I noticed this article explaining that credit card companies may start squeezing good customers (good, meaning customers who don't use a lot of credit and who pay their bills) in order to recoup profits they're losing by being more fair to everyone else.
I understand the impulse, but this is an extremely stupid idea. Note to credit card company people - those good customers, who have cash for all their purchases but just use credit cards because it is in fact a good deal? Umm, they'll pay with a debit card.
5/20/2009
Subscribe to:
Post Comments (Atom)
10 comments:
I'd read this article as well.
My Good Customer friends who are really pissed off about this legislation seem to be maintaining two ideas simultaneously but not quite consistently.
1) They deny that the rewards they enjoy come from the interest, fees and penalties paid by the Bad Customers who carry balances, are late with payments and so forth. They are convinced that the 20% of credit card companies' revenue that derives from retailer fees is sufficient to maintain services to Good Customers and to pay for these rewards. They believe that they are genuinely good customers, i.e. a source of profit to the credit card company.
2) At the same time, they believe that if this legislation passes, credit card companies really will start killing the rewards programs and imposing fees on Good Customers just for using credit cards. As you note, this would be mildly insane because Good Customers can pay cash/debit and will when there's no benefit and some cost to paying by credit. If Good Customers are really good profit-adding customers, it makes no sense for the credit card companies to drive them away.
That Yingling character is quite something. I don't know how he looks at himself in the mirror in the morning. "If we aren't allowed to pillage the most vulnerable, we'll come after YOU!"
For people who don't carry balances, credit cards are certainly a convenience, but if they become expensive, there is the end of the convenience. Most such people aren't dim enough to carry a card for the "prestige."
PG - I think the credit card company's logic is something like this:
1) Once we lose this revenue, we won't make enough money (almost certainly true - they know the math, we don't).
2) The only place to get more revenues is "good" customers, who don't pay us a lot now.
3) It's not enough to get the good customers to spend more, thus producing more retailer fees.
4) Our product is really fantastic, and provides even good customers with a lot of convenience.
5) Hence, they'll be wililng to pay a little for our product.
I think they're wrong about #4 and #5, but right about all the rest. In other words, I think #1 in your comment is just wrong. We are not enough of a source of profit.
I also think #1 is wrong, but then I also think my rewards have been getting subsidized by the schmoes who are paying penalties and such. It's pretty integral to the view of people who are OUTRAGED by this new legislation to believe that there is no such subsidy and that they're enough of a cash cow to the credit card company that they sort of deserve their rewards.
A.R. has been pointing out to me what a moralistic view people take of credit, and while he sometimes slips into it himself, I think he's probably right. As a people, we've never really gotten over the debtor's prisons. I'm appalled by the idea of people's deliberately defaulting on their mortgages, even though it's a risk the lenders took and the borrowers don't owe any moral obligation to the lenders.
My friends who are Good Customers don't want to admit that they're less of a boon to the credit card companies than are the total population of Bad Customers -- yes, even including the defaulters, especially considering that bankruptcy has been made more difficult. They want to believe that the retailer fees are enough to carry the Good Customers' weight.
Oh, PG, you've never read self-righteous until you've read the average personal finance blogger. There's nothing a certain sort of middle-class American wants to believe more than that anyone can save their pennies and one morning wake up "comfortable." Kind of sad that anyone who has more money knows that's not how it generally works.
Sarah,
As the child of an immigrant who didn't have a pair of shoes until he was 12 but is now reasonably comfortable (although less so since having been victimized by a Madoff type scheme), I don't think it's completely absurd for Americans to believe that Ye Olde Virtues of thrift, saving, investment, etc. can work out in the end. It is difficult for the second generation, no matter how liberal, to discount the American Dream when we've seen it in action. I think my father is more intelligent than the average person, and our family has had lucky breaks, but the other drivers of my parents' success -- ambition, perseverance, an ability to sacrifice in the short term -- do seem to be virtues of a sort. It's just that virtues like that aren't necessarily something you have as a matter of willing yourself to do so; they may be personality traits and not much more changeable than intelligence (which is to say, somewhat influenced by environment but probably also inborn).
Oh, I'm not saying that it's impossible for a person to work hard and wind up in the middle class, PG. And I don't think that because hard work and thrift don't correlate to actual wealth for those in the lower strata of society that they are not darned useful qualities to cultivate insofar as you can regardless of your position in life. But I am saying that saving your pennies in your pink-collar job, say, is almost never going to make you "comfortable" in the end and will always leave you vulnerable to relatively moderate vicissitudes of fate. The frantic moral energy many of the middle-class PF bloggers invest in denying this (especially the second point) is striking.
Every person I know who is upper-middle-class or above (a) inherited money (b) married it and/or (c) earned it in a highly-remunerated profession/through business ownership. I feel sorry for the folks who think that if they just save their $5K a year in their Roth they'll be going on cruises in their old age, and pretty contemptuous of the ones who think that *and* use it as a basis to condemn, say, those with lousy credit.
Sarah,
There's another option: save your money, put it into your children's educations, stay on good terms with them, and they can enter a highly-remunerated profession and pay for those cruises. This seems to be a popular method in some countries, anyway. My paternal grandparents sort of followed it (since in the U.S. being a doctor is a highly-remunerated profession), although they were so broke that when my dad got his scholarship, he'd send some of the money home and graduated from medical school weighing less than 100 lbs. because he was living on rice and pickle.
Americans seem less inclined to the idea that one has children for financial support in old age, though. And no dowry, so you can't save up for that and ensure that your daughter marries an upwardly-mobile guy by buying his hand in marriage, and then have them support you. (Which I guess could be considered my maternal grandmother's route to a comfortable old age.)
This discussion plays into a point on which I have dramatically changed my mind due to the crisis (I think I blogged briefly on it) which is that I don't think personal retirement accounts or anything else like them work. Of course, the answer to this problem, pensions, is untenable in the modern economy. Not sure what the answer is for normal folks, then.
Raffi,
Why don't personal retirement accounts work now? I'm not particularly troubled by my losses in the market because I'm not retiring for another 35 years and because most of my money was in a CD (I'm very risk-averse). As I get older, and when the market is on another upturn with accompanying higher interest rates, I'll move some more money to an FDIC-insured CD. Isn't it standard advice to have the vast majority of one's money in low-yield and low-risk stuff like CDs and municipal bonds and such when retirement is within 5 years? I suppose you could get screwed if there's a big increase in inflation such that your rates of return on those safe investments aren't keeping up with inflation, but that's less common than a downturn in the stock market is.
Post a Comment