[Way OT] New Visa credit card scam

It is and if it were really for nothing you'd be correct. They do, in fact, have to do something - settle the merchant account within 48 hours. The fact is that merchant fee only accounts are loss leaders and nobody would have them were it ot for the free cash flow they provide. When weighed against the internal rate if return on funds used, they negatively impact the bottom line.

85 percent of profits come from "revolvers" and the oher 15 percent from the services credit card issuers offer - including the sale of data to third parties.

JC

Prove it.

"The credit card industry really started to become profitable as a result of deregulation. The former governor of South Dakota, Bill Janklow, worked hard to deregulage the credit card industry in order to allow them to cheat the public. (Now you know why many credit card companies are based in South Dakota). In addition, the Supreme Court decision in the Smiley v. Citibank case. Their decision lifted fees on what credit card banks could charge. As a result, fees began to climb from a modest $5 to $10 to today's $29 to $39 fee for paying late or going over your credit limit. It is predicted that these fees will climb to $49 to $59 in the near future. This is not surprising, as these fees are the number one source of revenue for credit card banks, surpassing what they rake in each year in interest income."

And again here: "It didn't require a lot of investigation to see that the people who paid in full every month were not profitable,'' Mr. Kahr said in a rare interview with FRONTLINE. Armed with exotic formulas and scoring systems, Mr. Kahr and his colleagues mined the data in relentless pursuit of the most lucrative "revolvers'' -- consumers who routinely carried high balances, but were unlikely to default.

"I don't believe in customer irrationality," Mr. Kahr said. "I don't find psychographics useful. I follow financial behavior."

Prospecting for profitable cardholders became an industry-wide preoccupation as growth slowed after 1990. Soon enough, the major credit card companies were using credit scores and other financial data to develop ever more sophisticated pricing and credit strategies. Instead of extending a generic credit line or charging a uniform rate, they set rates and limits based on computer-driven assessments of each consumer's risk of default. The higher the risk, the higher the rate.

"There was an opportunity to be more selective, both from the standpoint of credit quality and the standpoint of profitability and therefore to be able to offer attractive terms to the customers who we wanted," Mr. Kahr said.

One of the most attractive terms to customers and banks alike, according to Mr. Kahr, are higher credit lines. So in another innovation, Mr. Kahr saw that credit lines could be increased by slashing the required minimum payment. This increased revenue in two ways. First, since it would take longer to pay off balances, each dollar of principal would generate more interest income. Second, the principal itself would be increased because cardholders would be able to take on more debt while maintaining the same monthly payments.

With minimum payments cut from five percent to two percent, for example, a credit card company could increase a credit line to $5,000 from $2,000 and yet charge the same $100 minimum payment.

Today, two percent is the standard minimum payment, a practice that critics say obscures the true cost of debt and keeps consumers dangerously leveraged. Average household credit card debt, they point out, has nearly tripled since 1990 -- from about $2500 to $7500. Mr. Kahr, though, argued that "it is very consumer friendly" to allow people breathing room if they have a difficult month. "That's very important,'' he said, "because when people get behind on their payments, unfortunately, it becomes harder and harder to catch up."

Again and again in the face of crisis, the credit card industry has managed to outflank critics, sidestep legal hurdles and find new sources of revenue. Profits continue to break records, even in a market that has been deemed "mature" for over a decade. Now, some industry analysts believe, the industry's fabulous growth may be approaching a point of diminishing returns.

In recent years, however, the credit card industry has found -- and aggressively exploited -- yet another rich vein of profits: penalty fees.As with interest rates, an obscure ruling by the U.S. Supreme Court, this one in 1996, cleared the way for higher fees.

None of this is a big secret you know Tim - except seeminly to people like you.....

Citi certainly gets it.

As the afternoon came to a close, I summarized my recommendations. The short version could be boiled down to a single, not very startling, idea: Stop lending money to families that are already in obvious financial trouble. This would have been quite easy to implement. Citibank had reams of data on most of its borrowers, particularly those who had black marks on their credit reports. I suggested that the policy could be put in place within a few short months, potentially cutting Citibank's bankruptcy-related losses by as much as 50 percent.

There were interested murmurs around the room, and several hands eagerly shot up. But before I could call on anyone, one slightly older man spoke up. He had been silent throughout the long day, leaning back in his chair and giving me a faintly bemused smile. "Professor Warren," he began. The room hushed immediately, and I suddenly realized that I had been oblivious to the corporate pecking order; this was the guy who outranked everyone else in the room. "We appreciate your presentation. We really do. But we have no interest in cutting back on our lending to these people. They are the ones who provide most of our profits." With that, he got up, and the meeting was over. I was ushered out, and I never heard from Citibank again -- except to get my monthly credit card bills.

Citibank understood the new economics of consumer credit. Credit card issuers make their profits from lending lots of money and charging hefty fees to families that are financially strapped. More than 75 percent of credit card profits come from people who make those low, minimum monthly payments. And who makes minimum monthly payments at 26 percent interest? Who pays late fees, overbalance charges, and cash advance premiums? Families that can barely make ends meet, households precariously balanced between financial survival and complete collapse. These are the families that are singled out by the lending industry, barraged with special offers, personalized advertisements, and home phone calls, all with one objective in mind: get them to borrow more money.

Please do your own research in the future.

JC

There ya go jon, if you can dazzle'm with brilliance, baffle'm with bullshit.

Your cut and paste fetish does nothing to PROVE that merchant fees are not very profitable for the services provided.

I'm be the first to agree, credit card companies are nothing more than financial predators that do everything they possibly can to victimize everyone they can. But that begins with robbing vendors of 2% of the top, just to accept their cards. They don't provide services at cost to anyone.

John R. Carroll wrote: (...)

From:

"In recent years, however, the credit card industry has found -- and aggressively exploited -- yet another rich vein of profits: penalty fees."

Ah! Smoking gun. So my credit card company can define 'customer misbehavior' to be anything they want, up to and including a mythical compromise of the customer's account by a "third party".

I don't know why that surprises me, given the self-serving delusions seen elsewhere in business and industry.

Thanks, John.

--Winston

Maybe you can provide proof, or substantiation of some kind, of *your* claim. Otherwise it is just an opinion. Bob

I thought that would be enough to make them happy with me, they seem to want more.

Wes

Jon is a nutcase on a.m.c. John is a pretty damn sharp guy of a liberal bent that is often found there also.

That two percent isn't enough for them. I have a feeling the cost of postage and printing a statement wipes out what they get out of me. I'm suprised they haven't forced paperless since that would reduce their costs closer to zero and make me semi profitable.

I suspect that if I bought everything on my credit card and then paid them off before the

25 days they would be happier than me. Sadly, billing cycles are monthly and interest kicks in after 25 days. Did I mention the game is rigged? You can't continually use a credit card w/o incurring interest charges. You have to stop 5-7 days before the end of a billing cycle to avoid them.

Wes

When the totals approach 2 billion, you're talking real money.

So don't use credit cards.......

On Mon, 06 Apr 2009 04:28:17 -0700, the infamous Winston scrawled the following:

reducing your fico

When I tore up all my credit cards a decade ago, I didn't think about what it would do to my score. All past good credit history was gone, so when I needed credit last year, I found that I had zip, zero, nada. It really caught me by surprise. My business (sole proprietorship) has gobs of credit since I had kept that one card. Go figure.

I then bought the truck, and now that I'm upta me arse in hock, I have great credit again. Go figure #2!

-- You can't do anything about the length of your life, but you _can_ do something about its width and depth. -- Evan Esar

(...)

Classical Catch-22.

Shoutout to J.C. Penney who started me on this ride with my first credit card, in 1974. (Used mostly at their *Gas Station*).

--Winston

They don't get any of it Wes. The clearinghouses do. Mastercard/Visa aren't issuers - they clear transactions for issuers. The issuers PAY for the branding..... It isn't exactly that simple, but almost.

JC

I called the number *on the back of my Master Card* this evening. Turns out I was talking to a third party processing center

I'm convinced I don't know jack about how all this works anymore.

Richard

Probably in India. Isn't it wonderful that your private financial information is at the fingertips of foriegn nationals beyond the reach of US laws or regulation?

JC

At the other end, I used cash advances many, many years ago to make payroll and buy materials. Now everything's been paid of for years and I have 30 or so Platinum cards at 0%. I never paid a dime interest, my bookkeeper constantly had to juggle the teaser rates. My idea is to max them all and disappear.

I've had great luck with low interest financing with cards as well. I currently have 17 cars with 170k in reserve. If you play the game right you can win. I have had my card up to as much as 75k, with fixed rates for the life of the balance averaging 4.7%. Did a lot of 0% stuff along the way while waiting better fixed offers. You have to pay close attention, but it can be done. Currently have it all paid down to about 29k with fix, life of the balance average of 4.1.

How much to you think it costs them to mail a statement and post a credit?

I'm real tempted to cash out, John.

somebody please remind me why I need a credit card???