Yesterday’s New York Times covers changes to credit cards. They spoke with David Robertson, publisher of the Nilson Report, which tracks the credit card business.
Robertston lays it on thick:
People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee even as they collect points for air travel and other perks.
He’s claiming I’m getting a free ride. As if the poor credit card companies somehow aren’t making money off me because I pay my bills in full. This is, of course, complete crap.
Suppose I spend $10,000 and my average transaction is $25. That means I’ve made 400 transactions. First, American Express makes 25-50 cents per transaction. Next, AmEx’s discount rate is just above 2.5%. Adding it up, they have $256 from their discount rate + $175 in transaction fees. So AmEx has made $431. That’s not bad for sitting on their butts.
The Times ends by talking to a more sensible voice:
Austan Goolsbee, an economic adviser to President Obama, said that while the credit card industry had the right to make a reasonable profit as long as its contracts were in plain language and rule-breakers were held accountable, its current practices were akin to “a series of carjackings.â€
“The card industry is giving the argument that if you didn’t want to be carjacked, why weren’t you locking your doors or taking a different road?†Mr. Goolsbee said.
We saw a Frontline that showed just how evil credit card companies are.
Since then we’ve been trying to minimize our usage, paying with cash or cheque where possible.
That’s a bad idea. (Do you think the banks are somehow betters?)
With checks and cash you have no proof of payment and no way of getting your money back if something goes wrong.
My CC extends warranties, covers theft and damaged, handles merchant disputes and gives me cash back.
Just don’t carry a balance.