack of ads that educate consumers about their credit card spending, balance carry-overs, related costs, and penalties that impact their financial well-being.

Consumers are lured by advertising to buy goods and take loans without considering the consequences. Advertising targeted to consumers rarely encourage a consumer to pay debt in full, on time, or settle for available budget or cash limitations. Such values and practices are seldom advertised. With the amount of advertising spent on convincing consumers to purchase products on loan (“buy now and make no payments for 90 days”), combined with the lack of encouragement to spend within one’s means, it’s inevitable that both businesses and consumers become engrossed in spending patterns based on max-credit. Accessing funds to purchase goods remains at the fingertips of consumer while simply re-paying debt owed is rarely emphasized. Our adult and younger generation are led to believe that charging purchases on credit cards or taking loans are acceptable practices, even when the money is not there nor the monthly income to cover the debt.

As a result, one of the largest, if not the largest traded commodity, is debt.

Few are aware that throughout the term of a loan for a home, car, school, furniture, or otherwise, the loan is often bought and sold multiple times between private parties looking to receive interest income on your loan and perhaps collect on your loan default. Those who purchase debt and / or potentially collect on debt go after your material assets. Those who purchase your debt make the assumption that by purchasing your debt your assets will appreciate or accumulate value. Those purchasing your debt then bet on an opportunity to financially gain at a later date from your indebted hardship, or in some cases bankruptcy.

Take for example the business of cashing checks and pay-day loan services. Pay-day loan and check cashing institutions depend on loaning money to individuals looking for quick access to cash they don’t have while the check cashing business benefits from that loan by charging high interest rates, fees, and potentially one's assets. In some cases such loans are secured by the one's assets, which the loan agency uses as collateral. When a recurring pattern is set by an individual repeatedly taking out pay-day loans, chances are the debt becomes so large, compounded by interest that the individual can no longer afford to pay down the debt. The indebted person is eventually disqualified from additional pay-day loans and becomes the target of debt collectors.

The check cashing business may sell the debt or hand the case over to a debt collection agency where the debt collection agency may further seek to collect from the individual or family by accepting whatever form of payment available, including personal assets. Such personal assets may include a car, home, jewelry, or other personal items. Debt collection agencies may also monitor the income declared by an individual, and once the debt collection agency sees the individual has started generating income again the debt collection agency may then pursue the case to collect the debt, plus interest and penalties.
Meanwhile, the check cashing store has already written off the debt and taken the tax deduction, and still financially gained while the debt collection agency is betting on its ability to collect the debt plus the additional value of the indebted person's assets or a percentage of the indebted person's paycheck throughout some future duration.

Whether the debt collection agency was driven by a check cashing store on the street corner, a home mortgage banker who wrote a home loan to collect the loan processing commission, or a car salesman to collect the sales commission, the intention behind the commodity of debt has degraded the financial health and responsibility of our community.

The solution to this problem is simple: educate people on how to efficiently manage cash flow and avoid the consequences of debt.

It is for this reason A1 Enterprise launched a full marketing campaign for the CARA MoneyCard. We believe that a product such as this is in part a solution to prevent re-occurrences of the extreme debt we now face. Recovery requires several ingredients:

• Educating our younger generation how to manage money and hold them financially responsible for their available cash.
• Put cash control products in place and resurrect the cultural value of spending what you have.
• Give our global community access to a lower cost banking solution with fewer restrictions, limitations, and requirements.
• Give our global community access to banking solutions with lower fees and fewer penalties when accessing cash.

Thank you for taking the time to read this article and support our objective to provide products that stimulate economic health, recovery, and financial responsibility. In sharing our objective with your employer, family, or friends you contribute to this objective and make it possible.

For more information, visit our web site or enroll now.

For more information in Spanish, visit our web site En español or Registro En Línea

*A1 Enterprise offers this product as a world wide solution. We continue innovation and the investment into solutions that help the global economy and continue working toward additional product releases for 2009. Check back for updates frequently or subscribe to this blog to receive future articles.