Charles beat me to posting about the recent whining by the credit card industry. Faced with restrictions on their recent usury, they’ve decided to try to ruin the credit and extract fees from customers with perfect records of responsibility.
The industry is laboring hard to claim that those who repay their balance each month (during an interest-free grace period, called “deadbeats” by these monsters for their non-fee generating ways) were subsidized by those who carried ongoing balances. Now, with the new credit card bill of rights coming online, revenues are expected to drop from the latter. Thus, fees are needed! Absolutely needed. We must punish those freeloaders, riding on the backs of the poor and destitute. From the NYT article:
“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”
….
Robert Hammer, an industry consultant [water-carrying industry whore], said… “They aren’t charities. They have shareholders to report to,” he said, referring to banks and credit card companies. “Whatever is left in the model to work from, they will start to maneuver.”
Bullshit. Credit card companies have long made out like bandits on the other side of this sordid business, bullying merchants while blatantly violating anti-trust restrictions. From a review on merchant fees charged by credit card issuers (PDF):
Every time a consumer makes a purchase on a credit card, the merchant is charged a fee (typically 2%—3% of the purchase price, but sometimes as high as 15%) by the credit card network. The level of fee relates to the merchant’s industry and size and, most crucially, the level of rewards (cashback or frequent flier miles, etc.) that come with the consumer’s credit card. As a result, credit card transactions cost merchants, on average, about six times as much as cash transactions and twice as much as check or PIN-debit card transactions. These fees totaled over $40 billion in the United States in 2005.
This practice insures that, contrary to this whining, the credit card industry has been profiting greatly from those who pay of their balance each month, and tend to use reward cards. The credit card companies don’t pay for these rewards, the merchant do. Well, what about that interest-free grace period? Who pays for that, financing the month or so of free money the card issuers are trying to eradicate? Net 30 payments. When you swipe your card at a store, the merchant doesn’t get paid right away. It takes about a month for the card company to actually pay up. Eliminating the grace period allows the card issuer to double-dip.
Anti-trust, I say? Merchants are totally screwed, and forced into this relationship, by collusion between the credit card companies. From the same review:
(1) Price-Fixing: Merchant restraints constitute a variety of federal and state anti-trust violations. The restraints are contractual arrangements between credit card networks (Visa, MasterCard, American Express, Discover) and their member banks, made with the goal of artificially equalizing the price of all credit card products and the price of competing products (cash, debit, checks). Merchant restraints are a form of price-fixing.
(2) Tying: Merchants who accept low cost cards from a network brand are required to accept the high cost products too, even if they wanted to reject them. This creates a form of tying—products cannot be purchased separately, but must be purchased together. Under federal antitrust law, tying is illegal if it is done by a
party with market power. The United States Court of Appeals for the Second Circuit held in 2003 that MasterCard and Visa jointly and separately exercise market power, thus establishing the legal foundation for this violation.(3) Monopolization: By fixing the price of all payment products, consumers use more of the most expensive product (credit cards) than they otherwise would. Thus, credit card market share is artificially and intentionally inflated through an exercise of market power. This is a classic form of monopolization.
So, allow me to call you a WAAAAAAAAAAAAMMMULANCE, credit card companies. What a bunch of whiny losers.
Updated:
Commenter oldart added this point:
And, you don’t even mention the most egregious ass-fucking that the banks administer to merchants: who pays the cost of credit card fraud?
Answer: NOT THE BANKS or Visa/MC/AMEX. The merchant does. If a merchant takes the card, and it is fraudulent, in spite of receiving authorization at the time of sale, the merchant gets the full cost deducted from his remittance.
Yet, V/MC spend millions of dollars in advertising BRAGGING about how they protect YOU from fraud. Bullshit bullshit bullshit.
Updated 2:
From I Love IPA:
Although I agree with the rest of this post, I wanted to let you know that not all merchants wait a month for their money. Our restaurant sees those funds within 1-2 days.
I can’t imagine why anyone would want a credit card from a “credit card company” when they can get one (same logo!) from a local Credit Union. I LOVE my 9.9% interest rate, which has only gone down over time, whether I pay my balance off or use revolving credit.
Get with the program folks! Most CU’s accept non-affiliated members now — Boeing CU (BECU) is open to everyone in the state.
Huh. Funny that this thread would come up today.
After posting my earlier comments at work, I just got home and found a letter from my one remaining card provider notifying me that they would be raising my rate by a whopping ten percent with no justification whatsoever.
After calling customer service and being transferred around several times while asking them not to do this, explaining that if they did I would close the account and neither of us would really benefit from that, I was told by an “account specialist” that no, they could not not raise my rate. He really couldn’t say why, just that the rate was going up, so sorry. I told him to close my account.
So, as it happens, starting today, I’m credit card free! Well, technically I still have one but I’ve never used it for anything except a balance transfer, I don’t plan to use it, and it’s going to be closed as soon as the small balance on it is paid off. So, no cards.
We’ll see how this works out.
What this means is you should cancel all your credit cards now…and if you own a business you should stop accepting them as payment.
I’m not going to fall Golob’s blatant appeals for more comments to win some sordid “most commented” Slog contest, so he can get cash rewards and depraved sexual favors forced from interns and the non-senior news reporters. Nice try.
@ 54 asking businesses to not accept credit cards is somewhat unrealistic. while it may save them the fees associated with processing the transaction, they loose money from customers who don’t generally use cash. in the end, it would only hurt the owner.
the best option would be for consumers to use cash instead of any type of plastic. this would help both parties save at the expense of neither.
To those who think that businesses not taking credit cards is unrealistic, I know of several small businesses in NYC that do not take credit cards — and I’d guess this town is probably second only to LA in credit card usage. They get by. People know and they go to the ATM before they go to that store (or they find out and go to one nearby). It is not the end of the world for any of the parties involved (except possibly the credit card company).
If companies in the capital of finance can do it, I’m sure companies in socially aware Seattle can, too.
My rewards cc just lowered the top reward interest from 3% to 1% and no longer pays you an extra $50 per $200 reward.
I’ve seen stores in Seattle that have signs requesting you pay in cash when you can. I’ve also seen restaurants in Olympia who do charge the minimum fee, but they also post a note explaining that they are doing so because Visa in turn charges them a fee to use the card.
I’m bad about using cash, partly because I enjoy the air miles I used to get (before they quadrupled the amount of miles you needed), and partly because I used to travel for work and there was no way I could front a $3,000 trip out of my savings. That’s unrealistic.
I think what we can learn from this post is that a) most of congress is spineless and they need to put a leash on these companies and b) carry incremental amounts of cash for small purchases. I feel like a dick when I use my credit card for coffee (although it does put me 3/60,000ths of the way to getting a free ticket!).
P.S. nice discussion thread. I learned about as much from the comments as I did from the OG post. Pretty impressive Sloggers.
@ 57
It’s not really a matter of financing in my opinion, as there are a large number of merchants who choose to operate under this business model. Dicks for example, only accepts cash and has been doing well for years. But statically speaking, sales generally improve by over 30% when credit cards are processed, and not all business can handle such a loss. Personally, I feel consumer’s should take the initiative to combat this issue in order to prevent small business owners from suffering the consequences of their payment preferences. However I do not mean to discourage companies from deciding to go cash only, if they can afford to they certainly should.
We do get our Credit Card funds in 1-2 days; although we agree with the other stuff that was written. A majority of our business is on credit cards, and I’m guessing that we would see a 20-30% drop in business if we stopped taking them. People enjoy their ease of use, and it seem that many people do not carry lots of cash these days. That being said, most small businesses are happy to give 1-2% discounts to the customers that pay cash instead of paying it to the credit card companies. For the record processing rewards cards can cost the merchant an extra 2-4% depending on the card type. Also debit cards are usually processed at a flat rate (typically 40-50 cents) per transaction versus credit cards which are processed at a percentage plus a processing fee (typically between 10-25 cents). For many merchants, if the transaction is under $20 it is cheaper for the merchant to process debit cards as credit, and for purchase over that it is cheaper to process it as a debit. So think about how much you’re spending when given a choice.
Time to bring back debtors jails.
Jonathan you are correct- merchants who agree to process cc’s are not allowed to offer lower cash prices or an extra fee for people who pay with a cc- though I see it all the time in smaller biz and I don’t care that they do it. My mom owns a small biz but because it is a franchise, she is really held to the bs standards of no minimums/no extra fees to subsidize what she has to pay the cc company for her customers to use their cc and these fees. Since she has several stores, the fees she pays each month are egregious. That said, she would see a significant decline in customer count should she go to a cash-only biz- the only places I have seen successfully do so are food places. Another thing- my mom has customers who will dispute charges ALL THE TIME. Since her biz is a service industry and she has a customer databse, she can verify that people did indeed come in and receive said service. Yet customers turn around and dispute charges to their cc company who in turn takes the money back from my mom’s biz. So not only are the cc making out like bandits, but all the dishonest people who dispute charges THEY ACTUALLY MADE, which gets taken back from the merchant. Not saying you shouldn’t be able to dispute charges (you should and I have when my cc was stolen) but people need to stop being shady and pay for what they buy.
Job Customer care and after being moved around various existing patch is not asking them, explaining that if they cause me to be enveloping, and neither are we really better than that, I have a “reason” is not was told by the doctor, they can not valuate me better. She really can not say why, defensive achievement that extent, so sad. I told him that his accounting close.
polo