topic Re: Credit Card Reform in Credit Cards

Credit Card Reform

Anonymous — Sat, 08 Aug 2009 19:33:17 GMT

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 19:47:58 GMT

It will be hard for the credit card companys to "feed" off a good customer,aside from a AF, if one can PIF.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 19:53:10 GMT

A good customer is subjective and defined by the bank. To a bank, a good customer may be the person with good income, not too far over extended, but extended enough to carry balances, pay interest while making payments on time.

The PIF customer may not be a "good customer" in that light.

Re: Credit Card Reform

cobaltnv — Sat, 08 Aug 2009 19:55:15 GMT

They may not be able to feed off us like they could off subprime borrowers. They can, as you mentioned, return to the use of AF. They can also restrict, remove, lower rewards benefits drastically. This would allow them to keep more of the merchant fees themselves instead of give some back to the costumer.

@Anonymous wrote:
It will be hard for the credit card companys to "feed" off a good customer,aside from a AF, if one can PIF.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 19:58:54 GMT

What I guess I was saying is that PIF customers may once again become the "Dead Beat" Customers in bank lingo.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 20:02:28 GMT

Agreed...however, they will still make money on the transaction itself which may be significant based on the amount one charges each month on their card. If one PIFs what other motivation would a CC company have to even allow you to keep the card? I am no expert in banking...just asking

Message Edited by plasticman on 08-08-2009 01:02 PM

Re: Credit Card Reform

smallfry — Sat, 08 Aug 2009 20:04:08 GMT

Merchant fees generated by strong customers is free money.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 20:04:42 GMT

Yes, we may see some, many or all of the following:

1. Increased occurence of AF

2. Lowered rewards

3. Increased Merchant Fees (means increased product/service cost)

4. Increased APR's

5. Tighter credit qualifications (lower risk credit extension)

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 20:06:11 GMT

A good customer to me is defined as, people who are solely responsible for their actions for their credit card accounts and pay their bills on time. The customers are responsible for their own credit card bills according to their credit card terms of agreement, regardless of what they do for a living or how much income they earn. They are RESPONSIBLE FOR THEMSELF to live within their means not beyond their wallet. Live within your means and control your spending. That is a good customer. There is a saying "Know other is wise, Know yourself is Intelligent"..Be intelligent and learn more about yourself.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 20:08:46 GMT

In the context of the OP, good customer was related to how a CCC or bank would view the situation, which will be profit based.

Profit comes from

Merchant Fees

Interest

Interest doesn't apply to PIF customers. In addition, PIF customers will tend to stay away from AF cards most likely. This means that PIF customers have removed 2/3 of the profit pie. Thus, to a bank, PIF may not be a good customer, just a low risk customer.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 20:16:19 GMT

Maybe I am stll missing something here...what are the typical transaction fee percentages a bank enjoys?

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 20:26:53 GMT

It varies by card type (issuer) and card type (reward/non-reward) and card type (credit or debit)? How's that for clear.

My merchant fee schedule (from BoA) is long and complicated. Rates can be as low as 1% and as high as 3% for Visa/MC.

Debit cards may be just a transaction fee whereas credit is percentage, fluctuating by the card type.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 20:31:34 GMT

@Anonymous wrote:
In the context of the OP, good customer was related to how a CCC or bank would view the situation, which will be profit based.

Profit comes from

AF
Merchant Fees
Interest

Interest doesn't apply to PIF customers. In addition, PIF customers will tend to stay away from AF cards most likely. This means that PIF customers have removed 2/3 of the profit pie. Thus, to a bank, PIF may not be a good customer, just a low risk customer.

txjohn, I now see your point. PIFers may just be "less good" a customer to a bank. Similiar to the economy 'less bad" now than it was.

Re: Credit Card Reform

smallfry — Sat, 08 Aug 2009 20:59:21 GMT

@smallfry wrote:
Merchant fees generated by strong customers is free money.

Free as in it costs them nothing. 12 months a year. Do the math they are making a fortune on good customers.

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 21:13:29 GMT

@smallfry wrote:
@smallfry wrote:
Merchant fees generated by strong customers is free money.
Free as in it costs them nothing. 12 months a year. Do the math they are making a fortune on good customers.

I did a little on my own transactions and while not significant unto itself, it must be siginificant over all customers who PIF to a bank. Very low risk money they would be remiss to pass up.

Anyone want to start a credit card issusance business for FICO high acheivers who always PIF? LOL

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 21:44:46 GMT

Merchant fees are profitable. But they don't always account for the "VOLUME" of money that a bank would like to place. For the volume, CCC's rely on larger purchases which would most likely not be PIF.

Merchant fees are profitable, but when they have more money than PIF borrowing pulls, they like to put money into other profit centers as well.

When you consider VOLUME of dollars with interest vs. volume of dollars PIF, the interest is a bigger income center. The reason is that PIF requires spending within means, while interest income can represent much more than actual income through the debt on more extended terms.

Thus, a borrower who has good credit and income and pays on time collectively pays the banks more than merchant fees when you consider the collective values and long term. Risk is the variable which they must balance on the credit side.

Message Edited by txjohn on 08-08-2009 02:44 PM

Re: Credit Card Reform

Anonymous — Sat, 08 Aug 2009 21:45:21 GMT

Re: Credit Card Reform

Anonymous — Sun, 09 Aug 2009 00:07:39 GMT

@Anonymous wrote:
Yes, we may see some, many or all of the following:

1. Increased occurence of AF
2. Lowered rewards
3. Increased Merchant Fees (means increased product/service cost)
4. Increased APR's
5. Tighter credit qualifications (lower risk credit extension)

1) Not very likely. The money center banks can try it if they like. All they are likely to achieve is a mass exodus away from them. If they do it in unison they face sanctions for anticompetitive actions. AF's are a good policy to adopt if attriting accounts is a goal. (A la Citi this week.)

2) Quite possibly.

3) Not likely. Very hard to justify and won't last long if tried.

4) Once again there is a competition factor. A good policy to adopt if exposure reduction is a goal, a la Chase. In the long run this could also lead to account attrition - fewer new accounts replacing the old accounts that fall off.

5) Most likely! First of all this actually conforms with public policy goals. The Credit CARD Act of 2009 requires issuers to consider ability to repay when making credit decisions. That alone could lead to a lessening of credit. Futhermore, many issuers are driven by the need to clean up their financials to lower exposure.

I have said all along that people who are at the higher end of the credit spectrum will barely be effected. They will still be able to readily get copious amounts of unsecured credit. The major effect on the upper end will be increased APR's and decreased CL's. Both are coming anyway and at least the upper end will still have access to credit. The lower end, however, is going to find it very hard to get unsecured credit. The bar for an approval is going to be slid up, leaving many with no access. For those who can be approved ability to repay considerations are going to lower the CL's they will be approved for. Not a pretty picture.

Now if I were a CC issuer, first thing I would do is adjust the APR's while I still can do it easily, wring cash out of those who will pay up and finance charges from those who can not. Once that stabilizes and it is harder for cardholders to jump ship I would come back with a wave of CL reductions to clean up the balance sheet.

I do see a period of poorer to nonexistent intro offers coming, making it even easier to hold on to the cardholder base. And I do see holding on to the base (or at least that part of it deemed worthy of being held on to) as crucial. Nowhere in the above list of five do I see any mention of cost reductions. CCC's have tremendous marketing budgets. I see retention (perhaps even coercive retention achieved through decreased mobility) as very important and a deemphasis of marketing campaigns. You don't need intro offers to retain. You need APR promo's. APR promo's will be the "give away" starting very soon. (I personally have already received a handsome one from HSBC.)

CCC's can and will make money. They don't make money by pinching off their business totally, but they do need to manage what they have more carefully. Once they get past the challenge imposed on them by a bad economy they will be just fine. The current CC problems are mostly brought about by the poor economy making it impossible to bury a bunch of bad business decisions. The Credit CARD Act of 2009 is just an excuse and nothing more. Change was coming anyway - it's a good thing the CARD Act is in place to channel the flow.

Re: Credit Card Reform

wmarat — Mon, 10 Aug 2009 03:20:18 GMT

I think that a show has begun.

CitiBank applies ANNUAL FEE to Diamond Preferred card. It is very likely to assume that the reason is a new law.

Re: Credit Card Reform

Anonymous — Mon, 10 Aug 2009 03:31:02 GMT

The fee was applied to some (500k) cards with Thank You points. It is not applied to regular Diamond Preferred non-rewards cards at all,