Credit Cards Companies
By Daniel at 20 May, 2009, 12:12 pm
We use a Citi - Reward card for every purchase we make and deduct the transaction from the house account as though a check had been written. On the billing date we simply pay it off in full. I pay not annual fees, no interest and get reward points for every penny spent.
The problem with the new legislation is that the credit card companies are now considering ways to make a profit from the unprofitable customers (people like me) to offset the cost of pampering the irresponsible. The are considering adding or increasing the annual fee and calculating/charging interest from the point of purchase and not the statement due date.
Every company that issues credit has a calculation that they use to determine just how much risk they’re willing to take. Here’s an example; they may lend $100 million to people with dicey credit, KNOWING that $5 million of that probably won’t get paid back. However, they’re going to charge everyone in that group enough interest to PAY back that missing $5 million, PLUS a profit margin. That’s what they mean by “making money” on people with bad credit. MOST of the money will get paid back, at a high rate of interest. They know SOME will default, the trick for them is getting the mix right. Lend TOO much to really awful credit, and you won’t get enough back even with high interest rates. That’s what happened in real estate, that’s what can happen in any credit scenario, if they take too many chances.
The people who use cards responsibly are already cutting back on making “time payments.” This is hurting the banks with the people who run up card after card to the max until they can’t make minimum payments. So, whose fault is that? The good credit card holder?
This is nuts to have a system that punishes all credit card users for those who abuse the system. It’s more of the “we need people spending, no matter what, and we’ll worry about the downside later.” The banks need spending or more commercial loans will default, more home mortgages will be defaulted on, etc.
Spending is not just a GDP driver but, the power behind the loans on businesses and workers that depend on spending. We have created this mess due to decades of spending more than we produce and earn.
As a result, just like in the housing boom, we took on more and more debt because “growth in spending” was making it seem a reasonable risk. But, it was not sustainable spending and now, all the “growth” built on the debt beyond what could be reasonably handled, is coming back to haunt us. That means defaults on all kinds of loans. Credit cards, boats, homes, cars, furniture, etc. Yet, at the same time, there are no buyers if the assets are foreclosed on or repossessed and that causes write downs for banks.
Until debt is brought under control in household debt and corporate debt (and city and state), there will be problems for banking.
Something held true for years:
“Some things people should remember: it isn’t ONLY the interest rates when it comes to credit cards. There are other “games” CC companies play:
* Moving the due date forward but mailing the bill on the regular day. AmEx did that one to me four months in a row, with the 4th month the payment was due only 6 days after I received the bill in hand and the post office was prompt in getting me the bill. This was a blatant attempt to hit me with a late fee before I paid that puppy off.
* Double-cycle billing, where they go back 8 weeks for interest charges and every period is charged twice for interest. Again, AmEx (Blue) did that to me, resulting in “zombie debt” that I was billed for even after I paid off the balance due.
* Rate-jacking, where the interest rate is hiked for absolutely no apparent reason other than “Because we want to.” Bank of America has been publicly caught doing this several times in the past year.
* Universal default: where they can raise your interest rate because of something on your credit report (even when it is an error).
* A new trick that has recently come out: slamming the credit limit BELOW the current balance, which results in over-the-limit fees.
* Failure to post payments until after the due date: Providian got slapped HARD a few years ago for this one, and as more people use electronic/online methods of payment this is beginning to disappear …. but it is still out there I hear anecdotally.”
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