PBS: Secret history of the credit card • Hacker News Board

Re: PBS: Secret history of the credit card

#51

Post by iamelgringo » Tue, Dec 16, 2008, 10:06 PM UTC

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…

I certainly agree about managing debt reasonably. I also agree with changing companies. The practices are industry wide, however.

Re: PBS: Secret history of the credit card

#52

Post by nazgulnarsil » Tue, Dec 16, 2008, 10:23 PM UTC

ovi256 wrote: post #47

nazgulnarsil wrote: post #36

Earlier quoted context omitted.

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

Because it is positive sum - which means that it creates value. Fiduciary, insurance companies gain more than you, but you gain non-fiduciary value (tranquility etc).

my comment was towards the use of the word "irrational" in the parent comment.

Re: PBS: Secret history of the credit card

#53

Post by LogicHoleFlaw » Tue, Dec 16, 2008, 10:30 PM UTC

lnguyen wrote: post #49

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 credit card industry is already subject to a sizable amount of regulation: Truth in Lending Act, Fair Credit Billing Act, Fair Debt Collection Practices Act, etc. Granted, that's not to say the regs couldn't be better or start leaning more toward the consumer (especially those changes that happened with the bankruptcy "reform" a few years back) or that the agreements couldn't be written in more straightforward En…

The problem with not signing anything you don't fully understand is that the corporate entity you're dealing with has dedicated lawyers on hand to draft and revise these things. I'm one guy who's trying to live life. I'm not a lawyer, and I don't have the time to decipher every EULA, every contract, every service agreement, and all the rest of the fine print that we wade through.

Personally I try to hit the high points of standardized contracts but at some point you have to operate on trust. If some entity wants to screw you over, it can be done over subtle things.

Re: PBS: Secret history of the credit card

#54

Post by mynameishere » Wed, Dec 17, 2008, 12:10 AM UTC

iamelgringo wrote: post #21

mynameishere wrote: post #14

Earlier quoted context omitted.

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.

If people rented apartments, and every month, the landlord was able to increase or decrease the ammount he charged for rent based on your "risk," people would riot. And, yes, money is rented via credit cards, but every purchase that I make with a credit card is in effect subject to a variable cost, because the interest rate that I'm being charged varies. So, I might buy a $1000 computer, thinking that I'll pay it off…

Yeah, well, if I enter into a contract with a landlord specifying that he'll change the rates as desired, TS for me. Get a personal loan at a bank and it won't vary.

Re: PBS: Secret history of the credit card

#55

Post by netcan » Wed, Dec 17, 2008, 12:14 AM UTC

randallsquared wrote: post #9

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…

"Free markets dissolve the concept [of fairness]." Some would say that free markets implement the concept of fairness. Of course, there are no free markets in the world today, to a first approximation, since all the prices and outcomes are distorted by external agencies, so whether free markets are fair is a bit academic.

That is irrelevant really. You may think that the result is fair, but fair is not the reason that is the result.

The free market comes to a result based on a series of self interested decisions. At the core are the buy/sell decisions. I price in a way that maximises my profit, you buy in a way that maximises your utility.

Fair (I admit an ambiguous term) represents something external to this.

Re: PBS: Secret history of the credit card

#56

Post by netcan » Wed, Dec 17, 2008, 12:14 AM UTC

sokoloff wrote: post #13

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,…

That explains why they do it, not why it's fair.

Re: PBS: Secret history of the credit card

#57

Post by netcan » Wed, Dec 17, 2008, 1:35 AM UTC

LogicHoleFlaw wrote: post #53

lnguyen wrote: post #49

Earlier quoted context omitted.

The credit card industry is already subject to a sizable amount of regulation: Truth in Lending Act, Fair Credit Billing Act, Fair Debt Collection Practices Act, etc. Granted, that's not to say the regs couldn't be better or start leaning more toward the consumer (especially those changes that happened with the bankruptcy "reform" a few years back) or that the agreements couldn't be written in more straightforward En…

The problem with not signing anything you don't fully understand is that the corporate entity you're dealing with has dedicated lawyers on hand to draft and revise these things. I'm one guy who's trying to live life. I'm not a lawyer, and I don't have the time to decipher every EULA, every contract, every service agreement, and all the rest of the fine print that we wade through. Personally I try to hit the high poin…

I agree that contracts need to be written in a way that allows anyone aged 14+ to 'get it' in 2 minutes.

But the problem here isn't information. People have that, one way or another. The problem is bad choices, starting with the choice to make an uninformed decision. My girlfriend once worked at a bank. They had a credit cards brochure with a comparison table. 4 or 5 cards had gimmicks: miniature cards, points, miles, gold card (virtually no actual benefit), personalised card, internet purchase insurance (for those that reckon themselves rational). 1 card was the right choice. Lower fees, lower rates, lower penalties. It was grey & ugly & had no fun stuff. No one ever picked the right choice.

Those too sophisticated (old) to be swayed by something as dumb as a miniature card or fun points would be swayed by something with a little more mature like exclusivity (gold) or miles. Those making a rational choice pick the extended no interest period or some obscure feature like online purchase insurance or travel insurance or something else they think saves them money.

Now these were all the good cards you get at a bank: 16%-19% interest rates. The low interest card was around 11%. Absolutely economical compared to what you get a furniture store.

The crucial info wasn't in the small print. It was in a big glossy table. There was a clear right choice for anyone that hasn't had a card & never paid interest or late fees in the last 5 years. It was the least popular option.

*prime interest at that point was 7.5%.

There is no problem making a decent credit card with no frills. People won't take it.

Re: PBS: Secret history of the credit card

#58

Post by smanek » Wed, Dec 17, 2008, 1:52 AM UTC

netcan wrote: post #57

LogicHoleFlaw wrote: post #53

Earlier quoted context omitted.

The problem with not signing anything you don't fully understand is that the corporate entity you're dealing with has dedicated lawyers on hand to draft and revise these things. I'm one guy who's trying to live life. I'm not a lawyer, and I don't have the time to decipher every EULA, every contract, every service agreement, and all the rest of the fine print that we wade through. Personally I try to hit the high poin…

I agree that contracts need to be written in a way that allows anyone aged 14+ to 'get it' in 2 minutes. But the problem here isn't information. People have that, one way or another. The problem is bad choices, starting with the choice to make an uninformed decision. My girlfriend once worked at a bank. They had a credit cards brochure with a comparison table. 4 or 5 cards had gimmicks: miniature cards, points, miles…

As long as you don't carry a balance on your credit card, one of the other cards may very well have been the right choice.

I personally chose an Amex card with better rewards, but higher interest, since I pay it off in full every month.

You, or your girlfriend, don't know what's best for a particular customer's usage pattern.

Re: PBS: Secret history of the credit card

#59

Post by netcan » Wed, Dec 17, 2008, 2:05 AM UTC

smanek wrote: post #58

netcan wrote: post #57

Earlier quoted context omitted.

I agree that contracts need to be written in a way that allows anyone aged 14+ to 'get it' in 2 minutes. But the problem here isn't information. People have that, one way or another. The problem is bad choices, starting with the choice to make an uninformed decision. My girlfriend once worked at a bank. They had a credit cards brochure with a comparison table. 4 or 5 cards had gimmicks: miniature cards, points, miles…

As long as you don't carry a balance on your credit card, one of the other cards may very well have been the right choice. I personally chose an Amex card with better rewards, but higher interest, since I pay it off in full every month. You, or your girlfriend, don't know what's best for a particular customer's usage pattern.

No we don't. Not about the individual.

But we do know that this was the correct choice for the majority. We also know that the majority didn't take it. So we know that the majority made a mistake.

It doesn't take much of a lapse to void the benefits.

Re: PBS: Secret history of the credit card

#60

Post by sokoloff » Wed, Dec 17, 2008, 2:09 AM UTC

netcan wrote: post #56

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,…

That explains why they do it, not why it's fair.

I'm not sure exactly how to demonstrate the fairness to you if you don't see it in the above hypothetical case, esp if you agree that you wouldn't "lend" your entire retirement to a poor credit risk individual. I'll take one more shot at it:

In order to attract prudent capital to a riskier investment, the projected rate of return must be higher than that of any available safe, or safer, investment. IOW, to lend to "high risk" customers, the credit card company has to charge some form of higher fees or rates. If they don't elect to offer lower rates to the "low risk" customers than those that they have to charge the high-risk customers, then someone else will come along and cherry-pick the low-risk customers.

Said only slightly differently, why would anyone choose invest at arms-length in something riskier if there were a safer alternative available with an equal rate of return? They wouldn't, and any attempt to compel them to do so via regulation is unlikely to produce a result that you'd be happy with. It will either dry up credit for everyone, dry up credit for only the riskier potential patrons, or result in #1, followed by the demand for changes to the bankruptcy laws to enable creditors to safely lend at the mandated terms to all comers. I doubt that any of those will be a net benefit to society, except possibly the second, which would still result in extreme short-term pain to lower economic status individuals, who are disproportionately represented in the "high risk" cohorts of the market.