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Credit Card Points Are a Transfer from the Broke to the Comfortable

willisallstead.substack.com

11–20 of 35 posts

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#11

I don't dis agree with anything the author is saying. But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit. That's the argument that banks raise every time and why interest rate caps always die in committee. If advocates want to team up with Dave Ramsay and say "that's rig…

I increasingly think people should have the option to define if they should be treated as an adult or not, kinda like an organ donor on their license.

Those who opt out would be protected from their own choices.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#12

It is jarring to read Claude talking like it uses credit cards or feels guilt over using reward points.

Author here! I promise I didn't use Claude for any of this. I will admit I'm working on developing a "voice" in my writing, so maybe that's what you're sensing. Thanks for the read anyway.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#13

I don't dis agree with anything the author is saying. But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit. That's the argument that banks raise every time and why interest rate caps always die in committee. If advocates want to team up with Dave Ramsay and say "that's rig…

> But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit.

That's a good point, and of course there are downstream affects of this, but I wonder if that's a bad thing. We're not talking about reduction in ability to access say mortgage debt or something of that nature, we're talking credit card debt. Making it possible for a person to be in $10k, $20k, $40k+ in extremely high interest credit card debt doesn't seem like a positive for our economy overall to me. It really just masks the root of the problem, which is that people are working paycheck to paycheck and can't afford the occasional emergency.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#14

Pay in full customers can be profitable through interchange fees alone, so I don't really follow how it is a wealth transfer

Merchants almost never pass along interchange fees to the customer. Instead, it's built into the prices that every customer pays the merchant, regardless if the customer uses a credit card, which means everyone pays for credit card rewards.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#15
The author couldn't even get through the first two sentences without being wrong. Credit card rewards are not funded by interest and this idea that credit card companies don't want you paying off your bill every month is retarded. The card issuer gets the majority of the interchange fee and makes a profit on every swipe even after accounting for rewards.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#16
post #7

You hear this argument pretty often, but it's not true. Credit card companies do make a lot of money off of interest. But they also make a lot of money off of interchange fees. Businesses want wealthy customers because they spend more money, so they're willing to pay a higher interchange fee to access those customers. Higher interchange fees mean card companies can offer better rewards, which in turn attract more wea…

Businesses raise prices to cover the interchange fee, which impacts lower income consumers disproportionately.

That's completely arbitrary though. They could also increase prices without any interchange fee. If people are willing to pay, the price goes up.

Cost (of which the interchange fee is but one) only affects the lowest possible price. No one ever gets that price.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#17

I don't dis agree with anything the author is saying. But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit. That's the argument that banks raise every time and why interest rate caps always die in committee. If advocates want to team up with Dave Ramsay and say "that's rig…

> But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit. That's a good point, and of course there are downstream affects of this, but I wonder if that's a bad thing. We're not talking about reduction in ability to access say mortgage debt or something of that nature, we're…

What is this hypothetical tens of thousands of credit card debt made up of though? Yeah, some of it is going to be unnecessary luxuries, but some of it is going to be essentials like baby formula and groceries. Limiting how high the interest rate can be can only be a good thing. Usury is considered a crime in-and-of-itself in other countries.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#18

Earlier quoted context omitted.

Businesses raise prices to cover the interchange fee, which impacts lower income consumers disproportionately.

That's completely arbitrary though. They could also increase prices without any interchange fee. If people are willing to pay, the price goes up. Cost (of which the interchange fee is but one) only affects the lowest possible price. No one ever gets that price.

People wouldn't be willing to pay the extra amount if it was cheaper at the store across the street.

But the store across the street also has to pay the interchange fee, so they're not cheaper.

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#19

Pay in full customers can be profitable through interchange fees alone, so I don't really follow how it is a wealth transfer

Merchants almost never pass along interchange fees to the customer. Instead, it's built into the prices that every customer pays the merchant, regardless if the customer uses a credit card, which means everyone pays for credit card rewards.

Are you saying that in the US, there's no "credit card surcharge" line item near the bottom of your receipts to cover it?

Re: Credit Card Points Are a Transfer from the Broke to the Comfortable

#20
post #7

You hear this argument pretty often, but it's not true. Credit card companies do make a lot of money off of interest. But they also make a lot of money off of interchange fees. Businesses want wealthy customers because they spend more money, so they're willing to pay a higher interchange fee to access those customers. Higher interchange fees mean card companies can offer better rewards, which in turn attract more wea…

Businesses raise prices to cover the interchange fee, which impacts lower income consumers disproportionately.

Yes, there is something to be said for this argument. Debit card and cash users pay slightly higher prices than they might otherwise, which do subsidize the rewards of credit card users. But this is distinct from the argument presented in the article, which is that poor people's credit card debt funds rich people's airline miles.

But there factors that counteract this. Merchants pay different average fees depending on the mix of cards that they accept. A dollar store probably sees fewer Chase Sapphire Reserved or Amex Platinum cards than a Gucci store does. Accordingly, the average interchange fee they pay is probably lower. [0]

Also fee surcharging is becoming more common in the US these days, and is already common is some other countries. Visa et al. still don't allow merchants to pass on the actual interchange they'll pay, but merchants can charge a fee to credit card transactions that they don't on debit or cash.

But my original point is that giving rich people credit card rewards are not a transfer from the poor to the rich. It's a rational business decision by card companies that does not require any outside funding source, from poor people or otherwise, to make work financially.

0: There are some other factors that complicate this, such as the risk profile of the business. Riskier generally means higher fees.

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