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PBS: Secret history of the credit card

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Re: PBS: Secret history of the credit card

#11

Post by sokoloff »

iamelgringo wrote: post #8
mseebach wrote: post #3

Earlier quoted context omitted.

Except, when you get credit cards, you get screwed. When you don't get insurance, everyone else is screwed. That's why credit cards are a classical case for information, not regulation. It's a sad sad slope that regulation is incresingly used to protect people from themselves, rather than each other.

What other product can you purchase, and have the price change after you purchase the product? What other form of loans/credit can you purchase and then have the interest rate changed without your knowledge and without informing you because of a missed or late payment on a different loan? What other form of loan can increase your interest rate (cost) based on an increase in the balances on accounts with completely di…

Student loans, personal loans other than credit cards, business loans, preferred stock, corporate, municipal and government bonds (from the issuer's perspective) all change price/rate in response to missed or late payments on other obligations. (In the latter case, often dramatically so.)

Why shouldn't a lender be a able to offer a contract that allows them to increase their fees when the borrower shows themselves to be a less than ideal credit risk at some point in the future? The borrower signed the terms; if they didn't like them, they could have not signed them, or they can pay off and close the account now. Those are the two (non-bankruptcy) avenues for them to get out of the contract that they now don't like having signed.

Re: PBS: Secret history of the credit card

#12

Post by sokoloff »

awt wrote: post #5
mseebach wrote: post #3

Earlier quoted context omitted.

Except, when you get credit cards, you get screwed. When you don't get insurance, everyone else is screwed. That's why credit cards are a classical case for information, not regulation. It's a sad sad slope that regulation is incresingly used to protect people from themselves, rather than each other.

Wouldn't you agree though that if enough people screw themselves, people who haven't screwed themselves start getting screwed, too?

In the long run, I do not. In the short run, I think you are confusing the end of the artificially high good times substantially fueled by these people "screwing themselves" with an absolute reduction in relative purchasing power (or other measure of "goodness") for people who didn't participate.

Honestly, even though I bought a house in summer 2007 (which is now worth somewhat less than I paid), I've been made vastly better off by the free and easy credit that others took part in and that I for the most part did not. Sure, the economic turmoil/headwinds now are less pleasant than 2004-2006/early 2007, but that's far from saying "I got screwed by this obviously unsustainable great ride ending."

Re: PBS: Secret history of the credit card

#13

Post by sokoloff »

netcan wrote: post #4

Mr. Kahr, for one, makes no apologies. "If someone is riskier, he should be paying a higher rate,'' he said. "It's more economically sound. It's fairer for riskier people to pay a higher interest rate, higher fees, whatever it is, than less risky people. Interesting. What he is really saying is 'what's fair got to do with it? Free markets dissolve the concept. "If there was a demand for a credit card product that nev…

"What he is really saying is 'what's fair got to do with it?"

Huh? People who are "riskier" paying higher rates and fees IS fair. Would you lend your (presumably hypothetical) deadbeat, drug-addled uncle your entire $100,000 retirement nest egg at the same rate and terms that you'd lend the US government?

Why the hell not?! He's family, and these big mean credit card companies are profit-seeking arms-length lenders, and you would expect them to act morally better (by your standard, not mine) than you would to family? (I would neither expect, nor as an investor, wish for them to do that.)

Re: PBS: Secret history of the credit card

#14

Post by mynameishere »

iamelgringo wrote: post #8
mseebach wrote: post #3

Earlier quoted context omitted.

Except, when you get credit cards, you get screwed. When you don't get insurance, everyone else is screwed. That's why credit cards are a classical case for information, not regulation. It's a sad sad slope that regulation is incresingly used to protect people from themselves, rather than each other.

What other product can you purchase, and have the price change after you purchase the product? What other form of loans/credit can you purchase and then have the interest rate changed without your knowledge and without informing you because of a missed or late payment on a different loan? What other form of loan can increase your interest rate (cost) based on an increase in the balances on accounts with completely di…

What other product can you purchase, and have the price change after you purchase the product?

Money is not purchased when it is loaned. It is rented, and lots of rented goods have rate changes.

Re: PBS: Secret history of the credit card

#15

Post by sethg »

ars wrote: post #10
iamelgringo wrote: post #8

Earlier quoted context omitted.

What other product can you purchase, and have the price change after you purchase the product? What other form of loans/credit can you purchase and then have the interest rate changed without your knowledge and without informing you because of a missed or late payment on a different loan? What other form of loan can increase your interest rate (cost) based on an increase in the balances on accounts with completely di…

The price is not changing after the fact - you agreed to all the rates and changes before you start. If they want to change those in any other way then they have to contact you and you have the option to stop using the card and pay off the balance at the old rate. The agreements are not that complicated - people simply don't read. I see it happen all the time with website UI's - the instructions are right there and p…

I can't find the page where I saw the numbers, but a staggering proportion of American adults don't know basic math well enough to figure out which grocery store has the lowest prices. I assume an even more staggering proportion doesn't really understand how compound interest works.

Re: PBS: Secret history of the credit card

#16

Post by Retric »

sokoloff wrote: post #11
iamelgringo wrote: post #8

Earlier quoted context omitted.

What other product can you purchase, and have the price change after you purchase the product? What other form of loans/credit can you purchase and then have the interest rate changed without your knowledge and without informing you because of a missed or late payment on a different loan? What other form of loan can increase your interest rate (cost) based on an increase in the balances on accounts with completely di…

Student loans, personal loans other than credit cards, business loans, preferred stock, corporate, municipal and government bonds (from the issuer's perspective) all change price/rate in response to missed or late payments on other obligations. (In the latter case, often dramatically so.) Why shouldn't a lender be a able to offer a contract that allows them to increase their fees when the borrower shows themselves to…

Bond's don't change rate when the company get's into trouble the cost of new bonds goes up.

Student loans are normally fixed interest rate loans and they only charge penalty's when your late in paying them.

The problem with increasing rates when people get into trouble is it tends to force more people over the cliff. Let's say you owe 20k at 10% and make 50k/year. You get hospitalized for 5k and your old and new rate becomes 33%. You have gone from a 2k /year to 5k/year when you need to borrow 5k more. If the company lending you 5k wants to charge you 33% interest that's fine you can focus on paying them back first and get free of debt but when everyone starts raising your rates while your in trouble it's almost impossible to get out of the hole.

PS: Not to mention demonstrating a lack of good credit is an ill defined concept. Loss of a job reduces credit worthiness even if you make all your payments.

Re: PBS: Secret history of the credit card

#18

Post by ph0rque »

This suggests an opportunity for a credit card startup that:

* Charges no fees of any kind

* Charges a rate that is determined by a publicized equation where the only variables are the amount borrowed, time (in, say, days), and the rate.

Re: PBS: Secret history of the credit card

#19

Post by fallentimes »

mseebach wrote: post #3
ovi256 wrote: post #2

Credit cards are exploiting holes in our rationality: classical, well known rational choice failures like irrationally valuing x dollars now more than 2x dollars some time in the future - experimental economists found this, but I can not retrieve references right now, my googlefoo is failing. This is a textbook case for regulation. A similar case is car insurance : your (irrational) choice is to not buy it. However,…

Except, when you get credit cards, you get screwed. When you don't get insurance, everyone else is screwed. That's why credit cards are a classical case for information, not regulation. It's a sad sad slope that regulation is incresingly used to protect people from themselves, rather than each other.

I agree. When used properly, credit cards are unbelievably useful for consumers & businesses alike. The blame should lie on the person who makes the poor decisions with the credit cards, not the credit cards themselves.

Re: PBS: Secret history of the credit card

#20

Post by shimon »

I'd really love to see an explanation of the structure of the credit card / payments industry in terms of what roles different corporations play, who are the major players in each role, and how they make money. I understand there are networks like Visa, which seem to basically administer account number namespaces and perform some role in clearing payments between banks and merchants. There are also payment processors, who contract with those networks and provide services (card scanners, online payments, etc) to merchants. And there are lending banks, who pay the merchants (via their processors, I guess) and bill the consumer as they would for any loan.

My guess is that at one or more levels of this industry, there is an effective cartel: if you want to offer a credit card that's better for merchants, or consumers, or just run more efficiently, you're unlikely to be able to buy your way in. It does seem ludicrous that 1% to 3% of your purchases (or, from the merchant's side, revenue) goes somewhere into Visaland instantly; this seems like a massive privatized tax in return for administering an electronic payments system which might not be that difficult to replace today.

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