I don't think Mr. Donovan has a firm grasp of the market forces driving the credit card business. If people are paying off their credit cards every month, the competition to a credit card issuer is not limited to other credit cards but to all other forms of payment: cash, check, ATM card, paypal etc.
By creating some sort of collusion where credit card issuers all charge a monthly maintainence fee, the other payment forms immediately rise in consumer value. The monthly maintainence fee idea would incent consumers NOT to use credit cards -- certainly a poor business idea.
Secondly, the average small business pays an average 3% in transaction fees to the credit card company for all credit card transactions. If I spend 50k in credit charges per year, I'm generating $1500 in revenue to the credit card company. This is revenue they put at risk by charging the customers a "maintainence fee". It makes no sense from a competitive standpoint to do it.
Finally, there is no clear business reason why having created a new source of revenue in charging maintainence fee the credit card companies would reduce the interest rates and penalties they charge. Its not as if a bank says to itself "look we made our revenue target for the year, lets return all the excess back to our customers".
Memory is a strange bell, jubilee and knell.
There is a minor fact that Mr. Donovan left out of his plea to Congress to please, please, please held the downtrodden credit card providers. This is the fact that, each time a consumer uses a piece of plastic, the credit card provider receives a service fee. I believe the fee ranges from 1 to 3 percent of the amount of the sale, but given the popularity of paying for everything with plastic, that's a hefty cushioning for the bottomline of Mastercard and Visa. And, if a debit card is used, the fee is generally higher (based on the premise that the amount of sale is automatically debited from a checking account and no real credit has been extended).
As to the notion that all of us should pay a single brown penny to help the credit card industry underwrite the losses they realize for their profligate extension of plastic to every sentient being on the planet, screw them. Their fault for extending credit to those they shouldn't and not my fault for their inability to collect on it.
I had experience with the phenomenon of "universal default" a few years back. I was trying to get a line of credit to help expand my business. Because the amount was large and I wasn't totally sure I would get it, I applied to a couple of banks. I eventually got the loan and the terms I was looking for. That was the upside. The downside was that my credit score ended up getting dinged due to "excessive recent activity" due to the applications. The downside was thus, rather than the 8 percent interest I was being charged on a couple of cards I had never been delinquent with, my APR shot up to 25 percent. A call to the bank confirmed the bit about universal default and resulted only in that I had to wait for six months before their internal audit process indicated that I wasn't a problem in the making. Luckily enough, I had sufficient funds elsewhere to pay them the hell off and never use them again.
Illegitimi non carborundum.
Say What? They want me to subsidize those who are irresponsible and/or corrupt? Hey I pay my credit card bills in full and get great credit as a result. I would totally terminate any credit card that would require me to pay for someone else's finance charges. Mr Donovan is crazy. Anything to make them credit card companies a profit, huh? What the hell?
I hope we don't see the day when we're at the store and the cashier informs us that pursuant to the "Cash Recovery Action Program (CRAP)", we have to pay a surcharge on purchases paid with cash instead of credit.
It's the end of the world as we know it, and I feel fine
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Re: What's next?
Mon Jan 29, 2007 at 10:36:59 AM EST
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I know you're just being funny (well, mostly just being funny -- I suppose we can all see a futute where credit cards try enforcing something like that), but... aside from the fact that they increase sales an average of 15-35% and cut down on the possibility of employee theft (from them, not you), merchants hate credit cards even more than you do. First the cards charge about $0.35 per transaction, then they take 1-5-4.5% of total sales depending on the merchants volume and negotiating skills/comparison shopping skills. I know, I know, cry them a river, they're the ones getting into bed with them -- but mom and pop still love cash, and not only because they can get away with not reporting 100% of the cash to the irs. Might corporate retail and service chains be incentivised to do something like that, though? Well, you already are required to use a credit card to secure a rental car or hotel.
(Although, I found out the hard way that some rental car chains will also take your home phone bill -- good to know!)
escalators never fail; they just become stairs
Well, there are plenty of credit cards that have annual fees for your right to carry around their stupid credit card. I mean, I'd never use one of those, but some people must, so I don't see how different this is.
