Why Credit Card Companies are so Mean

[alfred russel]

They cannot raise you rates on the money you already owe them

Are you sure about that?

Yes.

The only way they can raise your rate on money you have already borrowed is if you have defaulted onteh terms of it being borrowed.

The only other way I could imagine is if you were stupid enough to sign up for a CC with a variable interest rate - but who would do that? I don't even know if they exist. And if they do, they are pegged to some standard rate, presumably.

Rather foolishly, I think I have open about 15 credit cards (though I only use a couple) and it seems recently I get letters every few weeks changing the terms and telling me that if I don't like the change I need to call them.

Of course - they can change the terms all they like. And you can elect not to borrow form them under the new terms.

Just because someone made a deal with you at some point does not obligate them to never make any deal with you again. Hell, send them a letter back saying you are changing the terms, and if they want to loan you money it will have to be on yours, rather than theirs.

I imagine they will choose not to loan you money. The same choice you have.

The end result is that I have no idea what my terms are, really on any of my cards. That isn't a big deal for me as I pay my cards off every month, but if I ever started carrying a balance who knows what interest rate I'd be stuck with (probably something ugly).

[alfred russel]

Actually, from what I've read the big problem with the credit card business model is that it relies for its profit margins on those who do not pay it off promptly - essentially, on bad credit risks.

From what I've seen, Credit cards perform really two functions: first, as a handy substitute to carrying around large amounts of cash, and a way to make purchases and security deposits; and second, as a way of borrowing money. The first is a real convenience, modern life is annoying without access to credit cards for car rentals and hotels - the second is a really foolish way to borrow money, given the high interest rates charged.

Ideally, one would only use the card in the first sense, instantly paying off any balance oustanding. Card companies offer all sorts of points and perks for using them, so you can actually make money doing this (or at least, the card company doesn't get much profit).

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.

People that pay off their cards every month get a good deal when they get airline miles and other rewards: essentially they are being subsidized by the people who don't pay off every month.

Lotteries, cigarrette taxes, and credit cards: three ways less educated poor people subsidize the wealthy.

[Berkut]

The end result is that I have no idea what my terms are, really on any of my cards. That isn't a big deal for me as I pay my cards off every month, but if I ever started carrying a balance who knows what interest rate I'd be stuck with (probably something ugly).

That is the end result of you not paying attention though, not the end result of some injustice that Congress needs to fix.

[alfred russel]

The end result is that I have no idea what my terms are, really on any of my cards. That isn't a big deal for me as I pay my cards off every month, but if I ever started carrying a balance who knows what interest rate I'd be stuck with (probably something ugly).

That is the end result of you not paying attention though, not the end result of some injustice that Congress needs to fix.

I'd be happy if Congress passed the law that any significant change in terms that could be considered adverse to the consumer required the card to be canceled and a new one issued.

[Berkut]

The end result is that I have no idea what my terms are, really on any of my cards. That isn't a big deal for me as I pay my cards off every month, but if I ever started carrying a balance who knows what interest rate I'd be stuck with (probably something ugly).

That is the end result of you not paying attention though, not the end result of some injustice that Congress needs to fix.

I'd be happy if Congress passed the law that any significant change in terms that could be considered adverse to the consumer required the card to be canceled and a new one issued.

So you are in favor of a just "fixing" an non-existent problem by increasing the costs for everyone while not actually accomplishing anything?

I don't want a new card every time the terms change. Why should I have to change my account numbers, some of which may be setup for automatic payments and such?

What is "adverse" for the consumer? Who gets to define that happy little term in a financial and legal sense?

I'd be happy if Congress passed a lot less laws that are supposed to "protect" me from myself, but just end up costing everyone more money.

[crazy canuck]

People that pay off their cards every month get a good deal when they get airline miles and other rewards: essentially they are being subsidized by the people who don't pay off every month.

Lotteries, cigarrette taxes, and credit cards: three ways less educated poor people subsidize the wealthy.

And I for one would like to thank all those people who do not pay off their balances every month. Without you the cost of the convenience of my credit card might be higher.  Also, the bonus benefits such as airline miles might not be so generous.


Again, I thank you!

[alfred russel]

So you are in favor of a just "fixing" an non-existent problem by increasing the costs for everyone while not actually accomplishing anything?

I don't want a new card every time the terms change. Why should I have to change my account numbers, some of which may be setup for automatic payments and such?

What is "adverse" for the consumer? Who gets to define that happy little term in a financial and legal sense?

I'd be happy if Congress passed a lot less laws that are supposed to "protect" me from myself, but just end up costing everyone more money.

Credit card debt is not a nonexistant problem--if you don't believe me do a search for "US consumer debt economic impact".

What is going on right now is a bit of bait and switch. A few years ago there was an offer for a card with 5% back on restaurant purchases. I travel a lot and take people out for business--with 5% back I could make a decent amount off the card. They got me to sign up, and a couple months later I got a notice that they were changing the terms and I didn't get 5% back anymore. But I still have the card, though I haven't used it in years, but I guess if I ever get in financial distress they may get some interest payments out of me.

It is deceptive marketing. This wasn't the only example something like this happened.

[crazy canuck]

I'd be happy if Congress passed a lot less laws that are supposed to "protect" me from myself, but just end up costing everyone more money.

Unfortunately there are a lot of areas where laws are required to protect consumers - even from themselves.  One example of that is the mandatory cooling off periods that most jurisdictions have that allow consumers to return products within 48 hours or so in order to protect the consumer from high pressure sales.

However, I think I am agreement with you on this particular issue.  Malthus is quite right in that people who use credit cards as debt devices are simply misusing them.  Any legislation that protects people from that risk will unfairly spread the cost of that risk to merchants who already pay a lot of money in transaction fees to give their customers the convenience of using credit cards and of course to other consumers.

[Berkut]

Credit card debt is not a nonexistant problem--if you don't believe me do a search for "US consumer debt economic impact".

Obesity is not a nonexistant problem either - does that mean the US Congress should pass laws in a useless effort to force people to quit being fat by targetting people who sell them food?

Just because a problem exists does not mean that the government should go and "fix" it. They suck at fixing problems, and excel at creating new and more complicated ones.

It is not the job of congress to protect you from yourself.

What is going on right now is a bit of bait and switch.

So don't fall for it.

If Congress MUST get involved, let them spend some money educating people.

A few years ago there was an offer for a card with 5% back on restaurant purchases. I travel a lot and take people out for business--with 5% back I could make a decent amount off the card. They got me to sign up, and a couple months later I got a notice that they were changing the terms and I didn't get 5% back anymore.

Oh noes!

But I still have the card, though I haven't used it in years, but I guess if I ever get in financial distress they may get some interest payments out of me.

So what should Congress do to protect you from yourself?

Under your plan, the CC company would have canceled your card, right?

If you want the card canceled, why not just cancel it yourself?

It is deceptive marketing. This wasn't the only example something like this happened.

Deceptive marketing? What other kind of marketing is there?

[crazy canuck]

It is deceptive marketing. This wasn't the only example something like this happened.

No, it is deceptive if they didnt actually provide you with the service or if they did not give you notice that the service would stop.  They did give you the service and they did send you a notice that it would no longer continue.  At that point you were able to make a choice.

[crazy canuck]

Obesity is not a nonexistant problem either - does that mean the US Congress should pass laws in a useless effort to force people to quit being fat by targetting people who sell them food?

Regulating the sale of junk food actually makes more sense.

[Berkut]

I'd be happy if Congress passed a lot less laws that are supposed to "protect" me from myself, but just end up costing everyone more money.

Unfortunately there are a lot of areas where laws are required to protect consumers - even from themselves. 

I think there are a lot fewer areas where this is actually the case than there are laws, to be honest. And most of the laws there are there to "protect" consumers are mostly there to fuck consumers under the guise of "protecting" them.

One example of that is the mandatory cooling off periods that most jurisdictions have that allow consumers to return products within 48 hours or so in order to protect the consumer from high pressure sales.

Meh. I guess. Another solution without a real problem, and another "law" that likely does more harm than good. At least this one doesn't really effect me though.

However, I think I am agreement with you on this particular issue.  Malthus is quite right in that people who use credit cards as debt devices are simply misusing them.  Any legislation that protects people from that risk will unfairly spread the cost of that risk to merchants who already pay a lot of money in transaction fees to give their customers the convenience of using credit cards and of course to other consumers.

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.

[Valmy]

Regulating the sale of junk food actually makes more sense.

I think if you decide to use government backed health care you should be required to eat right.  Otherwise you are asking the country to subsidize your junk-food assisted suicide.

But I am not particularly interested in having the government regulate people who do NOT use government backed health care, because who cares what they eat?  But maybe there are no longer such people anymore.

[Berkut]

Regulating the sale of junk food actually makes more sense.

I think if you decide to use government backed health care you should be required to eat right.  Otherwise you are asking the country to subsidize your junk-food assisted suicide.

But I am not particularly interested in having the government regulate people who do NOT use government backed health care, because who cares what they eat?  But maybe there are no longer such people anymore.

Ahh, thanks for illustrating yet another reason Big Government sucks ass.

Why, if the government is apying for your (insert service we just cannot live without Nancy Pelosi running it), then they have the right to tell you what you can and cannot do as it relates to that service!

Hmmmm....I never hear that argument from the nationalize dhealth care crowd.

"We should have the state pay for health care so that the State can tell people what they can and cannot eat!"

Who gives a fuck about individual liberty! Big Brother will let you know what is healthy for you! After all, he is the one paying for it all!

x infinity.

[Caliga]

I have a 821 credit rating - mainly because we are a credit card companies nemesis. We use our card often, but *always* pay it off every month, and never, ever pay interest.

Same (I dunno my exact score but it's 800-plus).  The funny thing is that I had frequently gotten credit limit increases automatically from Citi, even though I didn't ask for them, presumably in an attempt to encourage me to charge more to get me out of my thrifty habits.  That seemed to have stopped about a year ago... I assume there's some connection to the financial problems.