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PBS: Secret history of the credit card

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Re: PBS: Secret history of the credit card

#31

Post by sokoloff »

Retric wrote: post #28
sokoloff wrote: post #27

Earlier quoted context omitted.

Concede the point on bonds held to maturity; you're right. Private student loans are variable interest rate loans, many at the whim of the providing company. (I'd agree that private student loans are much closer to evil than revolving credit, and that more education is due on both topics to consumers of both types of debt. But I'm still not in favor of restricting the availability of a financial product that might no…

My point is I am not in debt over my head in part because I am considered a low risk. My car loan is at 4.9% and my CC debt is at 9%. If my interest rate where to grow to 12+ on the car and 33% on my credit card I would have far less slack. Edit: Ok, running the numbers it would not be that bad but I would become far more focused on having zero debt.

For your long-run personal wealth, do you think you would you be better or worse off focusing on having zero short-term debt?

Re: PBS: Secret history of the credit card

#32

Post by sokoloff »

iamelgringo wrote: post #30
sokoloff wrote: post #13

Earlier quoted context omitted.

"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,…

I'm sure that paying a premium to borrow money once you are a credit risk would be considered "fair" by many. But, the example that you've posed is a straw man. Of course you'd charge a drug addict higher interest than the the US government. The problem with credit card companies is that they loan the initial money at one price, and then adjust the price dependent on changing credit scores, insurance claims or whims.…

I agree with you vastly more than I disagree, but will observe that if you manage your debt reasonably, you have the ultimate recourse when your CC company changes your terms: Fire them. Pay that debt off, possibly by borrowing from another company willing to extend you terms more to your liking.

I agree that people to whom no one will lend more money are at a great disadvantage. I don't see any way to fix that, as preventing CC companies from offering variable APR offers in the future will likely make things worse for marginal customers; it will just make the companies completely unwilling to extend them credit. Embargoing consumers who are already suffering doesn't help them in the short term.

Re: PBS: Secret history of the credit card

#33

Post by pragmatic »

ph0rque wrote: post #25
jimbokun wrote: post #23

Earlier quoted context omitted.

Or in the words of Mr. Kahr: "You know -- 'transparency card,' 'rock solid card' -- whatever it may be. I don't believe that that would succeed."

That's great validation, to paraphrase Arthur C. Clarke: > If an elderly but distinguished expert says that something will be successful he is almost certainly right, but if he says that it won't, he is very probably wrong.

You'd need a huge bankroll to get started. Financial startups aren't as easy as a social media web 2.0 site.

Look at prosper.com. Regulatory costs are astronomical. Between state and federal auditors and Sarbanes-Oxley and CRA, etc, you'll have your hands full.

Also, why would investor capital flow to you? You'd make a lower return with no upside of lower defaults, etc.

But yes go ahead. Start a low rate credit card company. I might sign up for your card!

Re: PBS: Secret history of the credit card

#34

Post by eru »

sethg wrote: post #15
ars wrote: post #10

Earlier quoted context omitted.

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.

What do I care about dumb people?

Re: PBS: Secret history of the credit card

#35

Post by eru »

fallentimes wrote: post #19
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.

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.

Though credit cards can be replaced by less dangerous debit cards for most of their functions.

Re: PBS: Secret history of the credit card

#36

Post by nazgulnarsil »

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,…

um...not buying it is rational. if buying insurance was positive sum then how would insurance companies make money?

Re: PBS: Secret history of the credit card

#37

Post by helveticaman »

pragmatic wrote: post #33
ph0rque wrote: post #25

Earlier quoted context omitted.

That's great validation, to paraphrase Arthur C. Clarke: > If an elderly but distinguished expert says that something will be successful he is almost certainly right, but if he says that it won't, he is very probably wrong.

You'd need a huge bankroll to get started. Financial startups aren't as easy as a social media web 2.0 site. Look at prosper.com. Regulatory costs are astronomical. Between state and federal auditors and Sarbanes-Oxley and CRA, etc, you'll have your hands full. Also, why would investor capital flow to you? You'd make a lower return with no upside of lower defaults, etc. But yes go ahead. Start a low rate credit card…

More importantly, you'd have to cover lobbying costs for 5 or 6 years just to break into the tight oligopoly.

Re: PBS: Secret history of the credit card

#38

Post by Retric »

sokoloff wrote: post #31
Retric wrote: post #28

Earlier quoted context omitted.

My point is I am not in debt over my head in part because I am considered a low risk. My car loan is at 4.9% and my CC debt is at 9%. If my interest rate where to grow to 12+ on the car and 33% on my credit card I would have far less slack. Edit: Ok, running the numbers it would not be that bad but I would become far more focused on having zero debt.

For your long-run personal wealth, do you think you would you be better or worse off focusing on having zero short-term debt?

Edit for clarity: My CC debt is at 9% which is a little more than investing in the stock market on average, but I am trying to build up better credit so it seems like a good idea to keep money in the market and take a little hit vs. paying off my CC debt.

Not that the last 3 months suggests the idea is without risk but it's not enough money that I really care. However, if I had less in the way of assets an my rate where to spike I would quickly start caring.

Re: PBS: Secret history of the credit card

#39

Post by fallentimes »

eru wrote: post #35
fallentimes wrote: post #19

Earlier quoted context omitted.

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.

Though credit cards can be replaced by less dangerous debit cards for most of their functions.

Actually, debit cards are significantly more dangerous (when talking about external events, not accountability).

The amount of liability you have + paperwork in the event of fraud is exponential compared to credit cards.

Re: PBS: Secret history of the credit card

#40

Post by rcoder »

sokoloff wrote: post #32
iamelgringo wrote: post #30

Earlier quoted context omitted.

I'm sure that paying a premium to borrow money once you are a credit risk would be considered "fair" by many. But, the example that you've posed is a straw man. Of course you'd charge a drug addict higher interest than the the US government. The problem with credit card companies is that they loan the initial money at one price, and then adjust the price dependent on changing credit scores, insurance claims or whims.…

I agree with you vastly more than I disagree, but will observe that if you manage your debt reasonably, you have the ultimate recourse when your CC company changes your terms: Fire them. Pay that debt off, possibly by borrowing from another company willing to extend you terms more to your liking. I agree that people to whom no one will lend more money are at a great disadvantage. I don't see any way to fix that, as p…

Unfortunately, if you "fire" your credit card company by paying off your balance and canceling the card, you also reduce your credit score, leading to potentially worse terms for your next loan.

As stated in the original article, the second-worst kind of credit card user from the issuer's POV is the one who immediately pays down their balance each month, without ever incurring interest or late-payment fees.

This is possible only because of the altogether too-cozy relationship between the credit rating agencies and card issuers. I think any regulation of the lending industry should start with the credit rating agencies, and move on to the banks only after they've established effective oversight and consumer protection in that space.

(Incidentally, my disgust with the normal lending practices in the credit card market is the reason that the only one I will carry is a small-limit emergency card issued by my local credit union. Since they're a member-owned not-for-profit institution, I have far more trust in their desire to serve my financial needs, rather than trying to screw me over for a buck.)

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