On May 1, 2009, the house passed House of Representatives passed the Credit Cardholders' Bill of Rights by a landslide vote of 357-70. The bill goes to the Senate today and Obama has said he will sign the bill.
All this does, however, is put an end to universal default. IOW, lenders will no longer be able to raise rates for reasons unassociated with the customer's payment of his credit card bill.
Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.
Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.
i think the obvious outcome is that the people who have good credit will stop using their cards, and this will turn the credit card market into something similar to the subprime market.
only the people without the responsibility or means to repay within a reasonable time period will be the ones borrowing, which will eventually spiral.
i think the obvious outcome is that the people who have good credit will stop using their cards, and this will turn the credit card market into something similar to the subprime market.
only the people without the responsibility or means to repay within a reasonable time period will be the ones borrowing, which will eventually spiral.
That's my opinion as well. I just redeemed my "rewards" and "points" on both credit cards because I suspect those programs will be modified to maximize profit for the companies.
Frankly, I think we'd all be better off if we cut up our credit cards and actually paid real cash for everything. Maybe this is a blessing in disguise. Credit card companies are some of the best marketers that have ever existed. They have made us all think that we need credit. The truth is they need us to think we need it.
While you could use a debit card, for a lot of things you actually DO need plastic now. In some cases, it must be credit.
Try getting a decent hotel room. Most (at least around here) won't take cash only anymore.
Also, I see nothing wrong with them collecting their lost revenue in other, less seedy ways. As the article points out, people who DO pay on time and rack up points have been getting one hell of a deal. And an annual fee is a lot less under-handed than some of the other methods they have been using. They are out to make money after all.
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"Basically, riskier borrowers will be subsidized by people who manage their credit well,"
This was the most stupid quote from the whole bit, IMO. People with good credit are not subsidizing those with bad... the system is just finally starting to balance the way it should have been! In the past it was those risky borrowers and the massive fees an interest they pay that was allowing credit issuers to give such great deals (the "hook") out, which people with good credit were cashing in on at no cost to themselves.
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Last edited by I_luv_saber; 05-20-2009 at 05:40 AM..
As one of those people with good credit who was allegedly cashing in....
I think I earned a sum total of about $800 in rewards over a period of 6 years. While better than a poke in the eye with a sharp stick, it's hardly a fortune.
I note that businesses pay a percentage of the sales to the card companies so while I have no qualms about using a card at WalMart, I pay cash at small businesses unless I'm traveling.
As one of those people with good credit who was allegedly cashing in....
I think I earned a sum total of about $800 in rewards over a period of 6 years. While better than a poke in the eye with a sharp stick, it's hardly a fortune.
By no means I meant you or others were making fortunes off of this.
But you also weren't really paying anything for it either (neither was I). Buy now, pay later, no fee for doing so (at least most had no annual fee), AND get some rewards on TOP of that. I'm sorry, but in this day and age, that's pretty friggin' amazing. Use a service and not only pay nothing (providing you don't slip up) but GET STUFF BACK. That's unreal.
So how did they afford to offer these things? By the people who DID slip up. These wonderful things act as the hook to draw people in, and they can afford to keep doing it for people who play by the rules because they are making so much money of those who don't.
There's no free lunch... it's just someone else paying for it.
Now, I would normally not have a problem with this... there's nothing inherently wrong with this model. But it generally doesn't work naturally. Which is why they would do underhanded things such as (my bank) make the due date less than a week after receiving your bill, in order to maximize late fees and interest hikes. THAT'S wrong. And lo and behold, now they are going to have to cut it out, there is talk of having to have annual fees now. Shocking.
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I note that businesses pay a percentage of the sales to the card companies so while I have no qualms about using a card at WalMart, I pay cash at small businesses unless I'm traveling.
And again, shocking, they are now talking about hiking their fees for retailers as well.
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Last edited by I_luv_saber; 05-23-2009 at 02:21 PM..
Reason: misplaced /quote tag
By no means I meant you or others were making fortunes off of this.
Just for the record, I didn't think anyone was suggesting this. I confess I have, however, loved being in this position. After being unable to get any kind of credit card back in my thirties, I take great delight in trashing offers from those same companies that once turned me down.
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So how did they afford to offer these things? By the people who DID slip up. These wonderful things act as the hook to draw people in, and they can afford to keep doing it for people who play by the rules because they are making so much money of those who don't.
There's no free lunch... it's just someone else paying for it.
We are ALL paying for it whether we use a credit card or pay cash. The merchants pay the credit card companies for the right to accept credit cards and those fees alone would (imho) bring in a tidy profit.
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Now, I would normally not have a problem with this... there's nothing inherently wrong with this model. But it generally doesn't work naturally.
I don't know your age but I'm old enough to remember the days before credit in a small, farming community. To me, the credit cards are just an extension of what we used to have with the small businesses in town. If your credit was good (and everyone knew everyone else back then), you could run up a tab and pay the bill later. You could also get at least a 10% discount in most places by paying cash.
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Which is why they would do underhanded things such as (my bank) make the due date less than a week after receiving your bill, in order to maximize late fees and interest hikes. THAT'S wrong. And lo and behold, now they are going to have to cut it out, there is talk of having to have annual fees now. Shocking.
It's not a matter of making profits, it's a matter of insuring the CEO gets his multi-million dollar bonus.
Don't get me wrong, I don't think the credit companies are evil. I just think they are absolute GENIUSES at marketing. Kids today don't even consider themselves adults until they have their own credit card. It's like a rite of passage or something, a goal, a sign that you "have arrived", etc. The companies begin their marketing campaign with stuff like credit cards for Barbie, for God's sake!
Guess what, Barbie's card never runs out. When it goes to $0 it resets so you can continue to shop. No, they aren't evil, they are just REALLY REALLY good at marketing.
Just another example of how the poor helpless whiners in this country need the government to take care of them. It's for those that don't have the maturity to use a credit card and be responsible for their own finances. What a bunch of pathetic losers.
It's simple folks. If you CHOOSE to pay by credit card, then you AGREE to make payments on time. If you don't keep your word, then you have proven yourself to be a liar and untrustworthy, hence the credit card company charges you more. Just how much hand holding do you think the government should provide?
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I don't know your age but I'm old enough to remember the days before credit in a small, farming community. To me, the credit cards are just an extension of what we used to have with the small businesses in town. If your credit was good (and everyone knew everyone else back then), you could run up a tab and pay the bill later. You could also get at least a 10% discount in most places by paying cash.
But there is a big difference here. As a small shop, this makes a lot of sense, and is a very good business practice (IMO) that I wish more places did. It makes things more convenient for the customer, hence more likely to come back to you.
However, from a credit card issuers standpoint, they would stand nothing to gain (well, sort of, but I'll approach that in a second). They would simply be giving you that convenience, and rewards, while not receiving the benefit that a small shop owner would (spending money with them). This is assuming the absence of annual fees and such like has mostly been the case.
Now, you could argue that what they stand to gain in such a situation is that you will continue to use the card, the card will become more popular, and more shop owners will sign on, hence more money from businesses for the right to accept the card. However, it's still someone shouldering the burden, in this case businesses.
In this case, I think it's both. They use the dirty practices as well as fees from businesses in order to keep providing the hook to people.
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It's not a matter of making profits, it's a matter of insuring the CEO gets his multi-million dollar bonus.
I didn't say who was making the money
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"I may disagree with what you have to say, but I shall defend, to the death, your right to say it."
Just another example of how the poor helpless whiners in this country need the government to take care of them. It's for those that don't have the maturity to use a credit card and be responsible for their own finances. What a bunch of pathetic losers.
Even if we accept your point as true, for the sake of argument, not doing anything would be cutting off your nose to spite your face. Because, as we now see, if we don't set up regulations to keep these "pathetic losers" from drowning themselves in debt, it's just going to result in another bailout down the road. Or, we could NOT set up regulations, let people easily ruin themselves, and then another government down the road will bail them out (remember you must plan ahead for future governments that do not think the same way).
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It's simple folks. If you CHOOSE to pay by credit card, then you AGREE to make payments on time.
While I completely agree with you, the thing that people (at least I am) really griping about, are the untruthful or at least unsavory practices of those companies. There have been reports of some people receiving their bill on Monday with a due date of Friday! Or even better, they make your due date on a Holiday when they conveniently won't accept payments, then nail you for a late fee because your money was not processed that day. Let's not even get started with the deceptive language they use. There is no reason they should not write it out so most laymen can read it, and not just lawyers.
Again, in essence, I agree with you. But, the credit companies are not without fault. They should not be doing everything in their power to make you screw up. These are the practices that are having a second look.
__________________
"I may disagree with what you have to say, but I shall defend, to the death, your right to say it."
Just another example of how the poor helpless whiners in this country need the government to take care of them. It's for those that don't have the maturity to use a credit card and be responsible for their own finances. What a bunch of pathetic losers.
It's simple folks. If you CHOOSE to pay by credit card, then you AGREE to make payments on time. If you don't keep your word, then you have proven yourself to be a liar and untrustworthy, hence the credit card company charges you more. Just how much hand holding do you think the government should provide?
I think the government should hold the credit card companies to the same standard that they hold any lender. You don't change the terms without notification. You don't send out unreadable notices. You don't require the cardholder to send payment before the notice arrives.
I have authomatic bill payer set up to send payments every two weeks just in case I am sick or traveling when the bill arrives. I have noticed that the time between bill receipt and the bill due date has become so short that it's impractical to expect a person to receive the bill and pay it before it's past due.
However, from a credit card issuers standpoint, they would stand nothing to gain (well, sort of, but I'll approach that in a second). They would simply be giving you that convenience, and rewards, while not receiving the benefit that a small shop owner would (spending money with them). This is assuming the absence of annual fees and such like has mostly been the case.
As I remember credit card history (which may not be accurate), their primary business at the beginning were businesses. IOW, businesses signed on for credit cards to issue to their personnel who traveled frequently. This was a win-win situation in the beginning because they had a good trail of expenses and one payment rather than numerous payments and reimbursements.
It's not a matter of making profits, it's a matter of insuring the CEO gets his multi-million dollar bonus.
I have two questions anent this statement:
1) How exactly do you know what their motivations are? Did you sit in on the board meetings and executive conferences?
2) What makes you declare so confidently that the two motivations are mutually exclusive? If a salesman sells a lot of cars, he is doing so to maximize his own income, no question. But does he not at the same time increase his employer's profits? Isn't this what the whole idea of incentives is about? Why do you believe that it must be one or the other, and the most uncomplimentary one at that?
Meanwhile, a quick check of the data shows the following:
Trailing 12-month gross profit ( from Capital IQ ):
So unless my math is wrong the Visa guy made less than 4/10th of 1% of profits; the Mastercard guy made under 2/10ths of a percent; and even the Discover CEO made just over 3/10ths of a percent of profits.
Looks like they're doing OK by their owners to me...
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If the credit card issuer is a bank that we're bailing out, so we citizens partially own the institution, does that mean that we're in the business of hosing our stupider or more desperate fellow-citizens? Are they stupider than the guys at AIG or (name your favorite bailed out bank) who wear nice suits and we're propping up?
To Linda's point: What other kind of loan exists where the T&C can change at any time on the issuer's say-so for conditions unrelated to that loan (eg: if somebody is late making a payment to Bank X, then Bank Y can raise its rate to 30%). And, once upon a time weren't there things called "usury laws" that capped interest rates? IIRC, the payroll loan business is issuing week by week loans that exceed 300% p/a. Very popular, alas, at military bases. The loan sharks of old would fit in very well here.
I've worked for financial institutions that issue credit cards, and since then have worked with a number of companies on the supply chain of the credit card business (it takes a heap 'o technology to clear a transaction at point of sale). Anyhow - it was the case - pre-recession at least - that the people who paid off the minimum on their cards were the most profitable customers. A carefully measured line between high-profit customers paying high interest rates forever vs. the higher risk of default. Card issuers really wanted to have the payments strung out to eternity for the maximum profit. People who paid off their balance as soon as the bills arrived were less desired, and on some occasions have had their accounts terminated for not being profitable enough customers. The lower interest rates enjoyed by those with good credit could be said to have been subsidized by the profits on those with worse credit and higher rates.
I agree with I_luv_saber that they should not be permitted to prey on the weak, and with Sean Butler that they are brilliant at marketing.
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"In theory, theory and practice are the same, but in practice, theory and practice are different."
The lower interest rates enjoyed by those with good credit could be said to have been subsidized by the profits on those with worse credit and higher rates.
Would it be better the other way around? If so, why?
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they should not be permitted to prey on the weak
The weak, or the stupid?
Why should those who cannot be bothered to learn how to handle credit be protected from their own laziness by those who can and do?
We have exchanged survival of the fittest for survival of all. The movie "Idiocracy" may be a blueprint, not a comedy...
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Use the Shift key, people! Keyboard manufacturers everywhere are ineffably saddened when you ignore what they made just for you!
Would it be better the other way around? If so, why?
No.
There's a bit of hand-wringing going on that strictures on credit for the subprime borrowers supposedly will drive up costs for those enjoying better credit. I wished to point out that such borrowers have been benefiting for years from the margins earned servicing the other accounts.
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Originally Posted by Inquartata
The weak, or the stupid?
Why should those who cannot be bothered to learn how to handle credit be protected from their own laziness by those who can and do?
We have exchanged survival of the fittest for survival of all. The movie "Idiocracy" may be a blueprint, not a comedy...
Such an argument could be made to support legalization of con games and Ponzi schemes. "Hey, you got taken by a con artist - too bad you were too stupid and fell for it. Tough luck".
The deck is already tilted in favor of those with better education and more money at the expense of those less prepared. Banks have a lot more clout than any individual, so it's not a deal between equal players. Whether you agree with it or not, society deems certain business practices as deceptive or unethical, and attempts to protect the consumer population from the worst excesses. Or is loan sharking only illegal when practiced by guys with bad suits?
Certainly, there will be things in the category of "that moron shouldn't have borrowed the money", but there are also aspects of financial instruments that even the bankers don't understand (like, the whole MBS mess). How ever is the lay person supposed to understand or not fall for a raw deal?
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"In theory, theory and practice are the same, but in practice, theory and practice are different."
Such an argument could be made to support legalization of con games and Ponzi schemes. "Hey, you got taken by a con artist - too bad you were too stupid and fell for it. Tough luck".
Precisely.
I suspect that Uncle Miltie would have said of those that they are private transactions which are not the business of government, since they have no spillover effects.
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society deems certain business practices as deceptive or unethical, and attempts to protect the consumer population from the worst excesses.
The problem is that the definitions are not in the hands of "society", but rather in those of politicians and bureaucrats.
And government has a lot more clout than any bank, so it's not a deal between equal players.
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How ever is the lay person supposed to understand or not fall for a raw deal?
It's not usually ignorance that gets people into trouble with these things, it's greed. "Wow, 15% a year, where do I sign up?" Never mind that no investment can sustain that sort of rate of return, certainly without substantial risk. Almost all of these things can be avoided by taking as one's motto that if something sounds too good to be true, it almost always is. One doesn't need a degree in finance from Harvard to apply that motto.
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Use the Shift key, people! Keyboard manufacturers everywhere are ineffably saddened when you ignore what they made just for you!
I suspect that Uncle Miltie would have said of those that they are private transactions which are not the business of government, since they have no spillover effects.
All the more reason that it's a good thing Uncle Miltie doesn't run things. That's very far from what the citizens of our country - or indeed, about any other - want. I wonder, BTW, if Berle and Friedman ever met. That would be an interesting match up.
Buying and selling heroin on the street corner is also a private transaction. While there are some that say it shouldn't be a crime, it nonetheless is. Our society (and just about all others) do not assert the primacy of private contracts over everything else. And that's a good thing.
(I imagine that there's a technical definition of spillover you have in mind? I think that creation of a large number of households that are perpetually in debt to service arbitrarily changed rules and arbitrarily changed interest rates does have some 'spillover' in the normal use of the word.)
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Originally Posted by Inquartata
The problem is that the definitions are not in the hands of "society", but rather in those of politicians and bureaucrats.
And government has a lot more clout than any bank, so it's not a deal between equal players.
No conflict here - the government is answerable (albeit slowly and imprecisely) to the will of the people - and has the intent of guardianship (to some extent) of the wellbeing of all , while private institutions are answerable only to their shareholders - and even more slowly and imprecisely, as events have shown. To think that profit-making institutions are tasked with the well-being of the nation is to misplace their mission.
EDIT: also, the "government has a lot more clout than any bank" can't be taken at face value. Industry organizations have an asymmetric ability to influence government policies in the first place by lobbying and ad campaigns, and even by drafting legislature's actual wording -- forestalling policies contrary to their interests. The public sector doesn't have a way to get its policies and desired board members into corporate positions of power. Examples: Harry and Louise from the healthcare industry, prevention of fuel economy, emissions, and safety standards by the auto industry. And in particular, the banking and financial industries have pretty much held sway the last 2 decades getting legislature written exactly as they want it, frequently coming from their own pens. When that fails, and law or rules are passed against their wants, industry is very effective at stonewalling in the courts ('justice delayed is justice denied'). Think about: tobacco, Exxon Valdes, Ford Pinto, and GM's PCBs in the courts for years.
So, let's not shed tears about poor weak industry being trampled by the heavy boot of the State. And, they've been essentially unopposed in trampling on consumers, who are essentially powerless in many disputes without government protection.
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Originally Posted by Inquartata
It's not usually ignorance that gets people into trouble with these things, it's greed. "Wow, 15% a year, where do I sign up?" Never mind that no investment can sustain that sort of rate of return, certainly without substantial risk. Almost all of these things can be avoided by taking as one's motto that if something sounds too good to be true, it almost always is. One doesn't need a degree in finance from Harvard to apply that motto.
If there's a magic wand that separates the greedy pigs who borrowed money without the intention of paying it, from the innumerate and desperate who needed the money and had a dim notion of how to pay it off, then I'm all for wielding it. In the meantime, we do have laws and rules about what constitutes deceptive and unfair practices, and that's also a beneficial thing for society. There are a lot of people paying off cards indefinitely - and due to the arbitrarily set penalties and interest rates, many of them have long ago paid off far more than the original principle and interest.
Having worked in banking and brokerage for years - and viewing things in 2009 with a rather jaundiced view of the effect of their greed on all of us, I'm disinclined to believe that the card issuers, bankers, and brokers are poor suffering individuals just hanging on due to the way the deck is stacked against them. The opposite is the case.
EDIT: I re-read the bit about 15% as being about belief in that kind of number as ROI, every year regardless of market conditions, rather than as an interest rate being charged to card holders. A different story entirely, but some of the same principles hold. Much of Wall Street - the very people who shouldn't believe in such magical returns - got taken in by such dreams, with disastrous results for everyone. If the wizards at the financial services houses fall for this, then there's no hope for the layperson at all.
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"In theory, theory and practice are the same, but in practice, theory and practice are different."
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