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.
This will be good for us. Maybe we won’t charge so much shit, and live in so much debt, and have less stuff and become a better society.
One can dream.
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.
Thanks oldart. You know what? I’m adding your comment to the main post.
Andrew Martin, author of this New York Times article, comes awfully close to being a captive industry hack for not mentioning once in his article how the credit card companies have been padding their revenues from merchants.
Thanks, Jonathan. I’ll happily give up my 1% to 3% cashback to see these companies gone. I’d like to see more businesses give a discount for cash, but most people would find that objectionable.
You’d think this would make them give credit to a larger group of people so they could recoup any loses. Widening their customer base would make more sense. In fact, a card that was fair and available without all the usary rates might be very profitable.
“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.”
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.
That being said, there’s a reason earlier cultures stigmatized the moneylenders…
@4: Part of the agreement merchants are required to sign to accept credit cards is to not charge credit card users a different price. Simply put, merchants cannot pass on the fee.
I’m personally real close to just writing off credit entirely.
@6: Thanks for this. I’ll update the post.
The problem is that people with bad credit should pay higher fees… since they have bad credit.
The credit card industry made a huge mistake by lobbying for weaker debt reduction laws under GWB. People understand that credit cards are worse than before and use them less, keep lower balances, etc. That means the credit card companies make less money than before, so they get sneaky and try to come up with new ways to get money from consumers.
I’m with #8 on this one…Pay cash, whenever you can, and let those fuckers wither and die.
Jonathan — good work. This is the only analysis I’ve seen today that mentions the elephant in the room: merchant fees. Christ, the NYT is bad on business reporting a lot of the time.
Cash, credit, whatever.
The real problem behind ALL these symptoms is the fact that the ruleset defining all national monies (eg. postive-interest) actively encourages greed, interest/usury and speculation.
Use a different ruleset (ie. negative-interest) and you will get different behaviours. Douglas Rushkoff is currently the most vocal proponant of “complementary currencies”.
The current monetary system is backed soley by debt. Nothing else. There is –and will always be– more debt than money to ever pay it off. This is not a sustainable economic system. Period.
Am I crazy for think that the entire card network should be taken out of the hands of private for-profit corporations? If cards are a competing currency to cash, shouldn’t the government be running it? Credit cards are nothing more than a line of credit, let the banks deal with that, but make the fed or a not-for-profit run the transaction and authorization network. Visa et al could stick around but they’d be more banks than merchant services companies. Does that make any sense?
I have no credit cards. I am so glad of this.
THAT SAID – another way merchants are fucked is that they have to pay per transaction, and if it is a tiny one, they still have to pay. And generally, the CC companies won’t let merchants charge a minimum.
Bullshit.
@15: You are not crazy in thinking that.
If they can’t make money when they get it from the feds at 0 percent, then they really need to die.
Time to put a cap on the rates.
NOW.
Hey Jonathan – what’s the story on fees for debit card transactions? Does it depend on whether you use a PIN or it’s run as “credit” through the Visa/MC network? Would love to know how the merchant and other fees work for these kinds of transactions.
I second Anthony’s question. I already try to not use my credit card with small/locally-owned businesses (though, I think with this info I’ll be more likely to remember)… sounds like debit cards are not as bad, but how bad are they?
Anthony:
Your answer is here, at (New York Times owned about.com, making their complete omission of merchant fees in their article even more embarrassing):
The Consumer’s Union says it better than I ever could….
“The Senate just PASSED credit card reform today. The bill goes back to the House for a final vote TOMORROW.
But the banks hope to derail reform at the very last minute with scare tactics trumpeted on the front page of today’s New York Times.
After months of raising rates and lowering credit limits for responsible card holders to make up for their bad investments elsewhere, they say these rules will hurt those very same responsible customers.
These rules are not the problem. The banks are the problem. Don’t let them change the subject. Make sure your Representative hears from you right now.
The banks can raise your interest rates, and then slap that higher rate retroactively on charges you already made. They can add fees, lower your credit line and change your due date at any time and for no reason. They like that power, and will say anything to keep it.
After they gambled away their own capital on risky investments and then borrowed to the hilt to gamble some more–they now say the problem is irresponsible American credit card holders. Hardly.
These rules make sure you get the deal you signed up for. If you are offered a low rate, and you charge something at that rate, you will repay that debt at that rate. If the banks want to add fees, they have to give you notice and time to find a better deal. Instead of tricks in small print, you get a card agreement you can count on.
The banks hope to pit Americans against one another so we will stop looking at them. It’s the oldest trick in the book. Tell your Representative you aren’t falling for it.
The Senate passed this bill today by a large margin–90 to 5! Let’s make sure every Representative votes with you, not with the banks.”
Sincerely,
Pam Banks
CreditCardReform.org
A project of Consumers Union
1101 17th Street NW, Suite 500
Washington, DC 20036
I believe that debit transactions (with a PIN) are done at a flat fee (.75 or 1.00 or so) regardless of the dollar amount involved, whereas with a credit (sig) transaction, the merchant pays a 2-3-? percent charge depending on the size of the business, and the contract they are working under.
There was a big ugly suit that involved the CC companies and Wal-Mart regarding PIN-based transactions (the CC companies were electronically preventing Wal-Mart and other merchants from doing debit transactions, thereby forcing the higher fees). There was much more complexity to this than my explanation implies, but ultimately the CC lost, and had to reimburse mega-bucks to merchants for that one.
I’ve already frozen one of my three credit cards and canceled another. I think that if the last one starts treating me as they are likely to start treating me – I don’t have perfect credit and I sometimes carry a balance but I am responsible and have good credit – that just might be the deathblow that gets me off credit cards for good. I’ve known what asshole pirates these companies are for years but I skated by without catching the worst of it. Now, well… I guess the time is right to tell them where they can put their completely arbitrary rate hikes.
I hates me some credit card companies. I got rid of all mine, they’re like evil plastic rectangular monkeys on your back.
@24: Thanks to the (industry-rewritten) new bankruptcy law came into force, your credit rating is now dependent upon the amount of available credit you have.
In other words, the banks have rigged the game. If you cancel your cards, your available credit goes down. Then your credit score goes down. Your interest rates go up, and your ability to apply for future credit goes down.
Like I said, vile pigs.
@15, @17 – Don’t forget that it’s not just credit that’s at issue here. Every time you use your debit card, the network providers get a cut. Now consider the relative (and rapidly growing) percentage of consumer transactions that occur every second of every day using these networks. They FAR outstrip cash, checks and ACH transactions *combined*.
The way I see it, Visa et. al. have established not only a usurious business model, but a de-facto tax on consumer commerce as well.
What a amazing racket the CC companies have set up for themselves. They take 3% of just about half the transactions that happen in the world. Imagine if you had to pay the feds 3% of all of your income just for the privilege of accepting the money they print.
I do use Visa for the mileage on Alaska Airlines, but even those benefits are getting more and more difficult to cash in on.
To Jonathan @7. Yeah, although it was a fairly common practice among grey market electronics vendors when I used to live in the silicon valley. It seems likely they weren’t following the agreements to the letter.
@29: I know of a few restaurants here that play the same game, plus a few coffee shops that are pretty rigorous about minimums before debit/credit transactions. I cannot blame ’em one bit.
Soon cash is going to be a status symbol again, like a gold (then platinum)(then titanium)(then diamond)(then unicorn snot) card used to be. The tables need to be turned back around so that the CC companies understand that THEY exist for OUR convenience.
I’m going to start using cash as much as I can.
@24 has done a good thing.
I froze one of my two cards (reducing it from a ridiculous Chase (used to be WaMu) rate of 29 percent down to 2 percent!) and have been trying to get rid of the second one.
Eventually I’ll open a credit union debit card and cancel the other card entirely.
As a shareowner of BofA (and a few regional banks) I can tell you they are INTENTIONALLY ripping you off by altering limits so you bump up over them and making half the money on FEES not the supposed interest.
It’s intentional. And it’s WRONG.
@2: I worked for 3+ years as a fraud investigator for a large online retailer, and I have to say that even though, yes, it’s the merchants that are stuck with the ramifications of fraud, some banks are better than others when dealing with it. Some have excellent ways for merchants to verify charges before finalizing the purchase, and some make it much easier to resolve fraud for both the merchant and the cardholder, while other banks clearly don’t care about protecting merchants or cardholders. In my experience, the companies who advertise fraud protection tend to be better on the merchant end, too. There’s a reason I will always have an AmEx card, and a reason I have no interest whatsoever in ever having a MasterCard.
I’m going to continue using my main credit card (my emergency card has already been canceled by the cc company) as usual until they try to pull this kind of shit. As soon as they try anything, I’ll cancel it, and make it clear why I’m doing it. I think anyone who’s in a position to do this (isn’t currently in debt) should go with the same tactic. Make these motherfuckers see the consequences of their actions.
@26
Dr. Jon,
Yeah, I’m aware of that rule. At this point I no longer care. The credit bureaus are not only part of this robber barony, they’re ringleaders, and I refuse to pay any further attention to what they think of me. Let them lower my credit score. I’m going to try to go back to the old model of saving up for what I need before I buy it, and if I have to get a loan, for a house, say, I’ll just suck it up and accept whatever terms I have to from a small, relatively honest local bank, and try to get better terms by making a down payment and offering collateral.
I just don’t want to play the big banks’ games any more. They’ve gone way past the point of just being uncharitable but legitimate financial businesses into what amounts to usury and loan sharking. They go out of their way to cripple their victims with debt. I want no part of it.
The notion that Americans “need” readily available credit really falls strangely on my ears. I think that Americans only “need” that credit if they in fact “need” all the things they’re buying with it, and I’m really deeply unconvinced of that – for example, I’m unconvinced we “need” an auto industry that produces new editions of every single model of every single car every single year or that we “need” people to buy all those new cars.
@35,
Since we live in a country with an abysmal social safety net, yes, many/most Americans need easily available credit. Illness is still the number one reason for bankruptcy.
I always pay with cash. I only use my one credit card for those very few online purchases and that one or two large purchase that I just did not have the cash on hand at the time).
@36
I agree with you fundamentally about the broken system but your example is a fine illustration of the fact that credit is only allowing the underlying problems to get worse while we become less and less able to afford to deal with them.
Another hidden way merchants get bent-over is by the “Rewards” cards. Different kinds of cards are processed at different fee rates for the merchants. Guess what, the “Rewards” cards cost the store a higher percentage to run than a regular card or debit card. The merchants are actually the ones giving you the “Reward”, not the credit card companies.
The credit card industry, much like the healthcare industry, does very little help and mostly harm to the consumer.
Sure, the idea of credit cards are good. The essential purpose is there for a reason, yet they get to do fuck all and have no checks or balances on their industry.
For example, FMT had a late payment by 10 days (first time ever) and they cut his credit. He was like, wtf?!?! And they were like “uhhhh times are tough, so your limit is going down. F U consumer”.
It makes no sense. And much like the healthcare industry there is too much money in congress to do fuck all about it. Goddamnit.
Credit is not a right. Its a privilege. A moderately expensive privilege. Don’t like it? Don’t use it.
When you use your credit card to make a $3 coffee purchase, you’re totally fucking the merchant over. They pay so much in fees that there’s no profit. For small purchases, USE CASH.
@40
You could cancel your credit cards and urge people you know to do the same. Don’t get back into the racket at all until and unless you can get a credit card agreement that doesn’t include a clause that allows them to fuck you however and whenever they please. Right now each and every card includes language – if you hadn’t noticed – that allows them to do whatever they want with your rate, limit, and credit score, at any time, for no reason.
That’s never sat right with me. Recently one of my cards, with which I’d always been a model customer, told me apropos of nothing, with no explanation, that they would be doubling my interest rate. I canceled the account immediately. Try it! It feels good.
Sorry, I can’t really feel pity for people who don’t carry a balance. If you don’t carry a balance, you don’t need a credit card – just get a debit card.
I do feel bad for people who legitimately need more than 30 days credit and can’t get it in any other way but a CC and are getting hit by higher rates and fees even though they pay on time. But my definition of “legitimately need” is probably more conservative than most. I think credit should be used only for emergencies or to serve an investment (i.e. a small business, education, something that has a return).
With regard to merchants getting f’d – has anyone done a study on how much incremental business merchants get due to CC’s? Real CC’s, not debit. I.e. is there any incentive at all for merchants to accept CC’s or do merchants offer CC processing simply because consumers demand it?
@42
No profit in a $3.00 cup of coffee?… Right… Poor merchant’s… no profit in those $3.00 cups of coffee.
@44
Red Mill won’t take credit cards… and they seem to be doing just fine.
Who’s out there holding guns to merchant’s heads forcing them to take credit cards.
Is it the same person holding guns to consumers heads forcing them to use credit cards?
bank of america jacked up the interest rate on my credit card to 95%. fuck the fucking fuckers! i switched to becu the next day.
@42 – ha ha, yeah, @45 is right – coffee is exactly the worst example to use here. Coffee is almost all margin.
Try again?
When you pay for a $5 purchase of groceries at an independent grocer that’s probably a better example as I seem to remember groceries having low margin.
Seems to me that small, independent stores often have minimum CC purchases sizes but you’ll notice that not many national coffee chains do not.
re:update 2
Everyone gets their money in 1-2 days.
Dr Dr Golob doesn’t know shit about business.
You_Gotta_Be_Kidding_Me:
You are right(ish). Nobody is forcing consumers or merchants to use credit cards, in the sense that there isn’t physical coercion.
But, surely you recognize there are many subtler forms of coercion in play here, for both consumers and merchants.
Most of us only get paid once or twice a month. Paychecks may not match up with expenses. A small amount of responsibly used credit makes perfect sense. Simply telling someone to save up a month’s costs in advance is a bit crazy; if you have a suspended animation machine, let me know. Holds used on debit cards, for say the purchase of gas, can totally wipe out a balance for days. Again, using a credit card for those purchases is nearly obligatory.
Carrying around large amounts of cash is a theft risk, it exposes the person to inflation affects and adds a huge logistical problem to our economy that electronic transactions eliminates. (See Loomis / REI / SPD fracas.)
For merchants selling things more expensive than fast food, it seems risky to expect customers to always have cash or checks on hand. So, they accept credit cards. And since the market for transaction processors (for debit or credit cards) is, at best, four heavily intertwined companies, the oligopoly sets the terms.
I tend to agree with the pro-nationalizers at this point. Just like the Fed clears checks for banks, the Fed should clear electronic transactions. The $40 billion in merchant fees + $20 billion in consumer fees charged by these credit card issuers are nothing more than a drag on our economy, a monopoly tax out of proportion to the true costs of the task.
@46,
It figures that with all your reported wealth you know fuck all about running a business. Not taking credit = no customers. Red Mill is an aberration, which you, of course, are too pig ignorant to realize.
@44,
I use a credit card instead of debit because if someone steals my card or otherwise gets ahold of my number I won’t wind up with zero $s in my bank account.