Posted on 05/24/2009 10:35:09 AM PDT by Lorianne
Now let me get this straight: Banks pay depositors between 0% (on the float on no-interest checking) and say 4.5% APR (on CD’s) on deposits. They lend money to credit card holders when they make a purchase, and charge the merchant a fee between 2% and 8% of the purchase amount. Let’s assume a cost of 1% of the transaction in overhead for the electronic transfer of funds (probably realistic on really small purchases, unrealistically high on large). If the purchases are paid for within the grace period, the money is there to loan again the next month. The bank, therefore gets a return of between 12% and 84% just from merchant fees on accounts paid in full—and a rate of profit between 7.5% and 84%. If the borrower doesn’t pay the balance within the grace period, they charge anywhere form the prime (at which it is supposedly profitable to lend money to borrowers one is quite certain will repay the loan) plus a few points, up to interest rates around 37%.
None of this changes under the recent bill, and banks are telling us they can’t make a profit under those conditions without being able to retroactively impose interest rate hikes, define ‘default’ as a single late payment, and not use double cycle billing, without imposing annual fees or abolishing grace periods? Please!
What would they do if Congress imposed an actual anti-usury law and capped interest rates on all loans at, say, the larger of the average rate payed to depositors + 8% or the CPI + 12%? Unlike most of what is ‘justified’ by the interstate commerce clause, regulating interest rates and lending terms on loans make across state lines is most assuredly within Congress’s Constitutional powers.
Maybe it’s bad policy to regulate lending practices in this way, but the idea that banks ‘have to’ stick it to their good customers if the most radical (and arguably abusive) means they have of dealing with their bad customers are taken away is rubbish. As argued above, merchant fees alone suffice to make it profitable to have credit card customers who pay their balances in full, and if the bank is lending to so many customers who going into default that the non-defaulting balance carriers paying, say 19.5% don’t make relending depositors money profitable, then they deserve to fail for making bad business decisions and issuing cards to too many deadbeats.
>>I think that they’re most of us...at least that’s what the CC people call those that pay off their card monthly.
My bank lowered the credit limit on my card dramatically (reduced by 90%) a few months ago. When I called to ask why, they explained that it was because I don’t carry a balance or use the card every month.
I told them to go ahead and lower it to $0 then becuase they can have the card back.
A manager came on the line and reinstated the limit. I told them that if they ever do that again, they will not get a second chance.
You have to be ready to cancel the card at a moment’s notice and that means keeping a low or no balance. And that’s what makes you a bad customer in their eyes. They want customers that are chained to those cards.
From each acording to his ability, to each according to his need. Karl Marx saw it coming a long, long time ago; Obama has made it our new reality.
They're in the scramble mode right now. The banks have a ton of bad debt. That's one of the reasons they got the new bankruptcy laws through, which prevents you from discharging CC debt through bankruptcy. When you add this to the bankrupt local, state, and federal governments, and the declining manufacturing base, a lot of people are going to find out that the fact that they have money is all that's necessary for others to try and take it.
You are right, the banks are so used to using their political power to generate profits that they think that they can use this kind of threat to generate support.
Raising interest rates and imposing extra fees will just drive customers away, reducing their income. Credit card users with plenty of income — the folks who pay off their balance every month and have the 800 credit scores — don’t really need a credit card. They can easily switch to a debit card, leaving the bank much less room to make money.
Apart from merchant fees, the banks depend on the interest income they get from people who don’t pay their balances in full every month. A lot of the banks got greedy and went after the higher profits that can be earned by predatory lending — driving up interest rates on customers with balances that they can’t immediately repay.
The risk in that business isn’t that the customers can’t repay the balance, but that they can’t keep up with a 33% interest rate. If the banks were worried about defaults, and loss of principal they wouldn’t push up the rates so high. In non predatory financing you ease the terms when the customer is less able to pay, in order to improve the chance of recovering the principal amount. But when you have been collecting interest at 33% you’re really more interested in the interest stream than the principal.
For the banks the ideal customer is the person who is creditworthy enough to try to keep current, but unable to pay off the balance. Without the ability to jack up the interest rates at will on their target customer they will not be able to generate as much predatory profit. That’s too bad for them. The country is better served by other business models, even if the profits of a few major banks are reduced as a result.
They can't really do that, because the good customers will just stop using their cards - causing the banks an even bigger headache.
I know that.
It reminds me of how credit was explained to me when I was young. They said that the amount of credit you can get is proportional to how much you don’t need it. That was the 1970’s.
If the banks succeed at driving people that don’t really need credit cards away by only giving credit to people that can’t afford it, then they will have reversed that bit of common wisdom.
This is the freaky Bizarro-world that the Obamanation has become.
I am fairly sure that a Credit Card company will not force me to subsidize people who can not handle credit. If they try, I will simply cancel the card and pay with cash.
If only I could cancel my tax payments to the government, when the government does something that I do not agree with. I wish the Supreme Court would actually do their job and strike down spending bills that are unconstitutional. I won’t hold my breath though.
JoMa
For what it’s worth, we got far enough behind on credit cards that one of my accounts got sold to a debt buyer & I settled for around 60% of the balance. We haven’t borrowed money for *anything* in over 5 years (cars are paid off, and we rent, so no mortgage) but we’re still deeply in debt to credit card companies. I have little doubt that after fees & interest I have probably already paid them double the value of my original purchases.
Nothing more than current spin from a bunch of dirt bags. Competitive markets, the one that provides the most for the lowest amount gets the business. Time to restrict credit card company's to a five state geography market area.
I cut my credit cards up after watching Dave Ramsey.
No, if you have their service and you pay nothing to us their service someone else is pay for you. Do you think they should pay your purchases and collect the information and send you a bill all for nothing each month. Who pays the over head, free loader.
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Canceling an account can actually be a negative on your report. I've had cards (accounts) in excess of 10-12 years. The length of time you do business with a company counts towards your overall FICO.
If you can, try getting cards via USAA. They are simply excellent and you can do ALL of your banking and finances through them. Exceptional service and convenience, too.
If anyone decides to stop using certain cards altogether, instead of dropping them, ask them to reduce your credit line on the cards to a few hundred dollars.
If you start cancelling a number of cards, it will negatively affect your credit scores. If you reduce the limits, and then just keep them for emergencies, it will not. Just make sure that you know if you have to make at least one purchase a year on them too, because if you don’t, your credit score will get dinged.
“People like us who do that are NOT the problem, and like others, I will refuse to bail out those who cannot manage their finances.”
If you don’t carry a balance you cost them money. They’ll probably cancel your card.
And you will bail them out, notice they haven’t actually asked anyone if they wanted to bail anyone out. You’ll pay every time you buy something.
“Just make sure that you know if you have to make at least one purchase a year on them too, because if you don’t, your credit score will get dinged.”
Any ding would be temporary and unless you are planning a major purchase it would be well worth it. Was for us.
Why do so many people care so much about immoral companies?
If they made bad loans they should suffer the consequences. If their business model is bad they should also suffer the consequences.
The banks work hard to get laws made which favor them. Didn’t work out so well in this case.
It’s funny how many folks here agree that informing people of credit card providers intentions is a horrible thing. The applications are meaningless to most who sign. Most high school graduates cannot comprehend the lawyer language on the back of the forms, even if they can read it with the purposely poor contrasted type.
Is that their fault they sign? Well of course it is.. Does that mean it’s a good thing to deceive people of lesser means, personally I do not think so. The arguments here seem somewhat dishonest themselves. It kind of reminds me of the almost undecipherable phone bills we have all been receiving these last years.
Instead of threatening their good customers with higher prices and reduced benefits the credit card companies might consider hard work and an honest wage for their services.I wonder what their bonus structure is?
I am by no means anti free enterprise but, why is deceit and other trickery held to esteem?
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