May 20, 2009

"People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride..."

You need to see it that way, so you'll understand why you should pay interest from the time you pay for something with a credit card. I'm one of those people that pay the entire balance every month to avoid paying any interest, and being told I've been taking a free ride all these years does not soften me up to pay my supposed fair share to support the credit card system. I just won't use the card if that's the deal. I'll switch to a debit card or pay cash.

IN THE COMMENTS: rhhardin said:
The reason not to ever use a debit card is that in case of fraudulent charges, you're the one out the money, so help is hard to find.

With a credit card, they're the ones out the money because you simply don't pay the contested charges, and everybody is really motivated to help you clear the thing up.

Don't give up that protection easily.
I'm instantly convinced not to use a debit card!

AND: I'm instantly unconvinced as John Lynch said:
I protect my debit card by simply not keeping much money in the account its drawn from. If I'm making more than a trivial purchase, I transfer the money from another checking account, which costs nothing at my bank. So, if someone gets my number it's no big deal because all they can steal is lunch money. There's no overdraft allowed on that account, either.
And TMink said:
I was recently charged $810 on my debit card to the WalMart in Seneca, South Carolina. This occured while I was home in Nashville. Seems I was part of the Heartland Compromise.

My bank refunded the $810 quickly and kindly.

120 comments:

Pogo said...

Hilarious.
We'll do the same.
Incentives matter.

Buh bye, VISA.

rdkraus said...

American Express, don't leave home without it.

TMink said...

Well, good choices and personal responsibility count for shit now. Being part of an indentified needy community and contributing to and/or obeying The One are the new path to prosperity.

Cut your cards, go Galt on them!

Trey

Robt C said...

Amen.
Abiding by the terms and conditions, paying on time, not running up debts I can't afford and lapsing on my payments is now considered "a free ride."
Forget the AA miles I've been getting. I'll go debit in a heartbeat.

John Lynch said...

Yeah, I haven't used a credit card in years. Didn't see the point if I'm going to pay it off (I already have a house and I pay cash for cars) and I don't see the point of paying interest.

Worshiping credit for its own sake got us into this mess.

rhhardin said...

They make money on you already, through the cut they take on the purchase price from the seller.

You can get around the new plan a little by paying several times a month online, which keeps the balance down and keeps the time intervals down, both; and in addition costs them money for the transactions.

The reason not to ever use a debit card is that in case of fraudulent charges, you're the one out the money, so help is hard to find.

With a credit card, they're the ones out the money because you simply don't pay the contested charges, and everybody is really motivated to help you clear the thing up.

Don't give up that protection easily.

John said...

This is a great lesson in basic economics. Take away banks ability to collect from bad borrowers and they will just collect from good borrowers. Those of us who pay our bills will now subsidize those who don’t.

John Lynch said...

I protect my debit card by simply not keeping much money in the account its drawn from. If I'm making more than a trivial purchase, I transfer the money from another checking account, which costs nothing at my bank. So, if someone gets my number it's no big deal because all they can steal is lunch money. There's no overdraft allowed on that account, either.

TMink said...

"The reason not to ever use a debit card is that in case of fraudulent charges, you're the one out the money, so help is hard to find."

I was recently charged $810 on my debit card to the WalMart in Seneca, South Carolina. This occured while I was home in Nashville. Seems I was part of the Heartland Compromise.

My bank refunded the $810 quickly and kindly.

Trey

Big Mike said...

Professor, I'm with you (and apparently everybody else on this thread). I only keep credit cards in my wallet for convenience, so that I don't have to carry too much cash. If the credit cards become financially inconvenient then I have a shredder that is strong enough to slice up a card.

Of course once I get rid of my Visa and MC, I won't be able to do spur-of-the-moment purchases. I wonder how the merchants will feel about that ...

Hoosier Daddy said...

Professor, here is the actual money quote, if you'll pardon the pun.

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. .

Typical liberal mindset. Irresponsible people should not be penalized for irresponsible behavior so enact regulation that will then result in people who are responsible having to pony up more to make up the difference.

Well of course the credit card companies are going to ding the responsible people since they now can't penalize the idiots.

MarkW said...

Good luck getting me to subsidize poor credit risks. A credit card is a convenience, not a necessity. If the card companies are going to charge annual fees and interest from the time of the purchase, I'll get rid of my credit cards and use cash or a debit card.

m00se said...

My credit union (note: credit union) routinely calls us to verify large purchases out of town made with our debit card.

When we've had fraudulent charges made - they quickly refunded them - no hit on us or our record.

Banks generally suck - we banked with 5/3 and they were generally pirates...

jackson said...

This is nonsense. The banks simply are trying to generate opposition to regulation of credit cards. The banks love those of us who pay regularly. That's why they give us the best deals. If the predator banks make themsleves less attractive, othr banks will step in and offer cards at favorable rates with the usual platinum perks.

MadisonMan said...

The only problem with shredding credit cards -- which I will happily do -- is the travel I do for work. But I think I can get around that by getting travel advances, if the UW still does that. They used to back when I didn't have a credit card.

No credit cards might make travel reservations harder, though, so maybe I'll cut back on travel.

Pogo said...

The left, and too often the GOP, focus on what is seen, and ignore what is unseen.

What is seen are those hurting from their own misbehavior, and the desire is to comfort them.

What is unseen is that the new rules will harm the innocent, whose behaviors should be emulated rather than punished. The "forgotten man" will markedly change his behavior, and cause a massive reduction in the use of credit, further reducing consumer spending.

That is, their new rules will have exactly the opposite effect intended.

Funny how when you fuck with the economy on one end, the other end goes all topsy-turvey.

Hoosier Daddy said...

Here is the thing folks need to understand. Back in the day, not everyone could get a credit card. Kind of how not everyone was approved for a mortgage.

Then it wasn't fair that higher risk folks couldn't get a credit card so they were provided them albeit at a higher rate of interest that reflected their higher rate of risk. Not unlike paying higher car insurance rates because you have a lead foot and are accident prone.

This isn't really difficult to understand. If Congress really gave a shit, then pass legislation that establishes an asset to debt ratio that an applicant must meet in order to qualify for credit, whether it be credit cards, mortgages or any kind of financing.

The problem with Congress is half measures. If you're going to play big brother then do it properly and not half ass. That method only ends up with encouraging more irresponsible behavior that ultimately is paid for by the rapidly decreasing responsible population.

Shanna said...

Bullshit. Credit card companies charge a fee for every transaction. You make them money.

No one is forced to pay interest, you choose to put yourself in that position.

rdkraus said...

Pogo

Well said (and before I could post the same).

Dust Bunny Queen said...

The reason not to ever use a debit card is that in case of fraudulent charges, you're the one out the money, so help is hard to find

Open a separate account for debit card use only for routine purchases like gasoline and small items.. Also I have a separate credit card with a 500.00 limit for internet use only. If my CC or debit card is hijacked, the worst I can lose is the small amount that is in the bank or on the card.

@ m00se. My bank also calls if the card is used out of town. If we want to use our debit card for a major purchase we need to let them know ahead of time so they will release the limit on the card temporarily. Found that out a few years ago when we went to use our card to pay for the custom kitchen cabinets we had ordered and our card was declined. "WHAT!!! we have thousands of dollars in this account from our construction loan!!.....oh, nevermind."

Fritz said...

Remember "Cash" or "Credit" pricing? This is nothing more than Obama think; we can control markets. If it is such a free ride, why are we given incentives to use the cards?

traditionalguy said...

If I can offer another viewpoint from long ago and far away: We used to have Usury Laws prohibiting excessive interest charges. This Industry that preys on the weak minded young folks who are in a financial bind had all those laws repealed. They tack on late fees after 10 days from the bill coming out, and they raise interest from4% to 29% if you ever forget a payment when on vacation. The result of that parlay can be 60% + in APR. Frankly, that is a crime. They make the big bucks off those hurting the most and try to make it sound like their victims are bad people who deserve that raping. Gambling also used to be illegal since it raped the weak minded, until the Government Monopolies took over the flow of the loot.

Lem said...

I just won't use the card if that's the deal. I'll switch to a debit card or pay cash.

Dittos Althouse!

Jason said...

Not only do the card issuers make several basis points off the merchant side of a transaction, but the credit card issuers also make money from their marketing partners, who pay them for their mailing lists, envelope stuffers, the ability to make special offers to people based on their incomes and spending habits, etc.

There is a reason banks issue debit cards, and a reason American Express, at least at one time - before they got into revolving credit - made money.

Original Mike said...

I have an idea! They can save money by not mailing me all those "you're preapproved!" card offers.

I don't chase reward points or cash backs or any of those "sounds great but I don't have the time to think about it" plans. All I require is no interest when paid in full, and I'll switch to another card, debit or cash to keep it.

PatHMV said...

Well, borrowing money (by making a purchase with a credit card) and not paying any interest on that loan for up to 30 days is indeed getting a bit of a free ride. If you went to a bank and said "I want to borrow $5,000 for 30 days, unsecured, and I don't want to pay a penny in interest on that $5,000," is there a bank in the world that would do that for you, outside the credit card context?

Of course not. Somebody is eating the cost of the time value of money when you do that.

Perhaps its you, in the form of an annual fee (doesn't sound like it to me). More likely it's in part the merchant, who must pay a percentage of each purchase to Visa and the issuing bank.

I'm delighted to see the end of all the freebie "perks." Cards with more perks generally charge a greater fee to the merchants, who are forbidden by their contracts with Visa from passing that charge on to the customer using the high-perk card. That means that the higher costs associated with offering all those frequent flier miles is passed on to the rest of us who choose not to use such cards.

Pogo said...

"who are forbidden by their contracts with Visa from passing that charge on to the customer using the high-perk card"

I thought they were forbidden by law.

Is that not the case?

Original Mike said...

The rap against debit cards is correct. Sure, you're only liable for $50 or whatever, but the bank may or may not refund in a timely manner. With a credit card, you're the one with leverage for fradulent charges (you don't write the bank a check). With a debit card the roles are reversed.

Shanna said...

Also, some credit cards double your manufacturers warranty.

PatHMV said...

Pogo, here's the best answer I could find on a quick search.

PatHMV said...

By the way, here's some actual examples of the behind-the-scenes fees which your merchant (and thus ultimately you the consumer) must absorb with each credit card transaction.

ark said...

I think some of the other commenters are missing rhhardin's excellent point.

If I buy something with a credit card over the Internet, or by phone, or whatever, and the seller doesn't deliver, Federal law says that I have all remedies against the credit-card issuer that I have against the seller. My understanding--and Ann knows much more about this than I and can presumably augment these remarks--is that this means that I have no legal obligation to pay the bill. I can simply refuse to pay, and the bank that issued the credit card must deal with the situation, presumably by debiting the account of the seller who did not deliver.

If I use a debit card in the same situation, it is possible that the bank will correct the situation, but they are under no obligation to do so. This is an enormous difference, and not one to be discarded lightly.

Original Mike said...

Typical liberal mindset. Irresponsible people should not be penalized for irresponsible behavior so enact regulation that will then result in people who are responsible having to pony up more to make up the difference.I believe that THE defining characteristic of a liberal is the inability to understand incentives.

PatHMV said...

I'm still looking for a definitive source on my assertion that cards with perks charge more to the merchant than cards without such perks. Here's one place which says that is so. Note that the merchant taking your CC pays a "discount rate," a percentage of each transaction, to the merchant card processing company he contracts with.

Original Mike said...

I pay cash for most every in-store purchase anyway. The difficulty would be for internet purchases (which I'm making with increasing frequency) and with travel. So if all banks started charging from the day of purchase, I'd be stuck. They'd all have to do it, however, or I'll move to one that doesn't.

MM - I don't think the UW does cash advances anymore.

garage mahal said...

Typical liberal mindset..

The bill passed 95-5.

Original Mike said...

The bill passed 95-5..

Yeah, there ain't many conservatives in Congress.

PatHMV said...

ark, I don't see anybody disputing that basic point. However, your bank DOES have an incentive to do right by you (even if not legally required to), because they want to keep you as a customer. So far, nobody in this thread has chimed in to report an actual experience where there bank screwed them (rather than the merchant) in a disputed charge situation.

I once bought a (very expensive) computer with my debit card. The company shipped it, and it arrived broken. The company hassled with me about having me ship it back. I canceled the order and sent it back via UPS immediately. I called my credit union, faxed them a copy of my invoice and the UPS return slip, informed them that the merchant had refused to credit my card for the purchase amount, and I told them I disputed the merchant charge based on what had happened. I had the money restored to my account within 24 hours.

Yes, if I had used a credit card, I would never have been out that money for even a second, because I would have not sent in the check for that portion of my bill. But the point is that, while the theoretical risk can be great, the actual, practical risk is fairly small, depending on whether you bank with a large corporate conglomerate or a smaller local bank or credit union which treats you like a person.

Plus, if more people switch to debit cards, I suspect Congress will at some point mandate that debit card purchases be treated similarly to credit card purchases for this kind of purpose.

Original Mike said...

Pat - The operative words in your story might be "my credit union". I'm not sure I'd count on CitiBank being so helpful. No matter what Congress mandates, I'd still like to be the one in the position of power regarding a dispute.

hawkeyedjb said...

Pogo said : "What is unseen is that the new rules will harm the innocent..." I don't think it's unseen. Isn't it really one of the main objectives of the bill, to transfer cost from one set of users to another?

traditionalguy said...

The laws passed by our representatives should protect us, not punish us. Just because they only punish one class of people to raise the $$ for another is no excuse as JTP was bold enough to say in public. In the south after losing a war and all money became worthless, the best way to build roads was to use "Convicts" as the new free labor. Suddenly every financially weak and unprotected person passing thru town became shanghied by a Disorderly Conduct charges or Vagrancy charges and did a sentence on the chain gang. The attitude of the citizens getting free roads was that the Bad People deserved that treatment. Think about the Cool Hand Luke movie the next time you feel that Credit Card Banks offering you free things should be entitled to treat Bad People any way they want.

Pogo said...

hawkeyedjb:

Few, though not none, of them are that smart or that devious.

They think all money comes from magic ponies that eat cotton candy and shit marshmallows.

Titusiseatingfageyogurtthankyou said...

Seneca South Carolina and Nashville...how southern...but I love it.

Richard Dolan said...

There seems to be a lot of premature complaining here. The fact that credit card companies make money from the volume of transactions (the fees they collect from the merchant-end of each transaction) creates a powerful incentive for those companies to offer deals to attract credit card users who pay in full each month and object to interest charges or annual fees. What I think we will see is an attempt to segment the market, by offering different cards (think Amex's confusing array of color-coded "prestige" cards). The marketing strategy will be to offer 'services' that supposedly compensate for the higher fees, while also offering no fee/no interest cards for the segment of the market that refuses to pay those fees. That will allow the companies to get the maximum benefit along the entire demand curve, without abandoning any part of it to no fee/no interest competitors.

Here, as elsewhere, markets are dynamic not static, and react to demand. So why all the premature plans to cut up all those cards? Is this an outpost of the Party of No, or what? Remember, O himself has said it's now partriotic to spend, spend, SPEND (as long as you're not a blood sucking, overpaid member of the financial services industry looking to buy a private jet, or an auto exec traveling on one).

Original Mike said...

O himself has said it's now partriotic to spend, spend, SPEND.

Consider me a conscientious objector.

bearbee said...

When does Congress and the Administration nail the free riders who pay no income tax?

So...bye, bye Visa, no more PayPal and Hello debit card?

The stupidest people in the world are using up oxygen in a couple of the big white buildings in Washington DC.

AllenS said...

A debit card is all that I have, and I'm glad it's there. I've tried over and over to get a credit card, and I'm unable to do so. The only loan that I've ever had was the one for the mortgage on this farm. I paid that off in 1981. I have no credit rating and no credit card company will issue me one. I consider myself lucky.

Smilin' Jack said...

I just won't use the card if that's the deal.

Great. That means we'll get to spend even more time waiting in line behind doofuses scrawling out checks or fumbling through pockets and purses for exact change.

downtownlad said...

Let's see. If the banks are really losing money on the 1/3 of people who pay their credit cards every month, then why would the banks even want them as customers? Someone explain this to me. But if it's true, then banks are smart to rid themselves of unprofitable customers. That's how the banks will become more profitable.

But if they're making money on these people (which I strongly suspect), then the free market will ensure that the things Ann mentioned (credit charged on the day of purchase, annual fees) do not come about. Because people will just switch to a card that doesn't have them.

But I guess conservatives don't believe in the magic of the free market.

Mkcoy said...

Typical! It's time to turn the tables around on these card companies for a change. They are nothing without us!

downtownlad said...

This bill will have a lot of unintended consequences. People will use less credit and that will hurt the economy. Our savings rate is going to move in the wrong direction. It's going to go from negative one percent to all the way to a positive 8% savings rate or higher.

Pretty soon, the US will be saving money just like the Chinese. Do you really want to a 3rd world, communist country like the Chinese where people save money instead of going into debt? I think not.

Original Mike said...

Great. That means we'll get to spend even more time waiting in line behind doofuses scrawling out checks or fumbling through pockets and purses for exact change..

Deal with it.

Terry said...

Congress stole the idea for this law from "How to Redistribute Income and Destroy The Economy For Dummies".

From another chapter in the same book: Obama just yesterday adopted the standard for motor vehicle mileage/emissions dreamed up by our crack Air Resources Board here in California.

And why not? After all, California is the perfect model for where Obama and Congress want to take the entire nation.

MJ said...

"The reason not to ever use a debit card is that in case of fraudulent charges, you're the one out the money, so help is hard to find."

Banking regulations limit comsumer liability for both credit and debit cards. It's intuitive to feel you have a better position with a credit card. But the process isn't much different unless you're willing to ignore your credit history and (if large enough) a judgement.

The liability limits were $50 or$500 depending on the circumstances, as long as you follow a few simple rules. One example is timely notification of your card issuer. See Banking Reg E.

pj (lowercase) said...
This comment has been removed by the author.
Michael Hasenstab said...

I carry one credit card with zero balance, for genuine emergencies (dinner out, new clothes, etc. are not emergencies), and a debit card linked to an account with a low balance.

I also conduct most routine transactions using cash. Makes me think a bit before I spend.

The basic rule is simple: If I can't pay for something immediately, I don't buy it. Haven't carried a credit card balance in years. If the bank jerks me around for being a good customer, pfffft, the credit card account is closed.

Hoosier Daddy said...

Typical liberal mindset..

The bill passed 95-5.
.

So what garage? That doesn't refute my point at all. Having an (R) behind your name doesn't denote conservative. Arlen Specter is a perfect example. I'm sure you don't think Zell Miller is a very good Democrat and I know Joe Lieberman is nothing but a despicable turncoat.

Original Mike said...

It's intuitive to feel you have a better position with a credit card. But the process isn't much different unless you're willing to ignore your credit history.

check

and (if large enough) a judgement..

But it takes a long time to get to a judgement (Which is the point. I'd rather have the money in my possesion rather than their's during the months long negogiation.)

MJ said...

"Do vendors contribute a micropayment when there is a charge?"

Vendors pay fees of roughly 1.25 - 3 percent. The processor (FDR for example) takes most of it, but the card issuer gets a cut, as does any affinity group (a group or entity who arranges for a card to be marketed with it's name to entice members / fans). Althouse for example could contract with a card issuer and offer "The Althouse Card", similar to NFL themed cards.

Original Mike said...

They never have in my adult lifetime, but didn't credit cards used to charge annual fees? Seriously, stop laughing.It wasn't that long ago, was it?

mccullough said...

When Obama runs for re-election, all those Internet donors will have to pay a higher-interest rate to show their love. Perhaps he is shooting himself in the foot a little here.

rdkraus said...

If credit card companies cannot charge higher fees/rates for bad risks, eventually they will stop (resume?) not giving those people cards.

Then liberals and community organizers will agitate for credit cards to be issued to those people, for not to do so would be racist, unfair, mean and nasty.

Hey, it worked out well with mortgages, didn't it?

MJ said...

OM,

"But it takes a long time to get to a judgement (Which is the point. I'd rather have the money in my possesion rather than their's during the months long negogiation.)"


First, you have this backwards. In my example the judgement is against you. The CC company has denied your dispute and comes after you for the money.

Second, issuers must provisionally credit your account if they can't resolve the matter in a fairly short time frame, which if it hasn't changed is 10 business days.

There are regulations defining all of this. This isn't an area in which you can reach valid conclusions based on who has the cash.

The bottom line is that there's no risk difference between credit and debit unless you're willing to default if a CC issuer denies your dispute.

Nasty, Brutish & Short said...

My debit card was stolen, and my back gave me money (less than $500). Thanks Fifth Third (who I usually despise)

Leland said...

I think there is some confusion between what is a credit card company (VISA, M/C, AMEX) and what is an issuing bank (AMEX, Citi, BofA). Although sometimes, they can be one in the same.

Credit card companies make their money by charging merchants fees. They charge for point of sale equipment and then a percent charge for each sale. An example, VISA may make from 2% to 5% on a sale made through their system. For this charge, they provide fraud protection, security, and ease of making the sale.

Issuing banks make their money from annual fees, interest, and other fees like late charges.

I make this point based on the first couple of posts. VISA makes it money whether you use a VISA Credit Card or VISA Debit Card. The money making is the same to them. AMEX happens to be both the card company and issuing bank, so they get money both ways. Then again, AMEX already does what the NYT is suggesting other banks will do.

As for free rides, one can argue all credit/debit card users are getting a free ride, because companies require merchants not to charge higher prices for credit card purchases over cash purchases. Thus cash buyers are paying the additional 2 to 5% the merchant marks up to cover the credit card POS systems and charges.

Also, MJ is right, your protections for a credit card or a debit card are the same. Your protection comes from the Credit Card Company, not the issuing bank, and the process works the same. In fact, if you know a little about that system, you'll understand why most restaurants no longer require signature for small purchases.

Original Mike said...

Boy, people sure put a lot of trust in regulations.

I'm not disputing that, in the end, if a judgement goes against me that I'm paying. What I'm interested in is motivating the bank to expedite the whole process rather than taking their own sweet time about it.

Elliott A said...

People still pay fees for the AMEX cards, ostensibly for the percs and service. People will pay moderate fees for the others if they provide that level of service. As for the cash payers, I don't want my 4 foot ten inch daughter carrying $500 cash when she goes shopping. Nor my wife for that matter.(After they're done there isn't any money left for me, anyway)

Visa, MC, Amex, all started as charge cards with modest fees. It wouldn't hurt to go back to that purpose. Safety and convenience. Our electronic age allows instantaneous access to credit for large purchases such as furniture or home theaters.

If the card company charges either a yearly fee or reasonable interest from date of purchase, it isn't a real bad deal. Let's say interest is 12%. I wouldn't mind paying a 1% premium on my daughter's purchases in exchange for the safety and convenience. If she charged $1000 per month, this would be equal to a $120 annual fee. If the card was just for emergencies, you would rarely pay anything. Now if they did both, I would cut it up.

pj (lowercase) said...
This comment has been removed by the author.
PatHMV said...

Leland, that's not entirely accurate. The fees charged to a merchant for processing a Visa debit card are much lower than those for processing a Visa credit card. You'll notice that all of your major retailers, when you swipe a Visa (or MC) debit card, it defaults to have you enter your PIN number. If you want, you can hit "cancel" and choose to process this as a "credit card" rather than a debit card. There's a reason for that. One of the links I provided earlier shows the rates charged by one merchant card services provider for the different types of cards and transaction types.

Also, I'm fairly certain that some of the per-transaction processing fees do in fact go to the issuing bank, not just the card network.

Original Mike: The only reason the situation works slightly more in your favor for credit cards is because that's what federal law requires. Federal law could just as easily adopt the same rule for debit cards as it does for credit cards, and require the banks to immediately recredit your account if you notify them of a dispute. Absent the federal law setting the rules that way, the default law in most states would be that your debt to the credit card company is entirely separate from your transaction with the merchant, and you'd have to pay the credit card company even if the merchant defrauded you, provided you actually did authorize the merchant to charge your account.

As I noted before, if in fact there's a continued trend towards greater debit card usage, I would expect to see Congress enact a similar rule for debit card purchases.

In the meantime, I would recommend that users of debit cards sign up with credit unions and smaller local banks in order to obtain better service and greater protection against fraudulent merchants.

PatHMV said...

Elliot A... very good points. Today, my local credit union lets me apply for a specific consumer loan by phone or on-line, with nearly immediate notification. If I need to buy a giant TV set, I can take the loan out from them to do so; there's not really a need for a credit card for that purpose. When credit cards were invented, obtaining smaller short-term loans like that took longer, so the credit function was a big innovation and improvement over the prior process.

Keep in mind that most merchants use to offer financing of one sort or another (many still do). It's even easier for them to do so, and I'm sure they will.

Original Mike said...

pj - I don't remember. I'm going to guess I was paying an annual fee until mid 1990s, but time flies when you're having fun so that may be way off. Then they offered me a) no fee but higher interest rate, or b) annual fee but lower interest rate. For me it was a no brainer. I took a).

If they want to go back to a small annual fee, I'd be OK with that. No way am I paying interest, though. No way, no how.

Alex said...

John Lynch said...
Yeah, I haven't used a credit card in years. Didn't see the point if I'm going to pay it off (I already have a house and I pay cash for cars) and I don't see the point of paying interest.The point of credit cards is convenience. Also if you need to rent a car, or book a flight you can't do it without a credit card.

holdfast said...

Some cards still have annual fees - most AMEX and some of the high-reward platinum cards. The AMEX Blue Cash, on the other hand, has no annual fee. I once got AMEX to waive the fee on my Delta Skymiles Gold three years in a row by asking to cancel the card just before the fee came due - eventually they wouldn't so I downgraded to the Blue Cash card.

IF you pay your bills on time, there are (were ?) a lot of cool freebies to be had by the savvy consumer.

bearbee said...

“The card industry is giving the argument that if you didn’t want to be carjacked, why weren’t you locking your doors or taking a different road?” Mr. Goolsbee said..

Seems to me that applies to the government as well. If you don't want to be hi-jacked.....

traditionalguy said...

One last attempt to point put that the 20 days interest free until the payment is due is a Red Herring and at most is a stronghold/bragging rights issue. The Banks are threatening that they will keep back all you righteous folks' piddly little token rewards only to get you to tell your Congressman to back off much needed protections for people who have lost mucht of their incomes recently and are stuck being eaten alive by 60% effective APR while they pay off these leeches. The involuntary servitude law should be being discussed here by the Con-Law experts. But instead most commenters today are just proud that they are the Smarter and Gooder people who deserve to keep their gold stars from the Credit Card Banks or else.

TMink said...

PatHMV wrote: "I would recommend that users of debit cards sign up with credit unions and smaller local banks in order to obtain better service and greater protection against fraudulent merchants."

Indeed. The bank that took care of me and tracked down the problem was the Bank of Nashville.

Trey

William said...

Most of my income comes in as a direct deposit to my bank. Nearly all of my expenses are paid by credit card or check. I rarely carry more than $100 in cash. I think that's probably typical of most people in NYC. I wonder if the reason for the precipitous decline in street crime in NYC is because no one carries cash any more. It is simply not worth the time and trouble to mug someone for the pittance in their pockets.....I am vaguely discomfited by the knowleddge that I earn more interest with the Cash Rewards program on my credit card than I do with my savings account.

Jack said...

Not everyone that ends up in financial trouble is there because they were irresponsible.

It is a slippery slope. Only takes a few problems and you can be in a world of hurt.

A few years back my wife slipped and fell. That led to several trips to the doctor. Even with medical insurance it cost several thousand dollars.

Right about the same time the transmission died on my car. Boom, that was another $1200 bucks.

And then the company I was working for went under. Bam again. Suddenly I have no income, a mortgage, wife and kids.

There was some money in the bank, but not a lot. Let me tell you, it goes awfully quick.

Gives you a whole new perspective.

Ralph said...

When you're taking cash, don't most cards charge interest from the day of transaction?

Iapetus said...

@Elliott A. Credit cards started as a boon not just for consumers but for merchants as well, as a replacement for personal checks (do you remember them?). Before CCs, merchants who accepted personal checks for payment could expect to lose about 5% of their sales to bad checks, i.e., forgery or NSF, even with phone services that tried to keep track of bad check passers.

Credit cards made it possible for merchants to get better control over their bad debt losses by passing part of the risk over to the credit card providers. And since the cost to the merchant was initially the same for this added safety, it was revenue neutral. The convenience to both parties, the merchant and the consumer, was an added bonus.

So, it appears to me that the float that CC users get today is not all that different from what they used to be offered by merchants who accepted personal checks. The main difference is that someone different is now providing the float.

Iapetus said...

PS, a clarification: I should add that in the good old days, there were no bank regulations that required checks to clear in as little as 3 days, and so it was not unusual for it to take several weeks for a check to clear your bank and the money to be taken out of your checking account. If you lived way across the country and wrote your check on an out-of-state bank (assuming the merchant would even accept it), you could get a float of as much as a couple of weeks.

Revenant said...

The involuntary servitude law should be being discussed here by the Con-Law experts.

When you borrow a shitload of money from me with no collateral and then have to struggle to make the interest payments, that is not called "involuntarily servitude". That is called "you being an irresponsible jackass".

There is no Constitutional Amendment barring irresponsible jackasses from reaping what they sow, although certainly the Democratic Congress seems to THINK there is.

PatCA said...

I would imagine you can still negotiate. I just got my annual fee taken off because otherwise I would just have canceled. The cards are great when you don't really need them desperately (like all loans I guess).

traditionalguy said...

Rev...The rate of the interest and fees should have a relationship to the going rate of interest with an add on. You may think that all "pound of flesh provisions" in the fine print should be enforced at all times as sanctity of contract, but that is not always equitable. The politicians had the traditional role in the old Democrat Party of drawing lines of how far abuse could be called legal. If you don't want Democrats re-elected forever, then don't act like the old Republican party's role of caring nothing for poor people's survival and only caring for the rich Bankers. Otherwise the Reagan Democrats will stay Democrat. Did your state have 200 years of usury laws on the books until the Credit Card Banks bought the Legisature and had them repealed?

Revenant said...

If you don't want Democrats re-elected forever, then don't act like the old Republican party's role of caring nothing for poor people's survival and only caring for the rich Bankers.

If the Republicans choose to side with the dipshits and deadbeats against the honest workers like myself then the Republicans are fuckin' useless and I don't CARE if they ever get elected again. The Republican willingness to do the right thing -- even if it offends the snivelling masses' desire to live in the fathouse on somebody else's tab -- is one of the only good things about the party.

You don't like bankers? Don't borrow money from them. Oh, what's that? You NEED to borrow money from them? Then don't bitch about them, you whining commie douchebag. Real men don't bite the hand that's feeding them.

Seneca the Younger said...

This has been the story for years: people who pay off their balances every month aren't considered really good customers; the credit card companies then only make money on the transaction fees, which actually add up to several percent of the face value anyway.

I'm a little unclear why this is striking people as a surprise. If the credit card companies have a limit put on how much they can charge for extended balances, then they'll need to raise other fees. If they can't make money on the cards, they'll stop providing them.

Tom said...

Alex said...

if you need to rent a car, or book a flight you can't do it without a credit cardNot true! My wife and I haven't used a credit card in over a year. We've booked airline tickets, rented cars, shopped online, all with our debit card.

Seven Machos said...

I am of two minds on this. On the one hand, I rest assured that Congress has made a bad, over-invasive law that addresses perceived problems in a draconian way that will hurt the economy.

On the other hand, credit card companies are sleazy. I have a personal example. While I don't pay my cards off each month, I do pay them down to zero periodically. I almost always pay much more than the minimum. Nevertheless, I have been charged late fees because I pay, say, on the sixth of the month instead of the third. In addition, my interest rate was nearly doubled when this happened twice in the same year. (Apparently, this was in six-point font somewhere on a statement.)

Credit card companies use a unilateral contract that imposes draconian fees and other penalties without substantive notification. They have all the power in the relationship. What are you going to do? Negotiate the contract?

These companies have scurrilously taken advantage of their contractual power (and, like sleazy banks, given too much credit to people should not get it).

For these reasons, it is not surprising that a very liberal Congress has stepped in on behalf of the consumer.

cubanbob said...

atHMV said... clever nonsense. AMEX does not issue Black cards to people who habitually pay on account.

The cash flow generated by those who pay in full every month is more profitable to the card issuers than having to go and borrow at the commercial paper rates and that is before the discount to the merchant who wants accelerated credit to their accounts and the typical merchant fees. True now and again they certainly don't mind a payment that hits a day or two over the due date so they can collect interest but if you are at that level they will almost always waive the charge so really its a nothing factor for the issuer.

The point is the card issuers love the accounts that habitually pay in full every month. Those are the accounts who still get all the offers and have not had their credit lines reduced or cancelled.

So if the Stupid One and his democrat minions pass this pernicious bit of idiocy, the card issuers will simply dump the higher risk accounts. Their business is only worth having when you get boatloads of cash flow to allow them to pay merchants and charge the marginal accounts and the higher risk accounts. Lose the top quality pay in full accounts to stupid regulation they will dump the crap and keep the cream.

One thing these democrat communist idiots have not contemplated besides the obvious effect of reducing consumption by the never-never segment of the population (as the Brits term it) since they will be forced to pay in cash is the likelihood of a vast increase in tax evasion as people will haggle with small merchants to waive sales taxes and those merchants in turn will pocket a portion of the cash off the books stiffing the states and the feds of sales, excise and income taxes. And usually those states with the higher taxes are democrat states. Just like in so much of Europe.

Congress is trying to repeal the financial equivalent of the law of gravity. Banks are not in the business of lending to people who really need loans. Those are risky borrowers and the banks have a responsibility to their depositors to be prudent with their money. When they forget that or are arm twisted to make bad loans we get the mess we are in. Banks like to lend to those who can pay it back in full, in other words those who don't need to borrow but do so when it is sufficiently attractive to do so.

No credit card company makes the money off those that make the monthly minimum compared to those who pay in full every month. An example who is more profitable to the card issuer; a guy who is at his limit of 5 thousand dollars and is making slightly above the minimum monthly payment and paying 2 to 3 percent of the principle balance a month plus the higher interest rate or the guy who charges and pays in full 5 thousand dollars a month every month and generating the merchant fees plus providing plenty of cash flow that can be lent out to merchants?

Soon enough we will be back to the old days, with stores carrying their own cards and built in all the interest and risk in the higher selling price they will charge to the marginal credit public, higher than the current card issuers will charge but it will be built in to the purchase price instead of a line item on the bill. Like the rent to own furniture stores.

Dave said...

Let's see. If the banks are really losing money on the 1/3 of people who pay their credit cards every month, then why would the banks even want them as customers? Someone explain this to me. But if it's true, then banks are smart to rid themselves of unprofitable customers.Shortly, it's because they make money on the average of all bad credit types. That is, if you charge, say, 10% for your good customers and they pay so they have no balance, you still routinely make your merchant's percentage.

If you charge your bad customers 30% and 1/3 of them (and you don't necessarily know in advance who the 1/3 non-payers will be) don't pay, you still make 39% on the 2/3 who do, which is a sh*tload more than you make on the good customers who end up paying no interest at all.

Back in the day, I spent a year working for Household Finance Company. The main office wanted us to write enough 'shaky' loans that we would have to write of 2% of our total outstanding loans every 6 months as uncollectable. That way we could assure ourselves of collecting late fees and such from as many debtors as possible.

The point is, when you can't know precisely in advance who will go bad and who won't, you can insure a profit by charging a high enough interest rate and loading up on potential deadbeats. In fact, when they go totally bad, you can still sell the 'paper' to a collection agency for 10-25 cents on the dollar and they will go through the whole process again.

Anyway, it's a moneymaker to loan money at high interest rates to potential deadbeats as long as not all of them default.

Seven Machos said...

Cuban -- A great post and it's interesting that you bring up rent-to-own. It used to be that there was a credit market for people with bad credit. Yeah, it was awful, but at least they got credit.

We are now finding out why it was that those people were not able to get credit back when lenders were sane and when they cared about their fiduciary duties. I agree with what (I think) you are saying, that we'll see a lot more differentiation now between good borrowers and bad ones.

Is this result bad? That's a genuine question.

Eric said...

Meh. Credit card companies make money when you use the card already. They've been stroking their chins and explaining how we responsible people need to pay more for decades. And for decades people just change to another company when they actually try to implement the fees.

Barry said...

So people who pay their bills on time are thieves "making out like bandits" while people who have been over borrowing and underpaying are "carjacking" victims.

Where does this inversion come from? We are heading back to the horrible political and economic policies of the Seventies and adopting the social outlook as well. It beggars belief.

Diane said...

traditionalguy said "They tack on late fees after 10 days from the bill coming out, and they raise interest from 4% to 29% if you ever forget a payment when on vacation. The result of that parlay can be 60% + in APR. Frankly, that is a crime. They make the big bucks off those hurting the most"Come on...that's a bit of an exageration. I nearly always pay my bills on time, but there have been times that I have misplaced a bill or even just forgotten to pay and have been charged late fees and interest. Every single time I have called the credit card company and asked them to remove the charges. They almost always do it with no problem. If they initially refuse, I politely ask them to cancel the card. They then change their mind. The reason is that I'm a good customer and they know that.

If someone is charged that high of a rate, they have a bad track record and/or are a bad risk. Why should I pay for that?

If someone has a good track record, their rates don't get jacked up 29% because of one late payment. And if they really are "on vacation", how bad can their life really be? That means they have more free time and/or money than I've had for the past 3 or 4 years.

Eric said...

So if the Stupid One and his democrat minions pass this pernicious bit of idiocy, the card issuers will simply dump the higher risk accounts.

This seems so patently obvious I don't understand what Congress is thinking. Do they think they'll be popular with the people who are unceremoniously booted by their card issuer? I'm starting to suspect they're planning to force banks to lend money to deadbeats on losing terms, CRA-style, to be subsidized by everyone else.

John said...

Usuary is just plain wrong. This isn't about those of us being responsible vs those of us being unresponsible.

This about how credit card companies can charge 39% interest off the bat, how they can charge $78 a month in fees. $39 overlimit, $39 late. How they can withold the amount a person actually has on their account, and when they make 7 purchases ranging in price from $5 to $10 put each purchase through but charge them $271 7x $39 fees, and call that "overdraft protection"

This is about how California, Oregon, Texas, or any state in the US can set a limit in maximum interest because at some point it becomes loan sharking, and have it become totally irrelevant because supreme court ruled, that these transaction really take place in the state most friendly to the credit card company.

There are groups of people, those who spend wisely, (This doesnt apply to you), those who spend retardly and dont even try to pay it back, they get a free ride. But there's one group thats truly screwed. Thats the group that used to be responsible had a debt they could manage, and then something happens, their 500 -2000 a month in revolving debt that they used to pay off once or twice a month jumps to 10,000, and while they were used to paying 7% interest on $500 they now find themselves paying 20% interest on 10,000 spread over 4 $2500 cards, with plenty of $39 fees every which way.

One extended job loss 3-4 months, one medical emergency, can turn an ordinary tongue clucking they ohh it would never happen to me into some one who pays $325 a month in interest alone, as they work off and pay $50,000 for what should have been $10,000.

But the deadbeats have it coming, come on this would never happen to us were not that dumb.

The only analogy I will give is the idiot that walks into the biker bar, gets drunk, says something bad about bikers, only to be sent to the hospitol for the next 6 months. Yes he was dumb, yes he created his own situation, but we still arrest the bikers for aggravated assault. What they did to him was still wrong even if he brought it on himself.

Ohiogrannie said...

Ann, it is a total lie to say credit card companies don't make money on customers who pay their bills. Every single company pays a transaction fee at a % of the total cost. For example, if you buy $100 of stuff from me, S&H is $10, and Sales Tax is $10, the total is $120, and I, the seller, pay 3.25% on the total to American Express (for example). The credit card companies set the rates the businesses pay and it is different for the type of business. So if you are a restaurant, you might have to pay 5%.
That is a nice little chunk of change when we are talking about hundreds of billions divided among 1) Visa, 2) MasterCard, 3) American Express, 4) Discover. PayPal charges both coming and going in some cases.
So the credit card companies are trying to make themselves recession proof by upping the antie. If they don't want to cover the defaults, then they shouldn't take the risks. How is them giving a college kid a card my fault????
And the assumption is that the credit card companies are absorbing the fraud charges is wrong too. The businesses get stuck with that bill too. If someone uses a card at my business, and the card holder claims they didn't make the purchase, guess who is out the money...., not the credit card company. So the little guy can't win.

mbrendzel said...

You should pay with cash, anyway. It will help starve the Beast.

kentuckyliz said...

VISA has a Zero Liability policy for all VISA branded debit cards (as long as you don't use your PIN--sign for your purchases).

http://usa.visa.com/personal/cards/debit/index.html

Same for Master Card debit cards.

http://www.mastercard.com/us/personal/en/cardholderservices/zeroliability.html

It just irks me when people keep perpetuating the myth that there's no purchase protection for debit cards. Worst offender, Clark Howard! He should know better.

Just don't use your PIN!

Ever notice how Wal Mart forces you to enter your PIN when using a debit card and selecting the credit option? Just pretend you don't know your number. They're trying to evade chargebacks.

I carry a cash budgeting wallet with envelope sections in it, and for all my incidentals, I use cash and stay off the grid--food, gas, entertainment, blow. (Not cocaine.) Much easier and faster than using a dc or cc! Try it! It will keep you from overspending.

Refuse to do business with a TARP bank. Whether they wanted the money or were forced. TARP is corruption through and through. We have to send a message to the gummint--you bail out, we quit using that bank or buying that brand car, period.

jpr9954 said...

What Mr. Robertson who says I've been getting a "free ride" seems to forget is that for each and every transaction I make using a credit card, a merchant fee is generated. If I pass cash, then they do not get the merchant fee.

I'll make him a deal. He can have the credit card company charge me an annual fee and I'll cancel the account. A year from now after I've paid cash for everything, we'll see who is happier - me and the merchant who haven't been paying a fee to the credit card company OR the credit card company which won't be getting my annual fee and will be earning reduced merchant fees. I'll let him make the call.

jGeee said...

I work with card processing a lot. Sometimes there is close to a 10% interchange (association, issuer, card processor, everyone gets a cut) on every purchase with a credit card. There are making the money every time you swipe the card.

Debit cards have less of that especially if used as an ATM type card. STAR/NYCE/PULSE are cheaper networks to go through. Especially for the businesses you frequent.

silenttype said...

God gave us Obama in the difficult to part the waters, heal those in need and make all man equal. If you disagree with this "equalization" you are simply a racist and hateful person. Wish Jeanne Garafola was here to take you all to task. I can't keep a straight face.

Dorsai said...

I predict that all we'll need to do is shop around--some bank, somewhere, will offer a card with a deal similar to the one we have now. After all, they do make money on the merchant charges, and this would be a way to attract a lot of customers.

alppuccino said...

Lowe's is offering a 10% extra discount on all purchases if you use your Lowe's card. I first send Lowe's the money, then I use the card for my purchase. 10% return.

datechguy said...

Don't forget that the card companies make a percentage on purchase you make even if you make the full payment.

If they don't want that money its up to them.

Dan said...

Here is my "misused by the Credit Card Industry" story.
I had a card with a balance of around 3K. I carried the balance b/c of a "life of loan" interest rate at 2.99%. I put various charges on a couple of cards when renovating my kitchen, got the cashback and deal awards, then bundled the loans into the "life of loan" deal. I could have paid it off, but it was been better to reduce the 7% equity loan for the main renovation than the 2.99 for the appliances, flooring, etc.
I received a notice from the CC company saying they were changing the terms of my loan due to "use patterns" on my card (the pattern being not using it. I now could either see my rate raised to 11%, or pay a $10 a month fee.
Now, I have no other outstanding unsecured loans, the combined mortgage and equity loan payments are under 15% of my annual income, have other credit cards with zero balance, and 10 years of credit history with no blemishes.
I know the fine print modifies the "life of loan" language, but the terms read as if you need to screw up to have the rate change. The CC response was they have not changed the rate, just added a card fee which I can avoid by changing the rate.
My response was to send them a check for the balance and cancel the card.
It is gamesmanship of this sort which has put the companies the the crosshairs. I think we all should stand up to our contracts, but the industry has a history of deceptive practices which caused the overreaction by Congress. While I do not agree with the government setting fee schedules and micromanaging the industry, forcing the companies to clearly disclose their terms and not hide them in tiny legalese is a reasonable consumer protection. "Life of Loan" should mean, well, life of loan. IMHO.

traditionalguy said...

Another true story about the Banks: After Katrina a client had his commercial land in downtown New Orleans still there, but his building gone. The Insurance claim pays and since the Mortgage is still open and not in default, the Bank insists that the bank hold the insurance money in a sinking account as security for payments to come due until the owner can sell the real property and pay them off. Then the Bank waits until the payment is late each month before they pay themselves out of the owners money that they are holding and slap on a $5000 late fee every month. The bad owner was late and made them do it, you know. The Banks are ALWAYS the enemy of all borrowers, not just the people so irresponsable as to actually borrow money when they need it and therefore deserve whatever they get. I was Chairman of the Board of a Community Bank for 6 years, and one of the best profit centers we had were the borrowers who would run late, but pay pay the late fee, like clockwork, appearing every month on the Board Reports. We loved them. Today's economic climate, which has hit like Katrina, has stranded many good people who are being beat up by Credit Card Bank bullies. That's life. Survival of the fittest and all. But as a lawyer we do see and try to help the struggling people trying to survive, and frankly wolves eating the weak offends me.

tim maguire said...

I don't use a debit card because if I did, I'd never be able to balance my checkbook and I'd be bouncing checks left and right.

Just because you don't pay interest charges doesn't mean you're riding free. Your credit card company gets a kickback from the store of 2-4% of your purchase. Of course, the price increase caused by that kickback is figured in to the sticker price so you pay it whether you use the credit card or not.

hdhouse said...

Least we forget that the credit card company also took a percentage of the transaction so they are hitting both ways.

A few years back I had a credit card with a moderate limit and I took a vacation on it. On my return, they upped the interest and "lowered the credit limit" below my balance so I got an over limit charge which I fought but then in the fight they had juiced up the payment date and I was then late and overlimit and my interest rate went from 4.9% to 29.99% and I had never missed a payment.

As I paid down the balance they simultaneously lowered the credit limit, always about 100$ less than my balance and kept up the same trick. I took them to court and they defaulted and I won but the sum total was a card with a $7,000 limit went to a card with a $250 limit in 7 months. I figure the entire episode is a case in point.

halojones-fan said...

"free ride" my ass. As Shanna points out, the card companies charge retailers a fee for using the card at all. This is why gas stations have a "cash discount" price.

Almost Ali said...

Join another class, 'cause "middle class" ain't workin'.

Debbie said...

Another point - if I have to use my debit card, I'm done with online shopping. No way am I going to put my debit card number online. Buh-bye Amazon.com.

newton said...

Isn't that interesting that this will ruin e-commerce at the same time as they're trying to ruin credit card companies?

Great way to encourage economic recovery, Congress: giving a license for the irresponsible to rack up the debt so that we responsible people pay up for their messes is a great way for you to buy votes! ACORN couldn't have devised such a great strategy!

After this announcement, my husband and I are probably going to shred our credit cards and go debit card and cash only. And forget Amazon.com.

RebeccaH said...

If we're getting a free ride, how come our Visa card got cancelled out from under us, even though we've never defaulted on a single payment, and our credit has always been good?

Thank God I had a debit card too, because I was standing in a grocery line when I became aware of it. It's with a small local bank, and I never keep more than a couple hundred dollars in it for gas and other needs. If I need more, I can always transfer it from savings. I'd rather have the credit card (we've never been profligate with it), but if Obama is hell bent on tanking the economy, I suppose it's better just to use cash. Forget checks, most gas stations and convenience stores won't take them.

R said...

Me too. I'll use a debit card or cash. Credit card companies get a percentage for the transaction from the merchant. If that isn't enough for the credit card companies, then they can have their cards back.

Amazon.com are you listening?

I fear we're not done 'spreading' the misery around.

Dudley Do-right said...

Hey, no problem. Let the banks charge whatever they want. I've been making too many credit card powered online purchases anyway. Once my backordered ammo and hi-cap magazines get here, the cards get cut up. Great way to rein in the spending. Thank you, banks.

Had no idea my "free ride" was causing so much suffering.
Dud

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Klarina Chan David -Teodoro said...
This comment has been removed by the author.
gabby said...

There are lots of things to be thankful for but i guess none of them is my debts. I don't want to sound bitter but it is something i can hardly be proud of. My family knows about all my debts, they really wanted me to help on this but then, all of them have their own life too, until they discuss me about thefree credit repair and the credit report score, I really work on hard just do get over it. and now I am free from debts. =) I used a lot of credit cards I used american express, horizon gold and Next Millennium Black MasterCard =)

Thanks
Gabby

Syed said...

The card holder of a secured credit card is still expected to make regular payments, as he or she would with a regular credit card.
Plastic business cards