A couple of weeks ago Bank of America announced that it would not raise interest rates in response to the new regulations imposed by the CARD Act. At the time I didn’t understand how Bank of America could apparently repeal the laws of supply and demand when no one else could. Now I understand–yesterday B of A announced that it was going to impose annual fees on some of its cardholders, particularly targeting those who do not revolve balances or pay penalty fees.
As I noted a few weeks back, annual fees are a particularly pernicious form of term repricing by credit card issuers because they deter card-switching and the holding of multiple cards by consumers. As a result they have a hugely detrimental negative effect on competition.
To make matters worse, Congress apparently is considering imposing new regulations on interchange fees, which today is the primary way in which card issuers recoup the costs of serving transactional users. If Congress does this, then this will accelerate the trend toward reimposing annual fees–and further exacerbate the negative impact on competition and consumer choice.
troll_dc2 says:
I use my debit card for most things, but for online transactions and in circumstances in which one hands the card to someone who takes it to a place where I cannot see what is going on (such as in a restaurant), it is safer to use a credit card; the money at risk is the credit card company’s and not mine.
Fortunately, I have only one card. Maybe the answer is to carry a balance of a dollar or so; the interest on that will be less than the annual fee.
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October 20, 2009, 11:11 amPatHMV says:
I just don’t see the anti-competitive nature of requiring that people who use a service actually, you know, pay for that service themselves, rather than free-ride on payment mostly made by other customers.
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October 20, 2009, 11:13 amtroll_dc2 says:
I am into saving money, and one of my mantras is to live a life with the minimum possible overhead. So while you can be on the side of the charge-imposers, I have a right under our market economy to be a charge-avoider to the maximum extent possible.
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October 20, 2009, 11:17 amAllan says:
Wait a second. If it costs a business money to offer a service, why should they not charge for it? Those of us who have credit cards and carry no balance and incur no fees have been free riders, for the most part.
The cost to us is 0. The transaction fees come from retailers (who would make 2% more, or so, if everyone paid cash, but would likely make fewer sales if they did not accept credit cards). And the remainder of the cost is borne by those who carry a balance or pay penalties.
IMHO, the transaction fees are unfair to retailers. But, apparently, Todd, who is in the ivory tower does not really care about that.
Interchange fees are not a bad idea. What is a bad idea is the way credit card companies, i.e., visa and mastercard, charge the fees. Retailers, for the most part, cannot negotiate them.
I tell you what I would go for. Allow credit cards to make a profit, but regulate their conduct. In other words, make them a utility. Outside of that, take away their monopoly power.
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October 20, 2009, 11:24 amPatHMV says:
I never said otherwise, troll_dc2. I just don’t think the shift to requiring you to pay is actually anti-competitive. If you can find a business which is happy to subsidize the costs you incur for them with funds paid by their other customers, more power to you.
Better still than an annual fee would probably be a transactional fee which is clearly assessed against the card customer, rather than (is is currently the case) hidden in the overall price of the products which the card customer purchases from vendors. This would allow consumers to actually comparison shop for the card which carries the ACTUAL lowest costs, rather than the card that manages to bury the highest costs in the merchant interchange fees.
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October 20, 2009, 11:26 amPatHMV says:
Todd, you don’t think that at least a few card issuers will decide that, in lieu of an annual fee, they will simply add on a small fee (imposed on the customer, not the interchange fee) on each charge made, so that the fees you pay are based on how much you use the card? We have pay-as-you-go cell phone service, so I don’t see why nobody is likely to provide pay-as-you-go credit access, essentially. If you don’t want to actually pay interest on your credit card accounts, you can simply pay, per transaction, for the privilege of doing so. It could be small, like $0.10 or $0.20 per transaction. As a competitive marketing tool, cards could also cap the per-transaction fee at, say, $3 or $4 per month. The marketing would be something like “the less you use it, the less you pay!” If consumers really dislike annual fees as much as you say they do, then such a marketing tactic should be quite successful.
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October 20, 2009, 11:36 amJohn Thacker says:
Consumers dislike annual fees. But evidence in many fields shows that they really dislike paying per-minute or per-GB or per-transaction. People on general would rather pay for all-you-can-eat on those sorts of things.
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October 20, 2009, 11:40 amtroll_dc2 says:
As a matter of economics, you are right on, I suspect. But as a matter of psychology, the broken-out charge might deter some people from using their card. For example, when I am given a choice of paying by check or by card, I opt for the check when I am advised that there will be a fee for using the card. I just do not like to give people money without getting anything in return.
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October 20, 2009, 11:41 amJohn Thacker says:
Why would that be better? I know that Discover (and AmEx) charge higher transactional fees. That’s why fewer merchants accept them. That’s also why Discover has traditionally been able to provide larger benefits. However, since merchants don’t pass along the transactional fee, I’m better off with Discover than I would be if the merchants passed along their higher fee.
Merchants are now currently free to charge more for credit. Many gas stations used to; some still do. Most found that credit sales led to larger purchases, and charging for credit wasn’t worth it because it drove business away towards those that didn’t charge for it.
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October 20, 2009, 11:42 amOren says:
They are forbidden from doing so by the VISA and MC merchant agreements.
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October 20, 2009, 11:52 amDavid Welker says:
Zywicki:
If credit card companies have more difficulty arbitrarily jacking up interest rates, there is much less need for people to make card companies compete by constantly shifting balances from one card to another. Instead, competition will occur when people are selecting cards.
For real human beings, this is a dangerous game anyway, because with so many cards consumers often have a very large credit line and associated temptations to spend beyond their means.
Your defense of interchange fees is ridiculous. These fees are far from a free lunch for consumers. Merchants have to adjust their prices upwards for BOTH credit card customers and non-credit card customers to take into account these fees. So, you have a ridiculous situation where cash customers are subsidizing credit card customers. This acts just like a tax, with an associated deadweight loss to society. Even more perniciously, these interchange fees are totally invisible to credit card customers.
A yearly fee or higher interest rate is MUCH preferable to interchange fees, excessive overdraft fees, or sudden moves by credit card companies to jack up interest rates or monthly payments. First, yearly fees do not impose a deadweight loss on society and artificially raise prices everywhere. Second, people knowing the actual price of credit will lead to more rational decision making regarding credit card use. The worst situation people get into is when unexpected events ruin their ability to budget properly. For example, when credit card companies suddenly and quite unexpectedly jack up interest rates and monthly payments, this can wreck havoc on a families budget. The same can be said of overdraft fees, which often cannot be justified by any rational relationship between risk and the money advanced. The risk of extending someone a $1.25 to buy a coke does not cost $35 by any rational calculus. Finally, interchange fees tend to be totally invisible to consumers, since merchants are perniciously forbidden from engaging in price discrimination between credit card customers and cash customers.
The bottom-line, despite the clear implication of your post, there is no free lunch. You ludicrously think it makes matters worse to regulate these hidden fees which will cause a shift to non-hidden fees which customers will be know about. Guess what. The market works when fees are clear and fails when consumers don’t understand what fees they will be paying. Credit card companies obviously have less incentive to compete on the basis of lowering hidden fees. Further, you apparently lack an economics 101 understanding of the deadweight loss imposed on society by merchant interchange fees. You fail to comprehend the dangers to consumers of managing a multitude of credit cards and playing games constantly shifting balances from one card to another. You greatly exaggerate the ability of annual fees to hinder competition, as consumers can compare cards before they select one, which is what they should be doing anyway. Also, no “rational” consumer will be hindered from switching a balance from a card with higher interest rates to a card with lower interest rates by an annual fee that is less than the benefits they receive from switching. You fail to comprehend that the need to play games switching balances from card to card will be much less where credit card terms remain stable and enable people to plan rationally.
Overall, what you have produced here is a pathetic and one-sides analysis. There are both costs and benefits to these proposed moves to regulate cards. You apparently are only aware of costs.
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October 20, 2009, 11:55 amA. Zarkov says:
I will drop my B or A credit card and use another. If they all impose fees then I will use a debit card for on-line transactions or something like paypal. As such the banks will lose the transaction fees they collect from my business. With short-term interest rates so low, the float on my purchases is small, so I might as well use cash or a cash equivalents.
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October 20, 2009, 11:55 amPLR says:
TZ’s take on B of A is pretty funny. “The government made me act this way, really. Take the government off my back and I will strew your path with rose petals.”
I echo PatHMV’s observations about free riders, no matter how virtuous they represent themselves to be.
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October 20, 2009, 11:59 amSteve says:
I can’t imagine why any economist would see a return to transparency as a bad thing, so I have to surmise that the agenda here is political — “hey voters, those annual fees you hate are the fault of the Democrats!” But we all know that cards with no annual fee are not really “free,” because they are funded by merchants which ultimately means they are funded by customers. It’s just that 99% of people don’t realize this due to the lack of transparency.
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October 20, 2009, 12:00 pmMike McDougal says:
I just don’t see how you fail to recognize that discouraging switching credit cards tends to reduce competitive pressure.
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October 20, 2009, 12:01 pmPatHMV says:
John, I said a transactional fee clearly assessed against the card customer. While the customer in the end pays ALL charges, the Discover and AmEx charges you are talking about are transactional fees directly assessed against the merchant, not the card customer. The card customer only knows what they are because the merchant complains to him when he tries to pay with one of those cards. I was talking about a fee which shows up on your credit card bill, which you have to pay directly.
It is precisely the fact that merchants can’t simply transparently assess THOSE transactional fees that some card companies are able to offer such a bonanza of “free” rewards.
Me, I hate “rewards” cards, because I know I’m paying for all those rewards in the end, probably subsidized by users of other, non-rewards cards. I would absolutely love to be able to choose a card based on simply the lowest total costs assessed by it. Right now, that’s not possible, because so much of the transaction costs are buried in the merchant interchange fees.
And technically, merchants can only offer a “discount” for paying cash. They cannot call it charging a fee for using a credit card. Because of that, they absolutely cannot impose a higher charge for using the higher-fee credit cards; they can’t have a “Visa” price and a separate, higher price for those who use AmEx or Discover cards. They are prohibited from doing so by the agreements they must sign to be able to accept Visa and the other cards.
As to your earlier point, consumers like getting things for free, and prefer to pay as little as possible. Not big news there. Again, my point is simply to contradict Zywicki’s contention that annual fees are “anti-competitive.” If users PREFER to be “locked-in” to a particular card with an annual fee rather than pay as they go on a per-transaction basis, then that’s a consumer preference, not an anti-competitive limitation. Again, I don’t see what is anti-competitive about no longer giving a free ride to people who have been enjoying a service without actually paying for it.
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October 20, 2009, 12:01 pmMike McDougal says:
They do. They charge merchants. That’s obviously not news to you.
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October 20, 2009, 12:02 pmpete says:
As will I if I get this notice and will probably move a lot more to a debit card. The main thing is that it will be a big headache to switch around all the accounts I have attached to it. That will teach me to me responsible about paying off my balance each month.
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October 20, 2009, 12:02 pmtroll_dc2 says:
I do not claim to be virtuous; rather, I claim to be an economic animal who is interested in maximizing my short-term and my long-term welfare. So I try to avoid fees whenever possible. You have a problem with that?
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October 20, 2009, 12:04 pmegd says:
I would assume that most places of business have just increased prices to cover the 2–3% credit card overhead, essentially a “consumption tax” to allow users to pay freely with credit cards, and not carry cash.
The ones paying this “tax” are not free riders.
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October 20, 2009, 12:06 pmkdackson says:
Slightly off-topic, but it goes to the way companies (and especially BoA) are responding to this “consumer protection” law.
I hold an unsecured loan through BoA that had a fixed rate. The loan docs said BoA could change the “terms of the loan” at their discretion. This past weekend, I received notice that BoA is changing the terms of the loan to be a variable rate as of 1 Feb 2010, and too damn bad if I did not like it. The variable rate is set at prime and offset, which coincedently, just happens to equal my current rate.
Calling customer service to complain, they said there was “nothing they could do”, and essentially I was SOL. They said it was some requirement by the Comptroller of the Currency.
I may opt to unilaterally change the terms of the loan (i.e., default); we’ll see.
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October 20, 2009, 12:08 pmPatHMV says:
Mike... ending the free ride is not itself anti-competitive. Do you agree? There are, then, a limited number of options through which the card companies can impose the costs directly on the users who have been getting the free ride up to now. One, they could charge interest from the date the purchase is made, no “grace period.” Two, they could increase the merchant interchange fees, which would bury the costs and let all card issuers compete for your business at the expense of the merchants. Three, they could impose per-transaction fees directly on their customers. Four, they could impose annual fees. If the annual fee is the one most adopted, because consumers prefer that over the “transaction” fee, then that’s not anti-competitive any more than making more of a popular model car in response to consumer demand is anti-competitive. That is the market in action.
There’s a LOT of card issuers out there. It’s an exceedingly competitive marketplace. You don’t think any of them will offer “no annual fee for the first year” deals? Or “switch today, and we’ll credit you with the cost of your last card’s annual fee”? Of course they will.
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October 20, 2009, 12:09 pmMike McDougal says:
Don’t be ridiculous. Read about tax incidence for some good information. If you’re going to respond by saying we’re not talking about taxes, don’t bother. I’m not going to teach Econ. 101 to you in the comments of a blog.
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October 20, 2009, 12:09 pmHyman Rosen says:
Charging people who don’t carry a balance an annual fee is a “pernicious form of term repricing”? It “deters card-switching”? This is exactly opposite of true. First of all, it’s not pernicious to charge for a service — that’s simple free-market economics. Fees will rise or fall based on people’s willingness to pay them and based on competition from other banks. Second, people with no balance will find it very easy to switch cards, since they do not have to find a heap of cash to pay off the old card before canceling it and switching to a new one, and they are the most likely to have a good credit rating.
And it will deter people from holding multiple cards only when those cards have been uselessly acquired because banks were handing them out willy-nilly. Instead, people will examine the benefits and drawbacks of each card, and rationally decide which ones to keep and which ones to dispense with. For example, I have a credit card with a $25 annual fee which is simultaneously my Barnes & Noble membership card and gives me about 15% off on all my purchases there, so that I easily recoup the cost on purchases I would make anyway. But if my other card issuers (and I have a bunch — Chase, Citi, Amex, Discover, store cards) decide to start charging me a fee, I will simply cancel those accounts, putative effect on my credit rating be damned.
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October 20, 2009, 12:14 pmPatHMV says:
egd... The ones who pay with cash are subsidizing all those credit card users. Also, the amount of interchange fees actually assessed by each particular card varies, but the price paid by the consumer for each product does not. Thus, in reality, the use of AmEx, Discover, and the various “rewards” costs ARE subsidized by the rest of us who don’t use those cards. If my credit card only charges a 1% per transaction interchange fee, but the price is marked up by 2% because of the average interchange fee the merchant has to pay, then 1% of my purchase has gone to subsidize other credit card users. The other card users are thus “free riders” on that extra 1%.
kdackson, why would you agree to a loan which allowed the lender to unilaterally change the terms of the loan without your consent?
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October 20, 2009, 12:18 pmkdackson says:
You could simply end the debate by outlawing the use of credit cards.
How do banks make their money?
1) Transaction fees that protect both the consumer (fraud protection) and the merchant (secure cash flow).
2) Interest charged to consumers who do not pay their bills in full.
3) Late and over limit fees paid by people who do not take responsibility seriously.
4) Annual fees
What do credit card companies do to attract and retain customers?
1) Rewards programs
2) Low or no annual fees
The first category (making money) is company revenue. The second category (attracting and retaining customers) is S&M*.
So who here has a problem with companies charging all customers for their sales and marketing programs?
* Minds out of gutter — Sales and Marketing
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October 20, 2009, 12:19 pmkdackson says:
PatHMV — chalk it up to “it’s never happened before, so it must be OK”. Silly on my part, but who asks about the liklihood of changing the terms on a fixed rate/fixed term loan?
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October 20, 2009, 12:22 pmPatHMV says:
Well, we’re not dealing with government-imposed fees here, so I don’t myself choose to use the word “taxes” to describe what we’re talking about. At any rate, I was merely trying to forestall an argument which I anticipated others making, that the card user IS paying a transaction fee every time he uses the card, because he is paying a higher price to the merchant because of the interchange fees. I was not trying to get into a debate over “Econ 101,” as I agree this is not the appropriate forum for it.
If in fact you take the position that it is the merchant, not the card user, who is paying the interchange fees, then the pay-the-balance-every-month card users we’re talking about have REALLY been getting a free ride. All of their “rewards” and “cash back” come directly out of the pocket of the merchant, in that case.
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October 20, 2009, 12:23 pmDouglas2 says:
If you don’t understand how “annual fees” reduce competition between card issuers, consider my case. When I learned that the issuer of the card I used most frequently was increasing its service fee for foreign transactions, I looked at the terms for the other cards in my wallet and started using a different one for my foreign trips.
If the cards all had annual fees, I would likely not have as many (or any) to choose between. At the time I was a student in a foreign university using US income to fund my study, so this was a particularly important issue for me. Even without alternatives in my wallet I might have applied for a new card with an annual-fee/service charge regime that was cheaper overall, but I might not have — just because of inertia, the time it would take, and my aversion to reading bank’s fine print disclosures.
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October 20, 2009, 12:28 pmJohn Thacker says:
Then why do several gas stations (the slim minority, to be sure) near me charge more for credit?
Is it just because they can phrase it as a “discount for cash,” even though that’s the same thing.
Also, they could refuse that merchant agreement. They don’t in general because it would drive business away, especially to refuse Visa and MC. CostCo is a notorious exception, with their AmEx-only policy (thanks to a deal).
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October 20, 2009, 12:29 pmkdackson says:
But the merchant gets the benefit of secure cash credited to his account instantly. That is a benefit he is willing to accept (and charge his customers for).
There are many merchants that work on a “cash only” basis. They have the problem of securing potentially large amounts of cash, counting it, and transporting it to the bank. To them, 2% is seen as a fair price for the hassle of accepting cards.
Then there are the business banking accounts that charge fees for counting coin, currency and verifying over a certain number of checks deposited on a monthly basis.
You can’t reduce everything into a “who pays” mentality. There are calculations you do not know of and cannot consider. The costs of doing business are borne by businesses and consumers alike.
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October 20, 2009, 12:33 pmtroll_dc2 says:
My credit card has a rewards program, but I have never found anything worth rewarding myself with. Maybe I should look harder.
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Guest14 says:
By way of comparison, outside of the consumer credit context, it’s extremely common for a borrower under a revolving credit agreement to pay a fee (often called a “facility fee”) on undrawn amounts.
This makes sense, because agreeing to lend in the future at the option of the borrower, while not exactly a current lending, is a current extension of credit.
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October 20, 2009, 12:55 pmPLR says:
Not in the least. If there are enough of you, I suspect there will be someone that introduces a product that purports to meet your needs at zero cost to you. Mutuo emptor.
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October 20, 2009, 12:56 pmegd says:
I would only be free riding if that extra 1% went to the credit card company. Instead, it’s the gas station owner or other businessman who realizes a profit because I choose to use cash instead of Visa, or Visa instead of Discover. The business owner can choose to recoup my transaction fees by increasing prices on me. The fact that he chooses to increase prices on everyone else doesn’t afford me any benefit.
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October 20, 2009, 12:58 pmGuest says:
Someone’s got a superiority complex here, but it isn’t the free-riders. If it were a matter of tax policy, then you might have a valid complaint about fairness and equity, but this is a question of private business transacations.
In short, the legitimate terms of the business transaction are the legitimate terms of the business transaction. If the card issuers believe that unstructured fees (or no fees) to the cardholders are capable of maximizing their business opportunities, then it matters not one moral whit whether you or I carry balances and pay interest, or not. If you have a problem with it, petition the card issuer for a change of business policies, or take your business elsewhere as you see fit.
PayPal is merely a debit account with credit account fees, and no plastic card to swipe at brick & mortar. You WILL pay for that one way or another the same as with any credit card transaction, even if you don’t see the fee transaction personally.
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October 20, 2009, 1:01 pmd-berg says:
Merchant has costs associated with BOTH card and cash transactions. He pays card company transaction fee. But cash management is not free! Ever see armored trucks collecting cash? They are not sent out by the city as free service — merchant pays. Some merchants prefer to deal with cash, because they take on more risk themselves and pay less in transaction costs (and sales tax evasion is also a factor). But major merchants (think malls) that accept all variety of cards also pay quite a bit for accepting cash. So cash customers do not subsidize card customers all that much.
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October 20, 2009, 1:05 pmrick.felt says:
I wonder if this necessarily has anything at all to do with the new regulations. Consider three recent phenomena, neither of which are the consequence of the new regulations:
(1) Customers are spending less: This means fewer transaction fees from merchants.
(2) Credit card balances are declining through a combination of debts being paid off, settlements, and Chapter 13: Banks are making less money on interest.
Banks have to make this money up somewhere, and raising interest rates might not be the way to do it. If someone owed me $20,000 and was only making minimum payments, I’d be concerned that jacking up his rate might be the thing that pushes him into bankruptcy. Better to make my money elsewhere.
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October 20, 2009, 1:10 pmDavid Nieporent says:
If only there were some way, other than government fiat, for deciding what type of commercial offering is preferable!
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October 20, 2009, 1:13 pmPatHMV says:
egd... the merchant cannot simply recoup your transaction fees by increasing prices on YOU. He can only choose to increase prices on everybody, or, at best, give a “discount” for cash. He cannot, if he wishes to accept any credit cards at all, charge more to AmEx customers, or Discover customers, or Visa/MC customers who have big “rewards” cards. The terms of the merchant agreement which he must sign if he wishes to accept any credit cards at all prohibit him from doing so.
If your card only charges the 1% interchange fee, then no, you are not “free riding,” and I never said otherwise. If your card is among those that charge the 2%, then you are free riding to the extent that that merchant interchange fee for your card is higher than the average, and thus higher than the actual mark-up put on the product by the merchant.
In fact, credit card companies are perfectly happy to compete for customers by offering “rewards” and “cash back” which are in the end paid for by the fees hidden in the merchant interchange charges or which come from interest and penalty fees paid by other credit card customers.
It’s a very simple fact that the credit card users who pay the balance every month and who pay no annual fees, but who get “rewards” based on the amount they charge, are getting benefits paid by somebody else. Can anybody dispute that? Do you believe that the sum total of all rewards are paid from amounts recouped through the merchant fees? Take Discover, which gives you 5% cash back (on up to $400!) for grocery and certain other purchases, and 1% cash back on all other purchases. As we can see from this North Carolina schedule of interchange fee rates, Discover charges 1.6% per transaction to the merchant (to the state of North Carolina; it may have higher, non-governmental rates elsewhere, but I haven’t found a schedule of those. If it gives 1% cash back to every customer, that leaves it just 0.6% per transaction to cover its processing costs, the time value of money costs of advancing the funds to the merchant before you pay your bill, and putting aside reserves in case you dispute the charge, cover any fraud losses, etc.
Guest, I have not bothered to repeat in this thread what I said in an earlier thread on the same topic. I agree that the government should not be monkeying about in this area. It’s a highly competitive market place, and consumers can do as they see fit. However, Prof. Zywicki has not merely criticized the government’s intervention here on libertarian grounds that it’s not legitimate for the government to do so, he has criticized the outcome of the intervention in its own right, as being “anti-competitive” and unsound for several reasons. I disagree with that portion of his analysis, and that is the only thing I have been addressing.
troll_dc2... I, also, have generally found that “rewards” products are usually marketing crap, rather than things which provide actual benefit to me. That’s another reason I steer clear of them.
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October 20, 2009, 1:33 pmPatHMV says:
David Nieporent, just to highlight what I said in the middle of my last post, I agree that the government should stay out of this area. I particularly do not want them to try to set rates for the merchant interchange rates. However, Prof. Zywicki has decided to criticize not simply the intervention, but the outcomes of the intervention. While I disapprove of the mechanism, I think (and have been defending) the outcome, which I think is better for most consumers, and certainly likely to result in much more transparency, which should help consumers make better-informed decisions.
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October 20, 2009, 1:39 pmtroll_dc2 says:
If I could (but I know that I cannot), I would “pay” for my free ridership by opting out of the rewards program.
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October 20, 2009, 2:31 pmCurmudgeon says:
Door #3 is the ‘actual and economic waste’ account...dealing with cash costs money. Lost sales costs money. Checks cost (lots) of money. I don’t have any hard numbers, but guesstimate that these are significant because if not, you would see more cash-only businesses.
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October 20, 2009, 2:33 pmPLR says:
I have no problem with it, just posting in response to others who appeared to have problems.
I pass no moral judgment on those who carry balances, nor on those who don’t. But I reserve the right to comment on how economic costs are allocated among a given population of users.
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October 20, 2009, 2:42 pmPatHMV says:
Curmudgeon, that’s a valid point which both you and d-berg have made. I can’t quickly find any stats on how much those costs are. I suspect that for smaller, mom-and-pop stores, the costs of dealing with cash are significantly less than the card transaction fees. When the owner or a manager merely drops a bank deposit envelope in the night deposit box, there’s no armored car fee to pay, and I believe that most merchant-oriented bank accounts charge a flat fee for cash processing, not a percentage of the cash deposited. For larger businesses which handle a lot of cash, like a McDonald’s, then the costs are probably slightly higher. And of course merchants do get benefits from accepting cards... greater assurance of payment, more dollars spent per transaction, more goods purchased generally. I’m not in any way arguing against merchant fees generally. My only objection is that some card issuers use a portion of the merchant fees to “reward” the card issuer’s customers; they use the merchant’s dollars to attract customers to their card, which itself provides exceedingly little benefit to any particular merchant. In so doing, it hides the fees ultimately paid by the consumer.
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October 20, 2009, 3:09 pmuh_clem says:
I have a hard time getting exercised about a ~$30 annual fee for using their service, especially when that fee is clearly announced in advance.
By contrast, before the recent changes in the law credit card companies could unilaterally impose changes that amount to ten to a hundred times as much cost.
When the new credit card regulations were under consideration by congress, Prof Zywicki claimed that the sky would fall if it passed. This is the best he can come up with?
BTW, I have a B of A card that I almost never use. If they try to charge me an annual fee, I’ll just cancel it and we’ll go our separate ways. Simple problem, simple solution.
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October 20, 2009, 3:30 pmDavid Welker says:
If only.
Unfortunately, markets do not work very well when prices are not transparent. Suppliers of credit have inadequate incentive to compete on the basis of the price when their customers do not take those prices fully into account anyway. Government action to make prices more clear actually improves markets. Just as government action to establish clear property rights improves markets.
Making sure that markets actually serve their purpose by “government fiat” is not a bad thing. There are laws against stealing by “government fiat” too. It is a good thing, because a society with clear property rights tends to have more efficient and effective markets. It is not as if markets exist in a vacuum.
To make an argument, you actually have to actual look at consequences. Government actions, like private actions, have costs and benefits. That is the framework you should be using.
Alternatively, if you are going to talking about it as a matter of deontological principle, then stop talking about costs without talking about benefits. If there is a overriding principle against government action (and I and the vast majority of people disagree that any such principle can be sustained), then the costs are irrelevant. The argument isn’t about the costs (which always need to be weighed against benefits if they are mentioned at all) it is about the principle itself. But if you are going to shift to a utilitarian framework and talk about the costs of government action, you had better talk about the benefits too.
An argument that includes costs but not benefits fails either way. From the standpoint of deontologic principle, the argument is entirely irrelevant. From a utilitarian standpoint, you have to consider BOTH costs and benefits to make an informed decision.
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October 20, 2009, 3:31 pmDavid Welker says:
PatHMV,
You concede that eliminating deadweight costs from limiting these fees would be a good thing, but you don’t think it should be done. What other actions by government do you think are highly beneficial but should not be done? What principle drives this? Your view strikes me as irrational. You have clearly been hanging around with irrational government-adverse libertarians too much. This sounds like a compromise for the sake of a compromise. Don’t get me wrong, there is nothing wrong with compromise when it is necessary, but I don’t see that there is anything at stake here worth any sort of compromise.
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October 20, 2009, 3:36 pmDan Weber says:
As someone who fiercely free rides on others in terms of credit card usage, I won’t really shed any tears if my free riding is curtailed.
I will attempt to do it as long as possible. And I understand the economic benefits of more transparency — I just won’t unilaterally disarm.
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October 20, 2009, 3:54 pmPatHMV says:
David, not sure why you are picking a fight with me on this issue, as I agree with you far more on this particular topic than many of the other commenters, who are defending the status quo on both libertarian and policy grounds.
In particular, I have no confidence at all in the government’s ability to separate out “deadweight” costs from other costs. If government intervention were limited to requiring disclosure, where technologically feasible at very low cost, of the interbank merchant fees, I would be for that. Were the government to merely mandate that notwithstanding any agreements to the contrary, merchants could impose fees based on the card used by the customer, I would probably be ok with that. If government merely allowed merchant associations to form to collectively bargain with the card networks over the interchange fee rates, I’d probably be ok with that (given my belief that the Visa and MC networks are functionally at least a near-monopoly, and necessarily so), in order to level the playing field between giant Visa and regular small merchants. But having government regulate the interchange rate itself would be really bad, because government simply is not good at making those kinds of price determinations.
More generally, every government intervention in the market comes at some cost. Sometimes those costs are relatively minor in comparison to the benefits provided. Other times, they are not. But there is always some cost. Thus, it is not at all irrational to determine that while some result may be desirable in a general sense, it is not desirable for government action to be used to achieve that result. In this case, I think the amount of information currently available to consumers to use in selecting credit cards is so tremendous (thanks to existing truth-in-lending laws and the internet) that government intervention is unnecessary. Even regarding my limited complaint of the free-riders, the actual damage caused by them to others is relatively small. Thus far, nobody’s tried (so far as I know) to impose something like a 10% interchange fee in order to give 8% cash back to the card customers. While the merchants have a limited ability to negotiate very detailed points of the contracts, there are ample other options available to allow them to use other payment processing mechanisms should the fees become too high. For example, Amazon.com really pushes the option to pay electronically by check, even providing financial incentives to do so. If merchant fees rise too high, they can simply switch to other methods of payment. Even almighty Visa itself is subject to competitive pressures.
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October 20, 2009, 4:04 pmVader says:
I’m constantly getting nasty messages from Bank of America, demanding that I verify my account with them.
Which is kind of funny, as I’ve never had an account of any kind with Bank of America.
I wonder why they figure in so many phishing schemes?
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October 20, 2009, 5:15 pmBank of America to Impose Annual Fees on Some Credit Cardholders, Thanks to New Credit Card Law | OpenMarket.org says:
[...] of America recently announced that it will impose annual fees on some of its cardholders. This is in response to the CARD Act (Credit Card Accountability Responsibility and Disclosure [...]
David Welker says:
I am not picking a fight with you. I am just trying to test your logic. The high quality of your response indicates to me that this test of logic was not a wasted effort.
First, I agree with your framework. We should look at the specific case. Sometimes we may see a market failure of some sort or deadweight costs imposed upon society in some context or another, but then realize that all possible solutions may have more costs than benefits. In that case, the best policy is to do nothing.
Furthermore, I agree with your general approach in suggesting multiple policy approaches one might take to address the problem. Different solutions have different costs and benefits, so exploring multiple approaches as you briefly do is beneficial.
That said, I am not convinced your assertion regarding the supposed problem of regulating the rate directly. The government regulates rates directly and with much success in cases of monopoly all the time. For example, in the case of public utilities, where economies of scale lead to natural monopolies. While certainly we would not want government to fix prices in general, in specific cases involving market imperfections or in cases of extreme emergency (i.e. when rationing is employed as a shared sacrifice during war) it makes sense to regulate prices. So, it seems to me that you are taking a justified general skepticism of government price fixing and not fully considering its applicability in this specific context.
So, while I agree with your general framework, I am not sure you that you have applied that framework with perfect consistency. Obviously, that you have the right framework in mind is much more important, but I don’t think it hurts to ask a few questions on particulars and I do not mean to pick a fight with you. =)
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October 20, 2009, 5:43 pmUlquiorra says:
This I don’t understand. The issuer is a service provider to the merchant and the agreement between the merchant and the issuer is a private transaction. Given that, to my knowledge, a person providing services to a merchant isn’t generally required to disclose the terms of their transaction with the merchant, why should issuers be treated any different?
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October 20, 2009, 5:48 pmPatHMV says:
In which I defend some regulation by government and oppose others, on a libertarian-leaning blog...
Ulquiorra, in this particular circumstance, there is an intermediary between the card issuer and the merchant, the credit card network (Visa and MasterCard being the two largest). The network is, at least, a near-monopoly. It would be inefficient for there to be direct agreements between each card issuer and each merchant. The networks allow for universal acceptance. But because the network is itself a profit-seeking company, it can exercise some monopoly powers, once the network has reached the size which Visa and Mastercard have reached today. Visa imposes requirements on both the card issuers and the merchants. As a single entity, Visa has vastly more bargaining power than individual merchants in setting the terms of its agreements. Anti-trust law generally forbids the merchants from coming together and colluding with each other to bargain with Visa for changes. Thus, for example, the restaurants of New York City cannot form a trade association to tell Visa, either give us these terms, or every restaurant in New York City will no longer accept Visa cards. It is appropriate for the law to recognize and attempt to cope with the issues created by monopolies and near-monopolies.
In this situation, I have argued, card issuers use the requirements imposed on merchants by Visa (accept all cards, or else don’t participate) to give their own card customers benefits which are paid for not directly by the card customers but by the merchants, who are not given the ability to decline to pay whatever interchange rate is set by the card issuer within the limits allowed by the Visa network.
Now to turn against government regulation...
David, I just don’t see the credit card market as analogous to public utilities. The competition is not just among card-issuers, but between credit card networks themselves. More broadly, the competition in the end is between methods of payment generally. Merchants are required to accept all Visa cards (credit and debit) in return for the privilege of taking ANY Visa cards. Merchants are not, however, required to accept AmEx cards in order to accept Visa cards, because AmEx is a different card network. There, the merchant has indeed decided to accept the additional costs imposed on him by AmEx cards. As users experience more frustration because fewer merchants accept the card, or because merchants hassle the AmEx card users ford doing so, that applies competitive pressure to AmEx to reduce its merchant fees. Indeed, it would today be very rare to find somebody who relies 100% on AmEx, precisely because its users know that they cannot safely assume that all merchants will accept their card, while Visa or MC users can indeed feel comfortable in that assumption.
More generally, as I noted before, technology is rapidly providing additional mechanisms for payment. The ACH system allows just about any merchant to accept checks electronically, and my understanding is that the fees are noticeably lower than card companies charge. I predict that we’ll see more on-line banking establishments open which agree to provide to their customers many of the same benefits currently provided by credit card companies (fraud protection, no-questions return policies, extended warranties, whatever), in return for a fee. By letting the consumer pay only for the extra services they like (I belong to AAA, I don’t need free roadside service from my card company), they will be able to reduce the overall fees charged to the customer.
We already have the example of PayPal, which is accepted by many small merchants on the internet. As I understand it (it’s been a while since I looked at PayPal’s details), all of the costs of its transactions are imposed on the purchaser, none on the seller, so they are quite transparent.
So you see, my non-fighting friend ( ;-), there is ample competition in that marketplace, and technology is providing for ever more competition, rendering government intervention, beyond perhaps disclosure and collective bargaining authority for small merchants, unnecessary.
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October 20, 2009, 6:17 pmUlquiorra says:
I understand all of that, but in my view, those arguments justify collective bargaining, but not the government compelling disclosure of the terms of a private agreement between two parties.
Further, I’m not sympathetic to the argument that interchange imposes a cost on merchants. Again, historically, the view has been that issuers are service providers to merchants to facilitate payment transactions. Interchange is the cost of this service. The fact that an intermediary plays a significant role in the determination of this cost doesn’t change the analysis for me. Moreover, merchants receive benefits from the acceptance of card transactions in the form of reduced cash management expenses, as others have observed, and in the form of increased sales.
Frankly, the solution is that if merchants don’t like paying interchange, they should form their own payment card networks, and they can price payment services however they like.
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October 20, 2009, 6:56 pmDavid Welker says:
PatHMV,
Lets agree to disagree.
First of also, one need not have an absolute monopoly in order to have market power, and market power does not always manifest itself in the form of monopoly.
It is true that some businesses will accept only Visa and Mastercard but not AmEx and Discover. Or they will accept Visa, Mastercard, AmEx but not Discover. So, there is some competitive pressure. But it is very indirect. If you reject Visa, say, you not only reject Visa, but a significant percentage of your customers who happen to have Visa. It really isn’t the electronic services you are paying for, but rather the right to have customers who only has a Visa card available. Even if we were to have more entrants into the market, this problem of a subset of your customers being attached to a particular card would remain. So, when you reject a vendor, you not only reject their electronic services but also their customers. Your point about technology changing this in the future is highly speculative. Retail merchants do not typically accept electronic checks, for example.
The bottom-line is that there are problems in this market, and those problems cause the output of not just one industry, but many industries and endeavors to be lower than they otherwise would be. The transactions that do no happen and the associated deadweight loss because of these policies probably add up to huge amounts, if you consider the ubiquity of credit card transactions.
I need not belabor this point. My point is not primarily that there are problems in this market. That is obvious and you have already conceded as much. My point is that the government action of regulating prices is not unprecedented and has been successful and effective in other contexts. Public utilities are different, but the conceptual idea of having government regulate price in very limited circumstances and contexts is not. Given that, there is no reason to think it could not be successful in this context as well.
What the actual deadweight loss is–and that is ultimately what your points about limited competition amongst credit card networks and points about future technology lowering those costs in the future are relevant to–is a s separate empirical question. I suspect that deadweight loss is fairly large; you have given some conceptual reasons why those losses might be merely really large instead of gigantic. But, ultimately, this disagreement, which is one of not whether there is a problem but how large that problem is, should be resolved by empirical data rather than conceptual argument.
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October 20, 2009, 7:08 pmFormer Chicagoan says:
PatHMV:
If in fact you take the position that it is the merchant, not the card user, who is paying the interchange fees, then the pay-the-balance-every-month card users we’re talking about have REALLY been getting a free ride. All of their “rewards” and “cash back” come directly out of the pocket of the merchant, in that case.
I don’t get all this free-ride worry. The merchant pays a fee for me to use a credit card. He chooses to pay this fee because he feels it is in his benefit (more business, less worry about cash, check depositing fees, etc.).
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October 20, 2009, 7:09 pmAriel says:
Merchants do not accept cards as an eleemosynary function! I’ve read studies which show that accepting credit cards is actually cheaper than cash, notwithstanding the merchant processing fees. I was a business consultant for a while and helped merchants make some of these decisions.
Handling cash: As many have noted, you need to have the armored car. There’s also a higher risk of cash “shrinkage” from your employees helping themselves. Shrinkage is generally a function of the amount of cash and goods going through the business, not a flat figure.
Employees: It takes less time to handle a card than cash, including providing change. Supermarket often have lines, and this difference can mean a reduction in the number of employees.
Maintenance: Supermarkets often use self-serve checkout counters. They break down more often when handling cash and particularly coins than when handling cards, especially contactless cards. Besides the cash loss, there is also the reduction in potential throughput caused by not having that counter available.
Errors and Customer Service: You’re less likely to provide incorrect change with a credit card. This improves customer service, and thereby retention.
Security: Robbing banks because that’s where the cash is may not apply to the card using merchant, as much.
Targeting Customers: Customers who spend with credit cards typically have higher average transaction sizes, and quite significantly so. A lot of this is because they are wealthier — in a world of no credit cards, those people would still exist. In a world with credit cards, the merchant who does not accept a high transaction average card is eliminating a favorable demographic. This is probably the single most important factor.
These are several reasons. There are others, too.
In case you don’t believe me, think about the increase in acceptance of AmEx in the last 10 years or so. AmEx charges higher fees than Visa or MC, by quite a bit. Many merchants refused to pay those higher fees for a long time, but in the last 10 years, that has really changed, especially for the last reason above — AmEx customers are usually relatively affluent, big spenders. They’re the guys you want in your store. As a store owner, you’re crazy to reject them, forgetting about the x% in fees.
Many people here would probably similarly argue that marketing dollars are wasted. They’re not — they’re a way to grow your business by explaining your value proposition to your end users. Likewise, no merchant is paying the fees out of charity — they’re doing it b/c it’s what’s best for their business.
Large merchants, e.g., American Airlines, get into the card business to build loyalty as well, but that’s a different story.
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October 20, 2009, 7:30 pmOren says:
Ariel, you don’t need an armored car to run the day’s cash to a bank. I know because I’ve done it many times.
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October 20, 2009, 7:52 pmAriel says:
Oren,
It just depends on your business. Most probably don’t — I probably shouldn’t have said that apart from being agreeable with previous commenters — but they have the higher risk of some/all of the money disappearing due to employee theft or theft from the employee.
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October 20, 2009, 8:08 pmHugh says:
Well, I have been negatively affected by changes in the law. I have $10K in credit limit on the card I use the most with Chase. I have $25K in credit limit on another Chase card that does not have premiums that are as good. I also have a B of A credit card that I rarely use. It has a $30K credit limit. If B of A starts charging an annual fee, I will close the card. If Chase starts charging annual fees, I will close the $25K card.
In days of old, you could transfer the credit limit from one card to another. You can no longer do that. I will miss having all that available credit (not that I ever want to be that far in debt). But I don’t want to pay annual fees to have the potential to borrow that I am not using.
Of course, it makes sense for the banks to find a way to force people like me to close out dormant credit card accounts. But that does not mean I have to like it.
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October 20, 2009, 8:49 pmDuracomm says:
PatHMV said,
What in the world are you talking about???
Credit cards are a private financial arrangement between an individual and a bank.
The fact that those users were getting the card for free proves that they were not free riding because the bank was making money off of them somehow. Otherwise they would not get the card for free
Congress did not like that arrangement so they stepped in and killed it with regulatory changes.
Once again government steps in and those that are financially responsible are punished and those that are financially irresponsible are rewarded.
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October 20, 2009, 10:42 pmDavid Welker says:
Duracomm,
In order to accept credit cards, merchants have to increase their prices in order to pay interchange fees. These price increases are paid by both credit card users and non-credit card users, because merchants are not allowed to engage in price discrimination under their contracts that allow them to accept credit cards. Also, there is minimal consumer pressure to keep these fees down, since credit card users pay the same price as if they used cash.
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October 20, 2009, 11:11 pmAriel says:
Not true. See above.
This is an extremely misleading statement. There is NO consumer pressure to keep these fees down. Instead, the pressure comes from what the market will bear, i.e., the merchants. Part of the problem is a misconception of who is whose customer. You, the end user / customer are the card issuing bank’s customer. The merchant is the merchant bank’s customer. Both the merchant bank and the card issuing bank are the network’s customer. Of course, in a situation like this, there can be no pressure from the consumer. There can only be pressure from the customer, here, the merchant, on the merchant bank. The merchant bank makes its fees primarily based on volume, so they have every incentive to work within the merchant’s constraints.
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October 20, 2009, 11:19 pmDavid Welker says:
Ariel,
First, you are going to have to be more clear when you say “not true.” Are you saying it is permissible for businesses to charge higher prices to credit card customers under their contracts with credit card processors?
Second, the customer is the consumer. The merchant is the supplier. The credit card networks are simply middle men. Most retailers do not have any market power compared to the credit card networks and are left with a take-it-or-leave-it deal. If they leave it, they lose a lot of customers.
Anyway, I understand perfectly what you are trying to say. I simply reject your model. The real value (the real marginal cost of the transaction) is incurred by the merchant, not the credit card processors.
Now, do I think credit card processors should be rewarded for their innovations? Absolutely. But even a patent only lasts 20-years. I object to credit card processors inflicting a permanent deadweight costs upon society.
All said, this is highly inefficient. In the present state of society, we should be able to have electronic transactions without large deadweight costs as unproductive middlemen take a cut that is disproportionate to the marginal costs of whatever value they add to the transaction. Further, you may think it is neat that cash customers are, in effect, subsidizing the transactions of credit card customers. I do not.
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October 21, 2009, 1:06 amDuracomm says:
David Welker,
My first comment was on the regulation that has passed and how it punishes the financially responsible.
Your comments on the transaction fee are not relevant to what I said.
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October 21, 2009, 8:53 amDuracomm says:
David Welker,
I apologize. The previous comment was posted before the caffeine had kicked in.
I had forgotten I said that the credit card companies made money off of the transaction fees of card users who did not carry a balance.
Your comment was relevant and I have slammed my head in a door twice to remind myself of that.
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October 21, 2009, 9:10 amAriel says:
No, I was saying that credit card paying customers actually subsidize cash customers, for the many reasons I posted above. Everyone sees the percentage that credit card companies take, but it’s a lot harder to see the efficiency gains and targeting that comes from credit cards. The AmEx example I mentioned above is an illustration of this principle as between credit cards, where an increasing number of merchants found that the targeting benefits *alone* are sufficient to pay for the higher interchange fees.
There is no such thing as *simply* middle men. There is a supply chain that provides finances to a supermarket, just as there is a supply chain to make a computer. Using this same kind of logic, a company like ATI, which makes graphic cards, would be middle man. Instead, Dell, HP, and the gang buy from ATI because it’s more efficient than developing the capability on their own. That’s also true for credit cards. Large merchants have gotten into the credit card business so that they can claim some or all of the merchant banking fees, but that still points to the need for scale to have a viable system.
Retailers may not have a lot of market power and that may mean that they lose a lot of customers if they don’t get the credit cards. But they’ve made the decision that it’s worth it for them to accept the payment form that their customers want! Again, the AmEx example very clearly rebuts exactly this point.
You’re right that the credit card processors do not have much of a marginal cost. It’s like a telephone. They build it with capital expenditures, and, to a first approximation, have very low operating expenditures. Nevertheless, they charge on a per use basis. The reason they do that is to prevent overloading of their pipes, which would require building more pipes, which requires more capital expenditures. Credit card processing works exactly the same way. You need to buy more servers, if you only charge a flat rate per month than if you charge for each usage.
If you are in fact right that there is a valuable and potential business model, there’s a ready solution: create it. I don’t think such a business is viable, but your confidence should suggest a large potential value-creating opportunity. If you’re right, you would be able to snag away many merchants by charging them lower fees. The merchants would happily pay a low, flat-rate, instead of the percentages. Maybe you could even find a way to eliminate fees altogether by advertising on customer receipts? Who knows? It could well be that no one has thought of such a solution, but it seems more likely to me that when people run the numbers, they realize that it’s not viable.
I also am not quite sure where the equation of value and MC comes from. The best business transactions, in terms of both negotiating range and potential outcomes, are those where one party has a low MC and the other party receives high value from the transaction. That leaves a lot of surplus to be split. You seem to be saying that’s not a desirable situation, but I may be reading this incorrectly.
First off, cash customers are not subsidizing credit cards, but vice versa. See above.
I think you mean deadweight loss, not deadweight cost? Assuming you do, I’m not quite sure you’re using the term correctly. First off, I don’t believe prices are being driven up by credit cards. Second, there are four alternative systems (Visa, MC, AmEx, Discover) and a fifth that collapsed recently (Diners), suggesting that there is competition in the system, i.e., unlike a patent.
The collapse of Diners suggests something powerful about these so-called “unproductive middlemen” and their contribution to society. Scale is a very important requirement to building a successful payment processing network, which requires extensive capital expenditures. To recover those costs, you need to charge variable rates. I don’t believe any other system would be viable — and I think the collapse of Diner’s is good proof for that.
While you may think that we should be able to have cheap or free electronic transactions, “in the present state of society,” there are costs and economies of scale involved. Again, see Diner’s.
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October 21, 2009, 9:24 amDuracomm says:
David Welker,
We need to be very concerned about the negative unintended consequences of congressional actions in the credit card markets.
Credit cards are a substantial source of profit for the banks. Any loss of bank revenue from the credit card market will have to be made up somewhere else.
Given the fiscal health of many of the banks there is a limit to how much revenue loss they can sustain if it can’t be made up from other segments of their operations.
There is in fact a non trivial risk that too big a loss of revenue from the credit card division may be enough to collapse some banks.
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October 21, 2009, 9:31 amguest1 says:
Possibly someone already made this point in your previous post or above, but annual fees are refunded on a pro-rata basis if you cancel the card in the middle of the year. So one of your points (that the fees dampen card switching) isn’t really valid.
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October 21, 2009, 9:41 amDavid Welker says:
Agreed.
We also need to be very concerned about negative unintended consequences of congressional inaction.
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October 21, 2009, 1:23 pmHyman Rosen says:
It is not true that
any more than people who win money at casinos can be said to not actually have won money. When the bank offers a credit card with certain terms, they expect that there will be a range of behavior related to that card. Thus it may be very easy for some people to free-ride, because the bank may be hoping for profit in the aggregate, not from every single individual.
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October 21, 2009, 2:23 pmCurtis says:
Yes, I was going to make this point as well. In the past when I’ve opened credit cards that later were given annual fees, I’ve successfully had the entire fee reversed and closed the card.
I don’t agree that this is “anti-competition” — the setting of prices in response to changing market conditions (i.e., new regulations) is about as competitive as you can get.
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October 21, 2009, 4:45 pmGrey says:
It should be noted that the “Hey, screw ‘em, I’ll just cancel my card” attitude can have negative implications for your credit.
The existing credit limits of your credit lines and your utilization (or not) of those lines is a major factor in determining your credit score. If your available credit goes from $50,000 to $10,000, that’s bad for you.
Furthermore, the average age of your credit accounts is also a factor. Canceling your oldest credit cards will actually reduce your credit score as well.
http://www.creditkarma.com/article/relationship_score_and_credit_limits
http://www.creditkarma.com/article/UnderstandingCreditScores
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October 21, 2009, 5:10 pmBuzz Law says:
I am one of those folks who received one of those greeting cards from BOA. I’ve had the credit card for 11 years and never been charged an annual fee. I have an excellent payment history with a $21,000 line of credit on the card.
So, I was informed that I must pay a $39.00 annual fee on BOA’s credit card beginning in December. I contacted customer service and was told that I had only two choices: Pay the annual fee or cancel the card. It was a non-negotiable demand. So, I cheerfully took out my scissors and promptly cut the BOA card into little pieces. I thoroughly enjoyed the experience.
It was easy for me to see through this non-negotiable corporate decision: I paid promptly and I carried only small balances on my card. Therefore, BOA couldn’t rack up “late fees” or large interest charges from me.
I simply cut up BOA’s card and easily obtained another credit card WITHOUT an annual fee. I suggest others do the same.
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October 21, 2009, 9:32 pmuberVU - social comments says:
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Mike McDougal says:
Yes.
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October 22, 2009, 2:14 pmWilbur Parker says:
I am thankful for the new things I learned reading your post. Thanks.
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November 29, 2009, 2:38 pm