Why Credit Card Companies are so Mean

[Neil]

Everywhere else in the civilized world manages just fine, thank you very much.  Canada has the same culture regarding food as the US, and yet socialized medicine works here.

Only because the US indirectly subsidizes it through our higher costs.

Or so I hear

You would be wrong.

[DGuller]

The laws Congress should be concerned about as far as protecting consumers should mostly be limited to disclosure laws - making certain that business arrangements are made with full disclosure and in good faith. Those I can support.

While I would generally agree, I think a main concern (and not an unjustified one) is that consumers are not really capable of knowing what to make of the flood of information they get - particularly financial information concerning such things as credit cards, insurance, mortgages,  and investments - the really important financial transactions of everyday life that affect everyone. 

MORE disclosure may make the situation worse and not better, producing yet more details that the consumer is likely to neither read nor understand. While in perfect world where people had infinite time to read disclosure statements and the ability to master the often quite complex terms and conditions contained in them it would make total sense to have a perfectly free market combined with mandated disclosure, in reality such a system is likely to run up against the inability of the cosumer to undestand the choices he or she is presented with.

That's a very good point.  Sometimes it helps to think in terms of reality, and not libertarian ideal.

[BuddhaRhubarb]

Once you have become a "Jake" like me and have spent years and years paying off those huge debts of interest etc, don't expect to ever get treated better, unless you win the lotto.

I haven't missed a bill in 5 years, and paid off my consolidation early. I have a solid rrsp... but can't get a credit card, I'm assuming ever... I gave up trying.

They miss me paying all that interest, and would rather not deal with me at all as a good bill payer.

They actually despise all you people who pay off every month and would steal your shoes if you let them.

I'm with Tyler Durden re: Credit card companies.

[crazy canuck]

I'm sure you are correct from a  legal point of view. The problem is that I strongly suspect that someone issuing the cards had the idea, "we'll give 5% cash back on this activity, watch the first few months of customer behavior, and reevaluate whether we want to continue that reward for the customer." So they give me the card, see a few catered lunches go through, and cancel my reward.

That is fine, but I'd rather have cards that are more steady, even if they offer lower rewards at the outset. Berkut complained about the nuisance of a canceled card: but what about the nuisance and hazard of getting a card at a low rate, having the rate jacked up by a change in terms?

Sorry I missed this before.

To your first point, I don't think that is a problem.  The company promoted their card with an advertising campaign offering really nice rewards. They got you as a customer.  Then then made the business jusgment that keeping the those rewards in place was not in their interest and they would risk losing you as a customer if they reduced or removed those rewards.

I find the alternative of requiring companies to never change their terms more repugnant as that would create large inefficiencies and would reduce the value of terms offered to customers since companies would be very conservative as to what they might offer without the chance to amend their terms from time to time.

[Berkut]

That is fine, but I'd rather have cards that are more steady, even if they offer lower rewards at the outset. Berkut complained about the nuisance of a canceled card: but what about the nuisance and hazard of getting a card at a low rate, having the rate jacked up by a change in terms?

What about it?

Since when it is the job of Congress to protect you from a nuisance?

[Berkut]

That's a very good point.  Sometimes it helps to think in terms of reality, and not libertarian ideal.

The reality is that laws forcing businesses to act in a manner that politicians think will win them votes amongst from masses are almost always terrible. Populism sucks.

[alfred russel]

That's a very good point.  Sometimes it helps to think in terms of reality, and not libertarian ideal.

The reality is that laws forcing businesses to act in a manner that politicians think will win them votes amongst from masses are almost always terrible. Populism sucks.

You know what also sucks? A bunch of foreclosures in your neighborhood.

[Berkut]

That's a very good point.  Sometimes it helps to think in terms of reality, and not libertarian ideal.

The reality is that laws forcing businesses to act in a manner that politicians think will win them votes amongst from masses are almost always terrible. Populism sucks.

You know what also sucks? A bunch of foreclosures in your neighborhood.

Yeah, yet another example of what happens when politicians feel the need to "protect" people - in this case, the desire to make sure that even people who cannot afford them can buy a home anyway.

Government is not the solution, they are the problem, in most cases. No sane economist is going to tell you that these new restrictions on credit card companies make any damn sense at all.

[viper37]

Christ, this shit is so fucking stupid - right up there with Congress, including the "smartest guy in the house" deciding that it would make good economic sense to pass laws encouraging banks to lend money to people who cannot pay it back in order for them to buy houses they cannot afford.

I simply do not understand the credit card problem being "solved". The bank offers you money at some interest rate. If you think the rate is unfuckingfair THEN DON"T BORROW THE MONEY FROM THEM!!!

They cannot raise you rates on the money you already owe them, barring some default on YOUR part (which you agreed to when you borrowed the money in the first place, btw), so what is the problem that needs this solution?

they could use some cleanup, for example, to give interest rates that are the real stuff you pay.  6.5% introductory rate paid on day 0 is not the same as 6.5% paid on day 30.

[viper37]

Changes/fixes are needed though, just depends what else goes along with it too.

that's probably the real problem there.

[Berkut]

Christ, this shit is so fucking stupid - right up there with Congress, including the "smartest guy in the house" deciding that it would make good economic sense to pass laws encouraging banks to lend money to people who cannot pay it back in order for them to buy houses they cannot afford.

I simply do not understand the credit card problem being "solved". The bank offers you money at some interest rate. If you think the rate is unfuckingfair THEN DON"T BORROW THE MONEY FROM THEM!!!

They cannot raise you rates on the money you already owe them, barring some default on YOUR part (which you agreed to when you borrowed the money in the first place, btw), so what is the problem that needs this solution?

they could use some cleanup, for example, to give interest rates that are the real stuff you pay.  6.5% introductory rate paid on day 0 is not the same as 6.5% paid on day 30.

Like I said, I am a big fan of full disclosure laws.

Not so much a fan of laws designed to make sure that stupid people will ahve to figure out some other stupid way to lose all their money, while passing the cost for the stupid on to me.

[alfred russel]

Yeah, yet another example of what happens when politicians feel the need to "protect" people - in this case, the desire to make sure that even people who cannot afford them can buy a home anyway.

Government is not the solution, they are the problem, in most cases. No sane economist is going to tell you that these new restrictions on credit card companies make any damn sense at all.

paul krugman has been beating a drum about credit card reform for a while. I don't know what he thinks about the new restrictions, but I bet he supports them.

[viper37]

Way it seems to work is that, in order to make a profit, the card companies rely on consumers attempting to use the card in the first sense, failing or forgetting to pay, and running up interest charges (that is, using the card in the second sense).  In short, in the above little parable about Jake and Howard, the card companies LOVE unreliable Jake and hate Howard - Jake earns them money (assuming he doesn't default totally - he has to be unreliable but not too unreliable) and Howard isn't earning them anything much.

Thing is, this business model seems to rely on foolish financial behaviour. Dunno what the import of this is, but I can see why this can cause problems.

they need both of them actually.
They need Howard to pay back the cash he owes so they don't go bankrupt.
They need the store (lan intermediary between the borrowing brothers and the lending one) to pay them fees so they can make profit.
They need Howard to talk Jake into getting a credit card.
They need Jake to pay enough interests to cover potential defaults he could make, and to cover all potential Jakes out there.

But really, if there were only Howard out there, they wouldn't complain, because just with the stores, they are making enough profits already.

However, having Jakes all around will let them give AirMiles, Aeroplan, cash reward, gold points and other dumb stuff we love to the Howards out there so they can get one of their credit card and rake in money from the stores.

[viper37]

Perhaps I am making the incorrect assumption that most people have the forsight to consider health care costs when making lifestyle choices.

It is an incorrect assumption.

[viper37]

Like I said, I am a big fan of full disclosure laws.

Not so much a fan of laws designed to make sure that stupid people will ahve to figure out some other stupid way to lose all their money, while passing the cost for the stupid on to me.

yeah, we're probably close in our line of thought, but I haven't seen the final proposal from Obama, so I've really no idea if it's Nanny State at work or simply a full disclosure law.