Credit Card "Deadbeats" Beware

[geojen]

Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.[/i]

http://www.nytimes.com/2009/05/19/bu...t.html?_r=1&hp

[wincrasher]

I'm proud to be a credit card deadbeat.

Any card that imposes annual fees or charges interests starting from the day of the charge will be promptly removed from my wallet and cut up.

The fees they get from the merchant should be plenty for these companies considering the very low risk they take on by extending credit to the likes of people like me.

[MonkeyMama]

Not surprised.

I would be surprised if they would give up the merchant fees on a customer like me though. (Agree with wincrasher).

I don't expect the rewards to last forever. I wouldn't even mind paying an annual fee because credit card has so many benefits. (Debit cards and cash carry too much risk in my opinion). But if they want to start charging me interest with no grace period, I am out. I don't think that would be the smartest move for the industry.

We will see! I wouldn't hesitate to cut up my card either. I used them when they were a good deal. When they are not we will move on...

[geojen]

I agree that the fees generated from the merchant should be enough to the credit card companies to leave us alone. I'm not sure how that fee is generated exactly (maybe someone else does?) but if it is the 3% of every transaction that I've heard about, for those of us that use the card for everything, that should amount to a nice chunk of change.

Once there is no grace period or rewards, there is no longer any appeal to using a credit card.

[disneysteve]

I can't see them ever doing this. They would lose far more money than they'd make.

I agree with wincrasher. They take virtually zero risk extending credit to me. In return, they collect merchant fees on the $40,000/year that I charge to the cards.

If my cards start charging interest immediately, I will stop using them immediately. I use credit cards because they SAVE me money. I won't use them if they start costing me money.

[parafly]

From what I understand about merchant and transaction fees, it is the processor (Visa, MasterCard, American Express, Discover) who makes the money. The bank providing the funds does not get a share of any of these fees.

Visa and MasterCard are strictly processing companies. They do not lend any money, they simply act as a liaison between the merchant and the bank, they and charge a fee for the transaction. American Express and Discover do the lending themselves so they make money off transaction fees as well as interest on the loans.

These new rules are not coming from the credit card companies, they are coming from the banks. If you are a customer with a Visa card who pays his/her monthly bill in full, the bank makes absolutely no money off of you. All of the merchant and transaction fees went to Visa, and the bank gets nothing because you did not pay any interest on the bank's loan.

[geojen]

Originally Posted by parafly

From what I understand about merchant and transaction fees, it is the processor (Visa, MasterCard, American Express, Discover) who makes the money. The bank providing the funds does not get a share of any of these fees.

Visa and MasterCard are strictly processing companies. They do not lend any money, they simply act as a liaison between the merchant and the bank, they and charge a fee for the transaction. American Express and Discover do the lending themselves so they make money off transaction fees as well as interest on the loans.

These new rules are not coming from the credit card companies, they are coming from the banks. If you are a customer with a Visa card who pays his/her monthly bill in full, the bank makes absolutely no money off of you. All of the merchant and transaction fees went to Visa, and the bank gets nothing because you did not pay any interest on the bank's loan.

If that is the case, then I would not mind paying a small annual fee for the use of the loan (for the grace period). I will not use the card if there is no grace period though. That is just nuts.

[disneysteve]

I don't have a problem with an annual fee. In fact, I currently pay $65/year for my Marriott Premier Visa. In return, however, I get one free night at up to a category 5 property. That's worth as much as $300 so I more than make up what I pay in.

If there is no reward tied to the fee, I'd still be happy to pay $20 or $30 per year for the convenience and rewards earned. That used to be standard practice with credit cards years ago.

[kork13]

haha I love it.... This is exactly the kind of article that gets people like us all excitable -- I got back from work today to find this same article on three separate threads... LOL

[red92s]

*cue Dave Ramsey laughing hysterically*

[wincrasher]

If I understand correctly, the banks don't pay the merchants for at least 30 days - some cases 60, so they earn something on the cash flow.

[boosami]

Originally Posted by parafly

From what I understand about merchant and transaction fees, it is the processor (Visa, MasterCard, American Express, Discover) who makes the money. The bank providing the funds does not get a share of any of these fees.

This is not correct. Visa and Mastercard only make money by licensing use of their system to banks. Annual fees, transaction fees, interest, and other charges go only to the issuing bank.

Discover and American Express both own their own banks, so they have the ability to make money like the issued banks. Amex also licenses use of their card and system to other banks for a license fee.

Originally Posted by parafly

These new rules are not coming from the credit card companies, they are coming from the banks. If you are a customer with a Visa card who pays his/her monthly bill in full, the bank makes absolutely no money off of you. All of the merchant and transaction fees went to Visa, and the bank gets nothing because you did not pay any interest on the bank's loan.

The banks are the ones who set the grace period and terms of the credit card. They can choose to offer a short or long grace period, or none at all. Same for the interest rate and other terms.

If you pay your bill in full, the bank still makes money off those transaction fees every time you use your card.

[parafly]

Originally Posted by boosami

This is not correct. Visa and Mastercard only make money by licensing use of their system to banks. Annual fees, transaction fees, interest, and other charges go only to the issuing bank.

As a Visa shareholder, I know this to be false. Visa charges a transaction fee on every credit and debit card swipe.

You are correct about annual fees and interest going to the issuing bank, but my point is still valid. If you have a credit card with no annual fee and pay your monthly bill in full, the issuing bank makes no money in the process.

[boosami]

Originally Posted by parafly

As a Visa shareholder, I know this to be false. Visa charges a transaction fee on every credit and debit card swipe.

Sorry, I was mistaken. Visa and MC do not solely make money via licensing. For each transaction, they assess a "membership" fee of 0.09%, which they retain. However, average overall merchant processing rates are set by the banks, and are typically 2%+. The majority of the fees go to the bank that issued the card used. So out of the processing fees, Visa/MC typically receive less than 5% of the total fees collected, and the remaining 95%+ go to the participating banks.

So, for a $200 transaction with 2% processing fee:

• $1.75 goes to the card-issuing bank
• $0.18 goes to Visa/MC
• $0.07 goes to the merchant processing (retail's) bank

Source: Interchange and Assessment

[parafly]

Originally Posted by boosami

Sorry, I was mistaken. Visa and MC do not solely make money via licensing. For each transaction, they assess a "membership" fee of 0.09%, which they retain. However, average overall merchant processing rates are set by the banks, and are typically 2%+. The majority of the fees go to the bank that issued the card used. So out of the processing fees, Visa/MC typically receive less than 5% of the total fees collected, and the remaining 95%+ go to the participating banks.

So, for a $200 transaction with 2% processing fee:

• $1.75 goes to the card-issuing bank
• $0.18 goes to Visa/MC
• $0.07 goes to the merchant processing (retail's) bank

Source: Interchange and Assessment

Fair enough...I was under the impression that the transaction fee goes to the processor, but apparently it is split between the processor and the bank.

[swanson719]

Play with snakes, you're going to get bitten. Credit cards are snakes. A good EF and cash in hand does just as much good, and is better advice for the vast majority of people. Very few use credit cards responsibly.

[parafly]

Originally Posted by swanson719

Play with snakes, you're going to get bitten. Credit cards are snakes. A good EF and cash in hand does just as much good, and is better advice for the vast majority of people. Very few use credit cards responsibly.

Not true. One third of credit card users pay their monthly bill in full, and the vast majority make their payments on time.

I've been "playing with snakes" for 10 years and didn't get bit once. Instead, I built up my credit score to above 800 and cashed in several gifts through rewards programs.

[watsoninc]

I agree with swanson719. I just don't mess with them hardly at all (2-3 times per year max and on very large purchases). I use it only because the cash back generated from these purchases makes it worth it. I pay the card off within 2-3 days. However, any credit card wanting to charge me for this convenience is gone because I simply don't need it.

I am definitely a true dead beat because their only profit off of me is processing fees, but only 30% of credit card users are true dead beats. I think most dead beats, like me, would be indignant if we started having to pay interest or annual fees.

One more thing, I primarily use my check card as a credit card, and according to Visa/Mastercard website, I am afforded the exact same legal protection as anyone using their credit cards. Thus, it is my understanding that it is no safer to use a credit card over a debt card.

[swanson719]

I'm with Dave Ramsey on this one. Who needs a credit score if you pay with cash? Who needs credit period if you pay with cash? Even if 1/3 pay in full each month and most make payments on time, the benefit to society of credit cards is negative as a whole IMO because of the damage it does to the highly impoverished. The people who get them and use them as a sense of hope, trying to get ahead and then cant, and then cant make the payments. You and others might be responsible with them, but you don't have a true NEED for credit outside of maybe a mortgage. People who NEED credit the most of all suffer from the practices that have got us here. How often do we have someone post a budget with thousands in CC debt? It was a burden to their family, not a help. That's why I'm against credit cards.

[parafly]

Originally Posted by swanson719

You don't have a true NEED for credit outside of maybe a mortgage. People who NEED credit the most of all suffer from the practices that have got us here. How often do we have someone post a budget with thousands in CC debt? It was a burden to their family, not a help. That's why I'm against credit cards.

There are many reasons why you need credit...mortgage, small business loan, etc.

I don't blame the credit cards, I blame the people who don't know how to use them responsibly. Let me give you an analogy. In the case of a morbidly obese person, who is to blame, the person or a fork? Going by your logic, you would be against forks.