2007/05/31

A Frog And His Money

To say that I'm debt averse would be to understate the situation. If there is one thing that I should thank my parents for, it's a manic for managing my finances and a loathing of debt. Consequently, I have an uneasy relationship with credit-card companies. They don't make much off of me, and I get pissed at their sleazy tactics. But here's the thing, I never knew just how sleazy their tactics were.

New Federal Reserve regulations aim to put the kabosh on some of the more nefarious ways card companies try to separate you from your hard earned cash, but...hell...I wasn't even aware of some of these slimy practices:

Zap The Grace Period - This is the one that gets used on me all the time--pay your bill on time 6 months in a row and...BANG!...the grace period drops from 25 to 20 days. They'll always try to trip up a "one-month wonder" with this.

Interest on Fees, Interest on Fines, Interest on Interest - They might as well just refer to this as Universal Interest.

Universal Default - This is really, REALLY sleazy! Late paying on one of your cards, and not only will that one jack your interest rate, so will all the others!

Card companies argue that they need these tactics, these penalties, in order to handle the risk associated extending credit to certain customers, but that's not really what it's all about. It's about profit. If all of us paid off our credit-cards in full, on time, then Chase, CitiGroup, Capital One, and all the others would very rapidly start charging us simply for the privilege of having their damn card in our wallets. Count on it!

31 Comments:

I did battle with the Credit Card people eight years ago and haven't charged on thing since, nor will I ever. Bucha greedy bastards.
credit cards all like the mafia: they beat you down with fees or penalties whether you pay on time or not. and, for next april, do you do tax returns?
But they have already tried "charging us simply for the privilege". It was called the Annual Fee & I believe it died when customers simply shopped around for non-annual fee cards. It never had any vailidity anyway since they are already making a % on each transaction from the vendor at the point of sale.

I'm one of those people that uses plastic almost exclusively, but since I pay my bill in full each month, they've rewarded me with the ever decreasing grace periods you point out. The "interest on fees, interest on interest" got ridiculous when I had to wire my sister emergency funds a couple times. I used my credit card & found their highest interest rate accumulates on that sort of transaction from the moment of the transaction (in addition to some kind of special fee). I wasn't aware of this, but I still paid the total bill in full within the grace period in my usual fashion. But interest charges showed up again the following month on the TOTAL balance since there was ongoing interest accumulating on that one transaction & so it looked like I hadn't paid my total balance in full. Oh, you can bet I got it all reversed, but had so many bad feelings about their extortion attempt, that I switched cards.

The "Universal Default" you bring up sounds illegal to me, like they would have to be able to read your mind & know your intentions. There might be sound reasons for late-paying one card. It doesn't mean you intend to stiff everyone. Are mind crimes illegal yet? ~~ D.K.
Station Agent: Good for you! I'm with D.K. in that I use credit for everything, concentrating my payments helps me to mannage my money more efficiently. But if you're able to go essentially "cash-only" you eliminate a lot of risk. More power to you.

...do you do tax returns?

RAFFI... God no! Too complex. I use TurboTax, my time is way more valuable than the measly price of the program. Like that "mafia" analogy though.
D.K... I do carry a "fee/year" card, but that's because it's an airline card and the tickets are worth way more than the paltry fee.

Universal Default, is not illegal...yet, and the card companies use your credit report to determine if you've defaulted on another card. But, as the article states, they're switching to "...any reason or no reason" clauses that simply allow them to change the rate and terms whenever they want.
It's infuriating isn't it? I must say I wasn't aware of the grace period thing. Holy cow! I do hope they do something about it.
Like all big corporations, they're in the business to make tons of money and not really providing you a service, like they want you to think they are.
I wish I was broke, but I'm so far in debt that unless I win the lottery (I thinky you have to buy a ticket and I can't afford it), I will never get out of debt. They keep adding interest to what I already can't afford. There isn't much difference between credit card companies and an evil loanshark.
I decided in 02 to just get away from those cards... I paid them all off, then found there was still interest looming around said cards.

I never want to use a credit card again... it's just too much of my money that I give to them on made up charges.

It seems that this government, lawyers, and States would put an end to how we are over charged interest on these cards.
Actually, I think they should pay ME for the privilege of my hauling their plastic around in my wallet.

In fact! The next time some telemarketer sneaks past my extensive anti-telemarketing security system to try and sell me on his credit card - I'll let him know UP FRONT about my personal $50/month Fee that I charge credit card companies as wallet-space-rental.
Mary... The grace period thing is a real pain. If you don't scrutinize every bill, you can easily get caught. Every single card I've had in the last 6 years has tried it, and I got caught...once. Really pissed me off.

Suzie-Q... Moreover, all of this "risk" talk is bullsh*t! The only real risk they have is fraudulent charges. Everything else is accounted for in their charging structure.
Deb... I feel for you, and you're right...aside from the size of the vig, there's almost no difference at all.

Let's Talk... It really can suck the life out of one's finances. As with all financial arrangements, you gotta know what you're getting into. I guess the problem with the card companies is that it's in their interest to keep you in the dark, mislead you if they can.

Sewmouse... That's an outstanding idea. I've used something similar on telemarketers. I tell them that my rate for listening to their pitch is $75.00/hour, paid in advance.
Like the weather, people are forever complaining about credit card companies. But, like the weather, they never do much about them.

Here's a few numbers for you. MasterCard is a credit card company known to all.

Last year, it's total revenue was $3.4 billion. Its net profit was $50 milion, a rather dismal return. About 1.5%. There were a lot of reasons for the weak performance. The company gave customers $340 million of incentives.

2005 was better. Revenue was $2.9 billion. Net profits were $270 million. About a 9% net profit margin.

2004 was similar. Revenue of $2.6 billion and net profits of 240 million. Again, about 9%. Nine cents of profit for every dollar of revenue. Hardly rapacious.

Making money in the credit-card business boils down to taking in enough to offset the losses from those who don't pay. Lots of people stiff credit-card companies.

Non-payment is their biggest financial drain.

So if you want to direct your anger at the cause of high rates on credit cards, aim it at the deadbeats. The people who don't pay for the stuff they buy.

Meanwhile, every credit-card bill shows a "due date". If you want to avoid fees, pay up before the due date.

What's funny is how the extraordinary convenience of credit-cards is viewed as some sinister plot. Users buy goods and pay for them sometime well after the purchase. That's bad?

You could use a debit card -- and pay immediately. Or a check, which can lead to an almost immediate deduction from your checking account. Or cash.

But credit-cards, which extend credit to users 24 hours a day without giving the creditor any collateral, are viewed as a bad thing.

Do you know why all the businesses in this country stopped extending house-credit to customers? They got stiffed way too often.
It would be nice if the credit card companies finally got theirs. I made way too many errors with money in my life. Oh well, there's always my next life.
"Making money in the credit-card business boils down to taking in enough to offset the losses from those who do not pay. Lots of people stiff credit-card companies."

They take in enough from the people who pay... I should say they take in more than they should from people that over pay to increase their profit.

There's no way these companies are offsetting losses. The only losses are the money they pay to have the fine print wrote in a manner to confuse the consumer.

"Meanwhile, every credit-card bill shows a "due date". If you want to avoid fees, pay up before the due date."

Regardless to the due date, these companies are set on 30 day intervals, the due date is just away for you to not pay the ridiculous fine, when you are already paying interest beyond what is necessary.

Where's the reference for the numbers you have come up with.
Credit Cards are the scourge of the earth. They send out millions of "preapproved" offers every day. How many do they snag in their snares?

And they really don't care after a point if you don't pay the debt back. In fact, they hope in some ways that you don't pay it back, just make that minimum payment.

If you have$1000 in debt and make the minimum payment, by the time you pay it off you'll have paid what, $2000 or $3000 in interest and fees? Even if you after a point declare BK or just stop paying, they've made their money off you.

And after a short year or so, they'll be happy to give you another highter interest rate card...one of those matching savings deal where you put in $300 and they give you $300 credit. Then after 6 months they'll start cranking up your credit limit and start the process over.

It's sad and sickening.
Let's Talk,

MasterCard is a public company. You can obtain its financial history from the SEC website, which you can access directly or through a financial site like Yahoo Finance.

As far as your beliefs about the credit-card industry and the financial industry go, well, those beliefs are built on nothing of substance.

Do you understand that credit-card debt is an unsecured loan? Unlike a mortgage where the bank can seize your home if you decide to stop paying your monthly bill.

The only protection credit card companies have against deadbeats is their credit histories.

Credit-card companies have decided to throw credit to borrowers like spaghetti at the wall. They've discovered a lot about human behavior. Statistically, they have a good idea of the number of cardholders who will pay and number who won't. But they can't spot the exact individuals.

Despite your astonishment, deadbeats are the big headache of the card industry. There's no debtor's prison here. Thus, very little happens to people who stiff the companies.

Meanwhile, if the distribution of credit cards is constrained by new laws, you can be sure that blacks and hispanics will experience far more denial of credit than whites and asians. Then the discrimination lawsuits will arrive.

Anyway, if the bill shows a "due date", why begin some silly semantical argument about a 30-day billing cycle and other nonsense? Pay the bill by the due date and relieve yourself of fees, charges, interest and whatever else you know you will face for being tardy with the moola.

If you are truly outraged, you can start your own credit-card company. You can extend credit at low rates to all the people angry at credit-card companies. That's a big market.

Do you think you'd make a nickel of profit?
polishifter, you wrote:

"Credit Cards are the scourge of the earth. They send out millions of "preapproved" offers every day. How many do they snag in their snares?"

Your credit history is obtained through your social security number. People are denied credit.

What's wrong with direct-mail advertizing?

You sound like someone who wants protection from himself. Your problems are not the fault of the card companies.


You wrote:

"And they really don't care after a point if you don't pay the debt back. In fact, they hope in some ways that you don't pay it back, just make that minimum payment."

You're nuts. If you use your credit card to purchase a computer for $1,000 and decide to make minimum payments till doomsday, the credit card company is in a net-loss position until it has collected well over $1,000 in interest charges from you.

The money the credit-card company uses to pay the computer company is borrowed. The card company borrows at rates that are less than it charges. It also charges the merchant a fee for the transaction.

So the card company borrows money for itself at low rates and lends it to you at high rates and hopes everyone pays their bills. But that doesn't happen. To protect itself from losing money, it imposes high rates on customers who CHOOSE to carry their debt rather than pay in full by the due date.

The business model is simple. If you started a card company, you would do just what the successful card companies have done. Or you would go out of business.
I have one card and only use it in emergency's. My card is issued by my bank and I go right to the bank too pay it when I receive my statement.

Under the new bankruptcy bill you are still required to pay your debt. At least thats the understanding I had of it.

When my other bank wanted to give me a debit card I turned it down and told them to only send me an ATM card. I do not use my ATM card at any bank except mine so no extra fees are incurred.

Since I first got my credit card about 4 years ago, my first I might add, because I had to go to Atlanta for a department training class I had never had a credit card before.

I had no choice but too get one as I could not reserve a room without one. Same for my airline tickets.

By the way I paid cash for both my airline tickets and my room. The card was for emergency's only and thats how I generally use it.

I do cheat once in a while and but something for myself, however like I said above I pay it in full the minute I get my statement and I pay directly at the bank that issued it too me.

Screw them, they make enough money off me already and I have too constantly shred offers I get in the mail.

Like you frog I too learned the value of a dollar at a young age and believe if you can't pay for it, don't buy it until you can pay for it.

God Bless.
By the way, don't they also get to right off bad debt to lower the taxes they pay on the money they make?

So do they really lose much?

I don't know if they do or not, however if you give credit to everyone, including those who have a bad history with lending institutions and credits card companies, aren't you encouraging those who have trouble paying their bills to go further in debt?

Seems to me that this is not really a good practice if your in the business to make money and only makes those who are poor poorer.

God Bless.

I'm through now.
Guys, guys, guys... There's no point in arguing with no_slappz. He's not interested in the point of the post, to give Blognonymous' readers a "heads-up" on card company practices that they may not otherwise be aware of. Note that with the exception of one off-hand reference to a, "...silly semantical argument about a 30-day billing cycle" he ignores the post entirely, focussing solely on the comments.

Remember that in no_slappz's world there is no such thing as a "deceptive" practice on the part of a corporation. Everyone is ultimately responsible for that 10 pages of fine print they supply. True enough, but motives do in fact, matter. They matter because a company that changes their contract with you for the sole purpose of fattening their bottom line is a company you should consider terminating your relationship with. You can do better.

But no_slappz' doesn't address that. He's not intersted. Again...note how he veers into a discussion of constraints on credit-card distribution when the law in question has nothing whatever to do with that. All he's really trying to do is make people look stupid for expressing feelings that we all have from time to time.

He's a cooler. He pops in to shut down the discussion and then disappears for a week.
kvatch, you wrote:

"He's a cooler. He pops in to shut down the discussion and then disappears for a week."

kvatch, I comment when a discussion interests me. Often my interest is piqued by discussions among people displaying complete misunderstanding of corporate activities. These are common on lefty sites where knowledge of business, finance and economics is lacking.

You wrote:

"All he's really trying to do is make people look stupid for expressing FEELINGS that we all have from time to time.

Feelings? You ought to learn the FEELINGS are not a substitute for FACTS or a reason to ignore the FACTS when those FEELINGS result from a lack of knowledge.

You and everyone on this site KNOWS that credit-card companies charge high rates and impose them if the bill is not paid by the due date. Does it matter if the rates are 21% or 25% or if the compounding of interest drives the bill higher in a hurry? No. You know how that works.

But the substance of the posts reveals that posters DENY their own failing and shortcomings when it comes to managing credit. Post after post blames the card companies for doing what everyone knows they do.

This litany of woe is like smokers who blame cigarette companies for their lung problems. The risks, dangers and realities of smoking have been known for too many decades for anyone to pretend they were victimized.
Wow, that Slappy really knows how to copy and paste well.
Did you know that now that Enron is gone, MBNA is the top Bush Campaign contributor?

I saw this Flick earlier in the year "Maxed Out" and the sheer sleaziness of these people is overwhelming.

I did a piece on it over the main site. Just type in Maxed Out in the search engine.

Came out March-ish so it should be on DVD soon.
I admire you for your debt-aversiveness, K. I am also debt-averse, but I have no common sense when it comes to staying out of debt. Our credit card debt is such that we can make a $500 monthly payment and once the interest is taken into account, we don't see much difference on the monthly balance.

My wife and I try not to use our two cards, and sometimes we are successful for a month or two... but we like to order things online, there are some automatic things each month like i-tunes and Netflix, etc. etc. etc. Give us some more college loans to take on, and we may yet be eating dog food by the time we're seniors.
I comment when a discussion interests me. Often my interest is piqued by discussions among people displaying complete misunderstanding of corporate activities.

Right...only here to help, huh no_slappz?

Please. Quite the contrary, the content, arrogance, and length of your comments guarantee that nobody will take you seriously. The evidence being the near total lack of engagement by anyone but me.

The plain fact is, you're not interested in conversing with, or even debating, anyone on Blognonymous. You're only interested in lecturing and then only in the most condescending language you can manage.
Crackpot... Now that's an interesting tidbit. I discovered that of big insurers, State Farm (my company for many years) is the biggest contributor to the GOP. Gonna need to do something about that.

Snave... A high debt load is a difficult thing to deal with. I use my cards for everything, but am careful never to buy big ticket items unless I've saved up the money in advance. Helps to keep me out of trouble.
Hey K,

Use Triple AAA instead, thjey insure everything and at least you get discounts on stuff.
Hey Crackpot...does AAA insure homes? Having given up my motorcycle last summer, the only policies I have left are my flat and some personal property.
Hate those bastards. That's the kind of peops that make me wish there really was a hell.
I wish people who have made up their mind to commit suicide would take a note and blow a lot of cash with credit cards. That would teach those companies a lesson, bwahaha.

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