more "unintended consequences"; credit card fee's

[ExiledInIllinois]

Close, but not *quite* right... Banks earn more 'interchange fees' on a credit transaction than on a debit transaction. They charged you that $.25 to 'encourage' you to use the credit network (and thus the highter interchange rate) vs. the debit network.

 

It's pretty complicated, but basically it comes down to this: Credit transactions are more risky than debit transactions and so banks are compensated for the elevated risk levels.

 

Thanks!

 

EDIT: Yet, the merchant makes it hard to find the credit network... Usually one has to press cancel and then the credit button comes up. What gives with that? The bank wants you to use credit and the merchant makes it easier to use debit. ??

[jjamie12]

Thanks!

 

EDIT: Yet, the merchant makes it hard to find the credit network... Usually one has to press cancel and then the credit button comes up. What gives with that? The bank wants you to use credit and the merchant makes it easier to use debit. ??

That's exactly right!

 

The 'Interchange Fee' is the fee that the banks collect, but it comes directly out of the merchant's pocket. For example: In a credit transaction for $100, the merchant will receive $98.50. The rest of that $100 ($1.50) gets split up between the acqiring and issuing banks... (acquiring bank is the merchant's bank, issuing is the credit card issuer).

 

In a debit transaction, the merchant might receive $99, for example, rather than the $98.50, so they go out of their way to make it a debit transaction.

[ExiledInIllinois]

That's exactly right!

 

The 'Interchange Fee' is the fee that the banks collect, but it comes directly out of the merchant's pocket. For example: In a credit transaction for $100, the merchant will receive $98.50. The rest of that $100 ($1.50) gets split up between the acqiring and issuing banks... (acquiring bank is the merchant's bank, issuing is the credit card issuer).

 

In a debit transaction, the merchant might receive $99, for example, rather than the $98.50, so they go out of their way to make it a debit transaction.

 

Isn't there a fatal conflict here between the banks and the merchants? One is pulling when the other is pushing. Something has to give... No?

[Peevo]

I'm honestly confused at the system itself.

 

I'm 23, and have 0 credit. 0 debt, but that's just as bad isn't it? My parents luckily helped me and my brother out with college. They didn't want me drowning in debt at an early age.

 

But honestly, I pay all my bills with real money. Cash money right out of my checking account, I pay everything with it. Is that so bad?

 

What's wrong with buy now, pay now? Isn't the whole "buy now, pay later," system part of what brought our whole system down in the first place? People don't pay their bills on time. Not that that's ok, but its how it is.

 

I fail to understand the necessity of the credit system in this country. It seems self-conflicted and dangerous. Credit card companies don't make money if people play all their bills on time, compound interest, right? Isn't in their best interest to have people accrue interest and keep paying on it for as long as possible?

 

I realize this is slightly off topic, but I would love for someone to explain how a young person can build safe, responsible credit. A bank is NOT going to issue me a low limit, low interest card. Something that can be paid off easily. What should I do? I'm only getting older.

[Magox]

I'm honestly confused at the system itself.

 

I'm 23, and have 0 credit. 0 debt, but that's just as bad isn't it? My parents luckily helped me and my brother out with college. They didn't want me drowning in debt at an early age.

 

But honestly, I pay all my bills with real money. Cash money right out of my checking account, I pay everything with it. Is that so bad?

 

What's wrong with buy now, pay now? Isn't the whole "buy now, pay later," system part of what brought our whole system down in the first place? People don't pay their bills on time. Not that that's ok, but its how it is.

 

I fail to understand the necessity of the credit system in this country. It seems self-conflicted and dangerous. Credit card companies don't make money if people play all their bills on time, compound interest, right? Isn't in their best interest to have people accrue interest and keep paying on it for as long as possible?

 

I realize this is slightly off topic, but I would love for someone to explain how a young person can build safe, responsible credit. A bank is NOT going to issue me a low limit, low interest card. Something that can be paid off easily. What should I do? I'm only getting older.

It's a double-edged sword. Credit can be a good thing, if managed correctly. The problem is that most people overindulge and live outside of their means, and as long as the economy is trucking along, then creditors are more than happy to extend that credit while reaping the rewards of high interest rates. Now, it looks as if we will be forced to live with less credit for quite some time, and that is a good thing, but at the same time it's not, the hangover effect on our economy is great, it is the deleveraging process that we constantly hear about, meaning our economy is structured as a consumer nation with an abundance of credit, as credit diminishes, so does our economy along with jobs.

 

In short, the deleveraging process is a painful one, and no matter how much keynesian stimulus is added to the economy, it still won't permanently fill the void of the loss of confidence, capital destruction and credit that the banks have been offering us for many many years.

 

The excesses of our economy over the last couple decades are now coming home to roost.

[ExiledInIllinois]

The excesses of our economy over the last couple decades are now coming home to roost.

Rev. Wright wants his tagline back!

 

Anyway... How do you fight human nature to want "more" Especially when they seem to be "falling behind" (jobs overseas, less pay, etc... etc...)

[bartshan-83]

I realize this is slightly off topic, but I would love for someone to explain how a young person can build safe, responsible credit. A bank is NOT going to issue me a low limit, low interest card. Something that can be paid off easily. What should I do? I'm only getting older.

What do you mean a "low limit low interest card?" Credit cards don't require minimum balances; you always have the right to pay off the entire balance each month so you don't accrue any interest.

 

The best way to establish credit would be to apply for a card with no annual fee and simply use it regularly and pay off the entire balance each month. If you're leery, just use it for something small and simple like buying gas each month. As long as you budget the cash you would have used to pay it off, you will incur no interest charges and it will simply feel like a debit card. Meanwhile, a steady history of even minor transactions and on-time payments each month will build your credit rating. It will take a long time, but it's the first step.

[ExiledInIllinois]

What did our parents do prior to the 1960's? That is what we do.

[Fezmid]

I'm honestly confused at the system itself.

 

I'm 23, and have 0 credit. 0 debt, but that's just as bad isn't it? My parents luckily helped me and my brother out with college. They didn't want me drowning in debt at an early age.

 

But honestly, I pay all my bills with real money. Cash money right out of my checking account, I pay everything with it. Is that so bad?

 

What's wrong with buy now, pay now? Isn't the whole "buy now, pay later," system part of what brought our whole system down in the first place? People don't pay their bills on time. Not that that's ok, but its how it is.

 

I fail to understand the necessity of the credit system in this country. It seems self-conflicted and dangerous. Credit card companies don't make money if people play all their bills on time, compound interest, right? Isn't in their best interest to have people accrue interest and keep paying on it for as long as possible?

 

I realize this is slightly off topic, but I would love for someone to explain how a young person can build safe, responsible credit. A bank is NOT going to issue me a low limit, low interest card. Something that can be paid off easily. What should I do? I'm only getting older.

First, here's a link with information about how to improve your credit score. Since FICO is the one who makes 99% of the credit scores that the banks use, they know what they're talking about.

 

http://www.myfico.com/CreditEducation/

 

Also, you state that credit card companies do not make money if people pay off their balance every month. That is actually not true -- they make money with every purchase you make. Read through this thread, there are some examples on how that works. Yes, they make more money when you carry a balance, but it's not required.

 

I actually pay off my credit cards every month, and I have a really low interest rate - 8% or so.

[jjamie12]

Isn't there a fatal conflict here between the banks and the merchants? One is pulling when the other is pushing. Something has to give... No?

Well... Yes, merchants want you to use debit, and banks want you to use credit, but that is really only on the margins.

 

Let's look at this a different way by detailing the benefits to the merchants of the network payments system:

 

1- Cash right away. No waiting for checks to clear.

2- No fraud risk on the merchant side: You don't have to worry about the $100 bill or the check being counterfeit.

3- All the research that shows that consumers tend to spend more on their card than they do when they're using cash... this one is pretty obvious if you think about it.

 

Because Visa / Mastercard / Discover all created these networks to use for payments merchants benefited greatly in the afermentioned ways. All of that infrastructure costs money (and so the network providers need to be paid), and fraudulent activity also costs $ (and so the banks need to be paid for that risk). What the Durbin amendment did was, quite literally, transfer wealth from banks to merchants.

[Magox]

What the Durbin amendment did was, quite literally, transfer wealth from banks to merchants.

Which will be subsidized by consumers through new banking fee's.

[jjamie12]

But honestly, I pay all my bills with real money. Cash money right out of my checking account, I pay everything with it. Is that so bad?

 

Well... again, it's complicated: Is it *bad* to do that? Not necessarily, but you might find it pretty difficult to pay for a car or a house with cash, right?

 

You'll find it exceedingly difficult to make those purchases without some type of activity in your credit file. Would you lend to someone who has never paid a debt before in their life?

[jjamie12]

Which will be subsidized by consumers through new banking fee's.

Abso-100%-freakin-lutely.

 

There is no question about this.

 

There are any number of examples around the world where government has come in, regulated these fees (obviously always lower) and there is no proof of merchants lowering their prices at all.

 

Which, if that was all there was, you might say: "Screw those banks anyway, they deserve it."

 

Of course, we all know that won't happen.

 

Checks will stop being free. Checking accounts will gradually have fees associated with them. Debit cards will have annual fees, etc...

 

In reality, consumers will be paying fees so that Wal-Mart and Target show a much bigger bottom line. Everyone should remember to thank Senator Dick Durbin for this.

[ExiledInIllinois]

Which will be subsidized by consumers through new banking fee's.

 

Can't they put the clamp down on those too?

[Magox]

Abso-100%-freakin-lutely.

 

There is no question about this.

 

There are any number of examples around the world where government has come in, regulated these fees (obviously always lower) and there is no proof of merchants lowering their prices at all.

 

Which, if that was all there was, you might say: "Screw those banks anyway, they deserve it."

 

Of course, we all know that won't happen.

 

Checks will stop being free. Checking accounts will gradually have fees associated with them. Debit cards will have annual fees, etc...

 

In reality, consumers will be paying fees so that Wal-Mart and Target show a much bigger bottom line. Everyone should remember to thank Senator Dick Durbin for this.

It's already beginning

 

http://www.americanbanker.com/issues/175_1...-1022290-1.html

 

Bank of America Corp. is charging some customers to receive their monthly statement in the mail, the industry's most aggressive move yet to encourage paperless banking.

 

For now, the $8.95 monthly fee applies to just one type of account, and only in Georgia. But B of A plans to roll out the product in other markets soon as a replacement for its popular student checking account, which has no monthly fees when opened online.

 

With overdraft fees and interchange from debit cards under fire, financial companies are eager to find new sources of recurring revenue.

 

So what our elected geniuses will propose to lash back at these "surprising, unexpected" fee's, is to punish them with a bank tax.

 

That will show'em.

 

Of course, this bank tax then will be once again subsidized by who?

 

 

That's right

 

 

 

I always said, if you take away a revenue stream from a company, they will always try to make it up from somewhere else.

[ExiledInIllinois]

Abso-100%-freakin-lutely.

 

There is no question about this.

 

There are any number of examples around the world where government has come in, regulated these fees (obviously always lower) and there is no proof of merchants lowering their prices at all.

 

Which, if that was all there was, you might say: "Screw those banks anyway, they deserve it."

 

Of course, we all know that won't happen.

 

Checks will stop being free. Checking accounts will gradually have fees associated with them. Debit cards will have annual fees, etc...

 

 

In reality, consumers will be paying fees so that Wal-Mart and Target show a much bigger bottom line. Everyone should remember to thank Senator Dick Durbin for this.

 

Thanks! Then it is back to using cash straight up?

[Magox]

Thanks! Then it is back to using cash straight up?

Awesome! I guess one could argue that the Progressive movement, is actually Regressive.

 

[ExiledInIllinois]

Awesome! I guess one could argue that the Progressive movement, is actually Regressive.

 

 

Now that they got people hooked on convienence... You think people will change?

[jjamie12]

Thanks! Then it is back to using cash straight up?

I don't know... that's the real question, I suppose. Would you pay (for example) $50/year to be able to use a debit card? I suppose the reality is that if enough people say 'no', the option won't even exist. Governments and people forget that they're being provided a service here. Now, it's been profitable enough in the past for customers to get used to the 'no-fee' (insert type of account here), but we're quickly coming to the point where, because of political expediency (it's easy to paint banks as 'evil' right now) where certain things we've taken for granted won't be a) available or b)free anymore.

 

And maybe that's good... although I can't think of a single reason why.

[ExiledInIllinois]

I don't know... that's the real question, I suppose. Would you pay (for example) $50/year to be able to use a debit card? I suppose the reality is that if enough people say 'no', the option won't even exist. Governments and people forget that they're being provided a service here. Now, it's been profitable enough in the past for customers to get used to the 'no-fee' (insert type of account here), but we're quickly coming to the point where, because of political expediency (it's easy to paint banks as 'evil' right now) where certain things we've taken for granted won't be a) available or b)free anymore.

 

And maybe that's good... although I can't think of a single reason why.

 

I know it is a service... But it (debit) still has to be the cheapest way to conduct business and they still charge fees! Think of the hassle of handling cash.