Originally Posted By SingleParkPassholder "I quite clearly included this, so you must not have read what I wrote very carefully. For someone that pays no interest, that's the ONLY source of income the bank has from that customer, and for the category of customer talked about in the article, it's less than $2/month." Well, I guess I still am not clear. For example, I remember as far back as the late 70's/early 80's many retailers were very reluctant to accept American Express as they would charge the retailer a certain percentage of each sale where their card was used, higher than say Mastercard or Visa. Retailers weren't making as much money on an Amex sale as they would on a Visa sale. This fee had nothing to do with the card holder, it was a transaction between Amex or Visa and the retailer. If the cadholder pais off their balance every month, Amex, Visa or whoever still made money.
Originally Posted By SuperDry ^^^ That's exactly what I'm talking about. It's called the "discount rate." For Visa/MasterCard, it might be on the order of 2-3% for many merchants. Let's say it's 2.5% in a particular instance. For every $100 charged by a customer at that merchant, the merchant's bank keeps 2.5% in "discount" and pays the merchant $97.50. But consider that it's unlikely that the bank that issued the card to the customer is the same one that the merchant is using. There is a standard way that transactions are settled between banks in the Visa/MC systems. For standard cards, the bank that issues the card to the customer gets 1% of each transaction, and the bank that provides merchant services to the merchant gets the rest (which in this case would be the other 1.5% of the discount). So, in the case of what Citibank has suggested they might do, they want to charge an annual fee for customers that don't charge at least $2400 per year, which on a monthly basis is $200 of charges. That's where my $2/month gross comes from: If a Citibank Visa/MC customer charges $200/month, Citi gets $2 out the merchant fees for those transactions. For customers that always pay their accounts in full, that's the only source of revenue the bank has, and out of that $2/month, they have to mail statements, process payments, provide customer service, mail out renewal/replacement cards, pay for the float for 25-55 days on each transaction, and take credit risk. I'm not trying to make you feel sorry for the bank. At the same time, I can readily see how such a customer is not profitable, and I can understand why the bank would want to change that. And if all such customers decided to take their business elsewhere, that would probably be fine with the bank.
Originally Posted By Mr X ***For customers that always pay their accounts in full, that's the only source of revenue the bank has, and out of that $2/month, they have to mail statements, process payments, provide customer service, mail out renewal/replacement cards, pay for the float for 25-55 days on each transaction, and take credit risk*** And for every customer who charges so little and pays it off promptly, I'd bet they've got five chumps carrying around an enormous balance paying obscene interest rates the bank is happily raking in. Frankly, it's pretty obnoxious for them to be bitching about those customers from whom they don't make much profit considering the overall scam credit cards represent on the unfortunate debtor generally speaking.
Originally Posted By SuperDry <<< And for every customer who charges so little and pays it off promptly, I'd bet they've got five chumps carrying around an enormous balance paying obscene interest rates the bank is happily raking in. >>> You're right - that's the way it works now. But recent legislation is going to reign in much of the abuses, such as: - Not permitting an overlimit service charge if the bank authorizes overlimit charges unless the customer opts in to this. - Getting rid of "universal default" where they can jack your interest rate up even though you're current on that account just because you were late on a different account at a different bank. - Prohibiting changes to the "fixed rate" on existing balances without just cause. - In the case where you do lose a preferred rate because you were late, they will now have to reinstate the prior rate once you become current and pay on time for 6 months. All of those are good things in my opinion. The banks used each of those things as land mines of sorts to make extra money off of people in unfortunate circumstances. Now that those profit centers are being taken away, things are going to return to being much more transparent. So, for the set of customers that charge less than $2400/year and always pay in time and might cost the bank $20/year to maintain the account, instead of the bank being able to make $400 in interest and fees off of the 5% of those customers that eventually run into problems, they'll instead charge $20 up front to each customer. And I think that anything that moves the prices charged by banks closer to the costs they incur is a good thing.
Originally Posted By Mr X ***- Getting rid of "universal default" where they can jack your interest rate up even though you're current on that account just because you were late on a different account at a different bank.*** I had no idea that even existed!
Originally Posted By SuperDry <<< I had no idea that even existed! >>> Yep. Actually, most people didn't know about it until they ran into it themselves. And, "default" rates could be devastating, often around 28-33% on accounts that had been 8-15%. If you had borrowed a lot but thought you had budgeted properly based on the payments you could afford, your situation could change drastically if you let a single payment go more than 30 days past due. And the banks relied on this happening to a certain amount of customers.
Originally Posted By SingleParkPassholder <a href="http://www.latimes.com/business/la-fi-lazarus25-2009oct25,0,2969946,full.column" target="_blank">http://www.latimes.com/busines...l.column</a> "Ed Myska works as executive vice president of El Segundo's Bank of Manhattan, so it's pretty fair to say that he knows a thing or two about keeping his financial house in order. Yet he was among numerous people who have been notified by Citibank in recent days that the interest rate on their credit cards is soaring to almost 30%. Letters being mailed out by Citi say only that the rate increase will allow the company "to continue to provide our customers with access to credit." Myska told me he seldom carries a balance for more than a couple of months and never misses a payment. He now plans to burn off the mileage accumulated on his plastic and then switch to another card." "Take the case of Sherman Oaks resident Sylvia Weishaus, who received word from JPMorgan Chase & Co. recently that the United Mileage credit card she'd carried for more than 25 years was being canceled. The reason, according to Chase, was that Weishaus had too much debt on too many credit cards. In fact, her credit report shows that she had seven active cards at the time Chase decided to play rough, with a combined balance of less than $7,000. "I don't know what to make of it," Weishaus told me. "I can't figure it out."
Originally Posted By andyll <<< I had no idea that even existed! >>> If you had borrowed a lot but thought you had budgeted properly based on the payments you could afford, your situation could change drastically if you let a single payment go more than 30 days past due. And the banks relied on this happening to a certain amount of customers. --------------- It's worst then that. It's based on FICO. If your FICO goes down they can change you to the default rate. I had 2 Gas CCs expire because of non-use and my FICO changes and both BOA and Chase did that to me.
Originally Posted By mawnck >>Beware of the ones that try to establish a membership based on a "community" affiliation or broader definition for their members. << Don't rule them out though. Ask around. Personally, I've been quite happy at the Orange County Credit Union, having several years ago bailed on a work-based CU who was "disappointing" me with too many errors on my transactions. >>many retailers were very reluctant to accept American Express as they would charge the retailer a [higher] percentage of each sale<< Still true.
