Credit Card Industry Aims to Profit From Sterling Payers

[NeoConsSuck]

Source: NY Times.COM

Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.

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.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”


Read more: http://www.nytimes.com/2009/05/19/business/19credit.htm...

[pokercat999]

1. They have always had "instant interest" in the form of

charges to the retailer/seller.

[askeptic]

40. Exactly - they'd be cutting off their noses - pure hype

They are trying to infer that the ones who pay off their cards would be subsidizing "deadbeats", in an effort to defeat the bill. They are collecting a fee on every transaction and lots of those who use their cards and pay them off generate plenty of fees they get from the sellers end. They know that those who pay off every month will simply cancel annual fee cards, and if no alternative go to cash/checks/debit cards. Bastards act like they are doing everyone a favor by offering credit cards.

[MISSDem]

47. To those who pay the bill in full each month it is a favor.

It is an interest free loan for a month plus bonuses of cash or freebies.

[pattmarty]

2. To all fucking credit card companies/banks; "eat shit and die".

[willing dwarf]

3. This is actually good news for the earth.

Because the prudent among us are prudent they'll probably just cancel their credit cards and go back to cash. (I decided to do that after W. was "re-elected" in 2004. There was no logical reason, but I just was sick of the whole damned system. So I canceled my credit card and went back to cash only. It's been great because it slowed down my spending considerably. )

The credit card companies probably want to set up a dynamic of having people beg for credit cards. Make us feel like victims if we can't have our plastic. Well the earth could really use a break from all the creation of useless trinkets and doo-dads. If people stop using their plastic to buy more plastic, everyone will be better off. So I say, whoopee doo. Let's all cancel our credit cards today!!

[Aviation Pro]

4. Have been credit card free since 2003....

...cash is king.

[mainer]

34. How do you reserve a hotel room? A car? Buy an online airline ticket?

It's really hard to pay with cash or a personal check!

[nbcouch]

37. Two words: debit card

I've done all three numerous times with a debit card - not a problem.

[Aviation Pro]

43. Debit card.....

...the urban myth that you can't purchase or reserve a hotel, car or airline ticket has been proven false by moi hundreds of times.

Again, cash is king. (And a debit card is cash).

[InfiniteThoughts]

5. well said ..

that's what i was thinking ..

i have been credit-debt-free for the last 1 year. if the credit cards ask for annual fees or instant credit charges, i will dump the cards at once. you see, i don't need them and so do atleast 20% to 30% of their customers.

[mike_c]

24. yep-- I dumped mine several years ago and what a positive change!

Credit cards are a massive scam. Living within your means is so much better!

[CoffeeCat]

31. These bastards would sell their own mothers...

...if it could add a dime to their coffers.

These are some of the greediest companies in existence--and if they are treating customers unfairly or poorly, that means
that they are no longer interested in the game. Why would greedy corporatists be disinterested? Because there are no
more dimes, and their outlook on our economic future is bleak.

These companies made billions during our spending spree,of the past two decades. I actually am guessing that these
companies foresee extremely difficult economic times ahead, and they're trying to cajole people into cutting up their cards.

Mastercard and Citi don't want THEIR cards in OUR hands when the last bubble bursts--and people are running to Walmart to stock
up on canned goods and tents.

These companies are smart, and they've been heavily leveraged and babied by our Congressional members, who violated usury laws
for them. If the credit card companies are ticking off their customers--it's part of their business plan.

These companies aren't stupid. They're still run by greedy, amoral jerks--who could care less that they have driven people
into debt and that they have played a major role in our economic downfall. Credit card companies created the bubble of spending that is now
popping. What the hell do they care if our economy tanks? They got their piece of the pie.

In my mind, the behavior of these greedmongers--is a bellwether for what's to come. And it ain't lookin pretty.

[high density]

6. Charging interest immediately?

Err, OK. That would be a great way to get people to use cash or debit cards in a hurry! I think this is nothing more than a scare tactic from the industry aimed at Congress.

[Gormy Cuss]

7. 'Charging interest immediately'=bluff. There's no way 'sterling' customers would put up with it

I can't wait to see them try. What those customers will do is choose another vendor without such a provision. It's the main reason that annual fees went by the boards -- the best customers voted with their feet.

[spotbird]

16. This one won't

There is absolutely no way I would pay interest when I could pay cash or the equivalent . Why would anyone?

[nightrain]

23. many people cannot pay cash and are stuck

in a cycle of living beyond their means and find the allure of material things too difficult to reject.

[mainer]

35. This one won't, either.

And I"m sure there'll be some new product that'll pop up to take care of our needs.

[JeanGrey]

39. List me as a sterling who "WILL NOT". This is a foolish

move and will result in many saying "here's your card".

[kmac3]

8. Sterling Customers

I do believe it is all a huge threat ... this age loves using fear to control ... However, the caliber of these so deemed sterling customers are also THINKERS ...

They will all just cancel their cards leaving "No Pay" or "Slow Pay" customers which will prevent adequate cash flow!

[Bonhomme Richard]

9. They will try it for a while until........

the smarter companies decide to gain market share by cutting things like annul fees, etc.. It's all about market share just like any other business.

[sinkingfeeling]

10. What's new? "those that manage their credit well will ...subsidize those that have credit

problems." I think we've been doing that for years. Poor repayment has driven up interest rates, just like shop lifters drive up prices.

[nbcouch]

13. you're missing the point of the article

They're talking about ways to extract money from people who currently pay NO interest, who pay off their balance in full every month, and who also get perks like frequent flyer miles. If they take away the perks and add new fees, then it starts costing those customers money to hold a credit card, at which point the only benefit they get is the convenience of carrying plastic. Thus they have every incentive to switch to one of the many free debit cards that are available.

When I worked for Citicorp Diners Club many years ago, the president of the company liked to say that his best customer was one who charged $5000 every month and paid a month late, but paid in full. Diners Club made their money from the annual fee and the discount rate they charged their retail merchants. Apparently that was enough for them back then, but nowadays no profit is ever deemed excessive.

[nbcouch]

11. Yes, of course

This is what addiction looks like - you engage in increasingly irrational and self-destructive behavior to get that fix. This line from the Times article speaks volumes:

"They aren’t charities. They have shareholders to report to."

And who exactly are the majority shareholders of our financial institutions? Do you really have to ask?

Addiction to obscene amounts of cash being sucked out of the economy for the benefit of the obscenely wealthy - is it any wonder these people were favorites of BushCo? Their enterprises were the same.

[Bette Noir]

12. And that's why I've stopped using my Bof A card.

As soon as they sent me the letter saying that there would be a $10 surcharge on all transactions, I moved that sucker to the back of my wallet.

That letter was following cutting my credit limit by 60%, and going to a 3-week billing cycle. They couldn't get interest and overlimit fees by manipulating my account otherwise, so they went to the surcharge.

[arikara]

25. They actually charge you

$10 for every purchase??? I wouldn't move it to the back of the wallet, I'd cancel it.

I've had a visa for 35 years with the same bank and just received a notice that they were tacking on an annual fee and raising the interest. I looked on their website and they have several cards and mine had the worst terms. I called and told them I wanted the one with no fee and half the interest, customer service said "ok... done" and that was it. Bastards. If they start playing games I will cancel it. I can live with cash.

[CoffeeCat]

32. The credit card companies want us to cancel...

No one wants their cards in your hands when the last economic bubble bursts--and everyone has
their "Oh shit" moment.

Ever since we've had this economic downturn, the credit-card companies have been deliberately trying
to enrage their customers. They've increased interest rates, caused unfair late feels because they
jerked around and changed bill due dates, slashed lines of credit, etc. And now, they're announcing
that they're going to start charging interest immediately and slashing perks--on their best customers.

This would be the equivalent of a restaurant charging you $30 for a meal that is listed as $20 on the menu--and
then charging you hidden fees for ambiance and lighting--charges you first discover when you get the bill.

Any restaurant that would do that---would lose your business and frankly--does not care if you return.

This is what credit card companies are doing. They want you to angrily tear up their cards. They are done
with you. The economy has tanked, and it still tanking---despite a lot of smoke and mirrors crafted by
the MSM.

We get so many lies and puff pieces about the economy. However, if you want to really know what is happening--and
what will happen to the economy--the behavior of credit card companies is a good indicator that the economy
really isn't healthy and could possibly get far, far worse. Does anyone really believe that these greedy companies--who have
sucked so much wealth from lower-income and middle-income earners--wouldn't still be courting us if there was more money to be made?

Why else would these companies be engaging in outrageous, offensive behavior that practically ensures card
cancellations?

[customerserviceguy]

14. The very smartest people will just stop using them

I only run my gasoline, restaurant, and cell phone charges through my Amex to get the high level of Hilton HHonors points available. I usually don't even bother to wait for the monthly statement, I now send two or three payments a month electronically.

But if they take away the goodies, I'll just switch to a debit card. And if somebody wants to charge an annual fee for that, then it's hello, cash! I can't do this for the cell phone bill, but I pay that electronically from my bank, as well.

[Dulcinea]

22. Same here.

I use my AmEx for most things to get the Delta Sky Miles points, and pay the balance off in full every month. And I'm going to be penalized for being a responsible customer? Bullshite!

[Tracer]

15. It's already happening.

A month ago, I received notice from Capital One that my interest rate was going up to 17.9%

Personally, I didn't care --- not charging much each month and paying it all off for an effective 0% interest rate. What a "deadbeat" I am.

Yesterday, I got another notice from them jacking the rate up to 24.9% on cash advances, (which I've never used).

My daughter also got a notice from a card that she uses strictly for business travel, that there was now going to be a $90.00 annual fee.

She immediately got on the phone and cancelled the card.

[Bill McBlueState]

17. I got those from Capital One as well

So, I'm aggressively paying off my Capital One card, and I got a Visa card through my employee credit union. The interest rate is 7.9%.

My credit union doesn't do stuff like sponsor nationally televised sporting events, so I don't think they're as desperate for cash as Capital One. That was a big factor in my switch -- realizing that my money was subsidizing a bunch of college football games plus all those cutesy "What's in your wallet" commercials.

[izzybeans]

18. Those that manage their credit well will in some degree subsidize those that have credit problems.”

It's already the inverse so...who gives a poo?

Where do you think the "cash back' rewards come from? The money tree.

If you are paying on credit with cash you already have, then call the credit card co's bluff and don't use the credit you don't need.

[unblock]

19. what do they have against brits?

sterling payers = people who pay in pounds sterling.

[Kitsune]

20. And this is why I never have and never will own one of those damned things.

People always told me "If you pay them off on time there's nothing wrong with them."

Now I can point to this.

[SOS]

21. This article is rubbish

Pure Wall Street bank propaganda. Not since Judy Miller's lies appeared on the front page has the Times been more obvious in promoting an agenda.
The article is also filled with errors.
For example:

"But with the relaxing of usury laws in some states, banks began offering cards with a variety of different interest rates and fees, tying the pricing to the credit risk of the cardholder."

The author doesn't even understand the most basic elements of national bank usury. "Some states" did not relax usury laws.
The Marquette decision of 1978 allowed national banks to circumvent state usury laws.

If the author is simply going to re-write the American Bankers Association press release, he should at least familiarize himself with the history of national bank usury.

[phantom power]

26. They're playing the classic GOP card...

"Oh no, if we pass credit reform, the Better Class will be subsidizing the Lazy Welfare Bums!"

Yeah, cuz no financial company could possibly turn a healthy profit at less than 30% interest.

[SOS]

27. You summed it up perfectly in one sentence.

[CoffeeCat]

33. Ok!! This is the point that I'm making!

I worked in PR for several years, for a public company--and what you mention is so true!!

You're good.

You astutely picked up the fact that usury laws weren't relaxed in the states--and that this is propaganda
spread by banks and credit-card companies. Those talking points could have only come from these financial
institutions.

So, if we reverse engineer this story--it's pretty obvious that these credit card companies mentioned in the
article--sent out a press release in order to get their talking points and information to the public. Backing
up further--into the board rooms of these financial institutions--what incentive would these companies have
to announce that they will be screwing over their customers??????

Believe me, I've sat in board rooms---writing soundbytes and targeting friendly reporters who would best help
us disseminate the info we wanted the public to digest.

This is so obvious, in my mind. The credit card companies want us pissed off at them. They want us to cancel
our cards. I'm sure people are tired of my broken recordness...ha. However, I'm even more convinced. You
picked up on some evidence, that this article was largely based on information from the banks and credit-card
companies. This was not some reporter digging for the truth. This article is a regurgitated press release--and
those financial institutions want us hopping mad!

They want every media outlet talking about how outrageous, unfair and evil they are---so people cancel their cards.

These companies realize that the jig is up. The economy is tanking and will tank further---and they don't want
you holding their cards when that happens. They're trying to get their cards out of the system before the peasants
realize that we really are up shit creek.

Awesome catch on that info...

[One_Life_To_Give]

41. Or to get people to call the Congressperson

I would guess they want all the people who would be affected by this to call their Congressperson to oppose the legislation.

[nbcouch]

44. Not sure I agree with your premise

The card issuers think the economy is going to get much worse, so they're trying to drive people AWAY from their products? Why would they want to REDUCE their assets under those circumstances? What's the logic?

If you're saying that they want to reduce the assets they consider poor quality - accounts that won't get paid if the economy gets way worse - then why would they now be targeting their "best" (but perhaps least profitable) customers? I think the parenthetical phrase is the key. They may very well prefer not to have people who pay their full balance every month as customers - maybe they want to drive THEM away - but this idea that they want ALL their customers pissed off at them seems at the very least highly counterintuitive.

Very likely these latest moves will cost them some customers, but all they'll lose is the discount on those customers' purchases - a pittance compared to the interest charges they continue to earn from everyone else. Especially since the credit card companies were allowed to rewrite the consumer bankruptcy code, it's hard to imagine them ever wanting out of the credit card business.

[Deja Q]

28. Yummy. Greed tastes like chicken.

[CoffeeCat]

29. Thanks, but no thanks--to that credit card to nowhere (nt)

[bamacrat]

30. Bill Maher had the head of the TARP on

she was talking about usery laws that were taken away in the early 80s that limited outrageous interest rates and unfair fees and confusing language. These were taken away and we see what has happened. Its all about profits, screwing people over to make more money. People have no compassion or care for people, if they can make 10% more this year by charging you an insanely high interest rate or petty fees, they do it and do not think twice. The government ought to bypass these companies and issue an optional US Government credit card with a reasonable flat interest rate. Then we could keep credit flowing and help people in need.

[hunter]

36. A US Government credit card would be interesting...

We could give one to anyone who files a tax return and set a limit of 10% of the federal income tax paid the previous year or $1000, whichever is greater. The interest rate would match some federal bond rate but in all cases be limited to a max of 10%.

For some people who can't manage to pay their income taxes or their credit card bills it would end up being a one shot deal, an economic stimulus payment of $1000 if you want to think of it that way, but almost anyone who pays federal income tax ought to be able to make quarterly payments on their card, or have the total added to their total income tax bill at the end of the year.

I think most people would simply choose to have an adequate amount to cover their credit card purchases deducted from their paychecks along with their taxes.

[bamacrat]

38. I would say only affect a persons taxes if they dont repay.

But even a 15% interest rate would be better than the 26% many credit cards charge. It would make sense all revenue gained from this would go to the government, an organization that desperately needs money.

[SOS]

50. That is a brilliant idea

[w4rma]

42. They won't do that. They will lose the money they get from transaction fees. Call their bluff. (nt)

[cyr330]

45. Not a problem for me. . .

If they want to charge me fucking fees, I just won't use my card. It's quite simple.

[ArbustoBuster]

46. The article contains at least one flat-out lie.

The article contains this statement from David Robertson, publisher of the Nilson Report, which tracks the credit card business: "People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee even as they collect points for air travel and other perks."

This is a lie, and a particularly nasty one. Every single time you use a credit card, the credit card company makes money. They charge between two and eight percent of the entire cost of the transaction to the vendor as a merchant fee. That means that if the credit card's merchant fee is 4% you charge $100 at a grocery store, the credit card company takes $100 from you and pays the grocery store only $96 of that money, keeping $4 for itself.

So this is scare tactics and flat-out bullshit. Credit card companies do make money off of their "sterling" customers who pay in full at the end of every month. That's how they can afford to give you that 1% cash back - they're giving you part of the money they charge the people you buy from.

It's important to understand that I'm not saying that the merchant fees necessarily are evil. They're mostly a way to hide costs so you don't complain that the credit card companies are making money off your purchases. What the merchant fees do is shift some of the costs of using a credit card off of the backs of the people who use credit and onto the backs of the people who pay in cash. (That 2% - 8% has to come from the merchant's bottom line, and the merchant has to get it back by increasing the costs of everything by a little bit.) If wealthy people are more likely to pay in cash than poor people are, then merchant fees are actually a net benefit for the poor. However, I don't know the credit card usage details so I can't determine if that's what's happening. My instinct is to say that the poorer you are the less likely you are to have a credit card, so the poor get shafted by merchant fees to the tune of a several percent increase in their costs.

Credit card companies actually disallow merchants (grocery stores, gas stations, donut shops, etc.) from charging you to use your credit card. That's because doing so would disincentivize using a credit card, and would make people use cash or checks instead. Therefore, the merchant fees are always hidden, unless the merchant can come up with some clever way to call it a "convenience fee", and in that case the merchant needs to show that the convenience fee really is for something that's outside the merchant's normal way of doing business.

I don't expect folks to take my word for this, so I Googled up some background material for anyone who wants to read further:
http://www.merchantcouncil.org/merchant-account/operati...
http://www.merchantcouncil.org/merchant-account/operati...

[ArbustoBuster]

48. Found another reference.

From the New York Times:

http://www.nytimes.com/2009/05/17/magazine/17credit-t.h...

"Just a little more than two decades ago, the credit-card business was a quiet, slightly boring industry dominated by banks looking for easy revenue. Card issuers made money by collecting annual dues and interest payments from cardholders as well as fees from merchants each time a customer used a card. Then the math whizzes arrived. They emphasized that the biggest profits didn’t come from people who always paid off their bills but rather from less-responsible clients who never paid their entire balance, and thus could be milked through silently skyrocketing interest rates, late fees and other penalties. Since 1995, the percentage of the industry’s income from cardholder fees has more than doubled to 40 percent. In 2005, as the push to sign up cardholders peaked, the industry sent out more than 10.2 billion credit-card solicitations, which would cover more than the entire world’s population. Two years later, card companies collected $40.7 billion in profits before taxes, according to R. K. Hammer, a credit-card advisory firm. Today Americans carry an average of 5.3 all-purpose cards in their wallets, and the average household has $10,679 in credit-card debt, according to the industry publication The Nilson Report."

In other words, this was all a calculated attempt to milk money from the poor and from those in the middle class who could be convinced to get in over their heads, because steady money from people who paid their credit card bills every month wasn't enough for them. I have no sympathy whatsoever for the credit card companies. They need to be forced through legislation to eat their failed debts and change their ways to serve the public interest.

[jgmiller]

49. The merchant fees actually have some pretty complex calculations

Card companies and processors actually call it a "discount fee". I always thought that was a funny thing to name it. In any case a merchant not only pays the discount fee they also pay the processor a transaction fee. As a merchant you can't process directly with MC, VISA, AMEX or Discover you need to go through a processing company like a bank or an independent company. These transactions fees are typically $0.10-$0.50 on top of the 1%-8% for the discount. All of these fees go for purchases as well as returns so if you're a merchant and you sell something for $100 you only get $92-$98, then if the customer returns the purchase you pay the same fees again so. So the consumer gets back their $100 but you as a merchant are out $4-$16.

The discount rate depends on the card company and the processor and how they view your company. Online companies typically pay more because fraud rates are higher in that arena. Also they look at the types of products you sell, your average ticket and so forth. Card companies and processors protect consumers from fraud pretty well, if you have a charge you don't recognize they will in general immediately put the charge on hold. The reason they so freely do this is because they immediately issue a charge back to the merchant. So if you say you didn't buy that $100 worth of stuff the merchant bears the burden of proof that you did. If they don't respond to an inquiry within 7 days the merchant gets dinged the $100 plus sometimes a charge back fee. In addition if the merchant racks up enough charge backs their discount rate goes through the roof. Unfortunately in a bad economy more people will purchase something then claim they didn't counting on the merchant not responding quickly which means they get it for free. There is no penalty on the customer for making a fraud complaint and being denied. Unless of course you do dozens of them.

Like everyone else has said, the card companies threats are hollow, they might all agree to do the immediate interest thing but within a month or two one of them will break and remove that and then all of them will too.