Credit card fees transfer wealth to rich, study finds

Source: Reuters

They found that about 83 percent of banks' revenue from credit card fees is obtained from cash payers "and disproportionately from low-income cash payers."

After accounting for rewards paid by banks, households who earn more than $150,000 annually receive a subsidy of $756 on average every year, while the households earning $20,000 or less pay $23.

Financial regulatory reform signed into law last week gives the Federal Reserve responsibility for regulating fees associated with debit, but not credit, cards.


Read more: http://www.reuters.com/article/idUSTRE66P50S20100726

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But we already knew this?

:eyes:

5% Balance Transfer fee. On a $20,000 limit card, that's $1000.

But it's ZERO PERCENT FOR A YEAR.

Jerks.

That's the new fine print. I get them in the mail every day too and it pisses me off since I have to go through and find what has my name on it to shred.

But there's no guarantee of the fixed 0% for even a month anymore--the rates where you could actually earn interest on what they loaned you. The fine print has changed and once someone transfers a hefty sum over they can jack it up for no reason at all.

Rates changes only apply to new balances. The exception is rate increase due to default.

"But there's no guarantee of the fixed 0% for even a month anymore"
Sorry but that is false.

and because I checked it out with a friend who was working on the actual bill who told me, yes, they can legally get away with it.

So, maybe this is a change scheduled to take place in the future?

Credit card companies can not retroactively change your rate (change rates on existing balances) without "cause".

Promotional rates (teaser rates) can/will revert to normal rates (retroactively) after listed period but must be at least 6 months and if offered longer can only be raised for cause prior to the end of the promotional period.

http://www.creditcards.com/credit-card-news/credit-card-law-interactive-1282.php

Some more provisions (penalties, interest rate reviews = lower interest rate after raising it) go into effect August 22, 2010.

I used to read the fine print of the 0% offerings for years, since like you I availed myself of them (though I only put them in checking, not CDs), and I noticed that the "reserve the right to change the rate at any time for any reason" or something to that effect was a new feature on offerings after around early November 2009. I wonder if they were trying to rope people into such agreements in advance of the Feb 2010 changes.

Why I didn't think this new sneakiness had changed was that the same language appears to be in the offers I'm getting now . . . that they can raise it for any reason even during the promotional period, which the offers used to never say (in the 90s and most of the aughties). I take it this is then governed by the new laws (described at the link you provided--thanks) and that they can't revoke it except for cause, even if their weird language implies they can.

I do appreciate the info. Happy to be wrong. . .

Sadly that was one of the biggest flaws of the bill is it gave CC companies so much time to get one last stab at the consumer before the financial cops started policing the block again.

how many are actually transferring that much anyway? Besides, you don't have to transfer anything, it's just an option when opening the card.

I carried that much, by shifting it around, for about 5 years without paying anything but a few transfer fees, which in the 90s was often capped at $75.

I would write a check to myself, put the money in CD and pay it back. :rofl:

Couple couple grand a year doing that before the higher fees, and lower CD rates made that impossible.

a balance ergo no charge for carrying a balance. People making less than $20000 would tend to carry a balance, therefore would have a charge.

So even people who carry balances are taking advantage of those who pay cash.

August 22.

And that's fine.

But what the OP is talking about is the freebies that are given to the rich. Guess who pays for that. Will that "change" on 8/22?

This transfer is not included. They would need to eliminate fees by merchants.

And that transfer of wealth will continue with virtually no effect on borrowers.

What does regulating credit card fees have to do with merchandise pricing?

Merchants have nothing to do with setting credit card fees and banks have nothing to do with merchandise pricing.

First 2 sentences of article make it much clearer.



Rewards cards = more people use CC for more purchases = higher merchant fees by store = higher prices passed on to consumer. Those without rewards card (low income, poor credit, and cash buyers) subsidize that cost.

can't even be aware of without having the big picture on the industry.

it's another stealth robbery. there are lots of them.

I'll be damned, I thought all those fees I've had to pay in the past went to charity.

:shrug:

that a household earning $20,000 could use a credit card for their $10,000 of non-rent purchases and if they a) get 1% cash back and b) pay the balance in full every month then they will gain $100 in rebates.

Everything on monthly budget goes on a single card. Gets paid in full each month. Get about 2% (in terms of points) towards our next cruise. Every 5 years or so get $1500 off a cruise. For doing nothing different than putting it on the card.

Gas, groceries, restaurants, cable bill, cellphone, vet bills, everything.

I don't make $150k per year, but I do make money on my credit cards.

I pay them off every month. I also direct almost all spending to my credit cards, even when I could pay with cash or check. It's not too hard to find cards that have no annual fees and pay you about 1% back.

I *hate* paying interest with a passion. Making money on my credit cards feels like I'm sticking it to the man.

I have a rewards program where I get a 1% reward on all charges I make on my Checking account Visa card.

I pull in about a grand a year. More than covers my bank fees.

pay the minimum or default.

So if they offer you 1% cashback and that makes you use the card more (which it has, card use for routine purchases has exploded) then they are making 2% on more and more transactions.

Even without interest it is a profitable game.

Charge a lot of interest, person pays the minimum each month for two years, card balance grows and grows until it maxes out, then files bankruptcy. CC company sells debt for cents on the dollar and racks up a large loss. High interest generates high revenue but also generates high writedowns, and capital losses.

Merchant fees are simply "free money". You buy $100 at Grocery store, the CC company gets $2. Chaching. $2 here, $0.50 there, $0.12 here, $7 there. It adds up to real money. Tens of billions of dollars. No risk, no real effort just a small cut off of everything.

Need to look it up. IIRC it was more to do with small purchases. $0.99 coffee and 7-11 costs 7-11 a LOT more than 2%. Merchant fees are usually something like $0.30 + 2%. Thus on $100 grocery bill the $0.30 is kinda negligble.

On $0.99 coffee that results in a $0.30 +$0.02 = $0.32 in fees. Ouch. I think the regulation dealt with alternate pricing for low price purchases.

On edit: at first glance looks like the bill on dealt only with debit card (not credit card) transaction fees.
http://www.businessweek.com/news/2010-05-14/senate-approves-debit-card-swipe-fee-limits-in-bill-update1-.html