9 ms·

Credit Card Points Are a Transfer from the Broke to the Comfortable

36 points by willio58 2mo ago

pixl97 2mo ago
Sam Vimes "Boots" Theory of Socioeconomic Unfairnes, in article form.
applfanboysbgon 2mo ago
It is jarring to read Claude talking like it uses credit cards or feels guilt over using reward points.
- willio58 2mo ago
  Author here! I promise I didn't use Claude for any of this. I will admit I'm working on developing a "voice" in my writing, so maybe that's what you're sensing. Thanks for the read anyway.
- soraminazuki 2mo ago
  It's jarring to read a bunch of LLMs rushing to defend a predatory industry.
  - eudamoniac 2mo ago
    There's a very basic financial instrument called a credit card and if you just exercise a modicum of control and a hint of reasoning, you get to have cheaper purchases for your entire life with no downside. Leftists think this is terrible, because when you voluntarily sign up for this instrument and then behave really stupidly, repeatedly over a long period with no reasoning or reflection, it's bad! We can't allow it! I can't say I agree with this worldview.
    - soraminazuki 2mo ago
      > you get to have cheaper purchases for your entire life with no downside If you uncritically believe things like this, I have a bridge to sell you. You should praise me for it too, because that's the kind of thing you explicitly condone. > Leftists think this is terrible Nah, it says more about your worldview than it does about your favorite bogeyman, especially when you ignore the entire article and start attacking a straw man.
      - eudamoniac 2mo ago
        I don't understand. Are you objecting to "cheaper purchases" or "no downside"? Yes the prices go up to subsidize the merchant fees. But they don't go up as much as I save in CC rewards, because my rewards are subsidized by people not using the card or using it poorly. I have 5% and 10% cards in certain categories and a 3% in all; abolishment of cards would never drop prices by that much. As far as downside goes I've been paying with cc exclusively for a decade and I've never paid a cent of interest, so I'm not sure what it would be.
deleted 2mo ago
[deleted]
variety8675 2mo ago
Pay in full customers can be profitable through interchange fees alone, so I don't really follow how it is a wealth transfer
- theandrewbailey 2mo ago
  Merchants almost never pass along interchange fees to the customer. Instead, it's built into the prices that every customer pays the merchant, regardless if the customer uses a credit card, which means everyone pays for credit card rewards.
  - justinclift 2mo ago
    Are you saying that in the US, there's no "credit card surcharge" line item near the bottom of your receipts to cover it?
    - xboxnolifes 2mo ago
      Sometimes, not always.
    - fernie 2mo ago
      Yeah, they include the surcharge in the list price and give you a "discount" for paying in cash (or direct debit). Some merchants include it as a separate line item. But remember that taxes aren't included in the list price, so it doesn't stand out as much as it does in other countries.
B1FF_PSUVM 2mo ago
Bullshit guilt-tripping logic. Just the 150 billion from "interchange" (merchant fees) would be enough reason to fund the 15 billion (estimated) rewards. What next, supermarket coupons as a wealth transfer mechanism?
lyall 2mo ago
You hear this argument pretty often, but it's not true. Credit card companies do make a lot of money off of interest. But they also make a lot of money off of interchange fees. Businesses want wealthy customers because they spend more money, so they're willing to pay a higher interchange fee to access those customers. Higher interchange fees mean card companies can offer better rewards, which in turn attract more wealthy customers to their cards. So even if credit card debt was not a thing, it would still be incredibly profitable for card companies to sell access to their rich cardholder clientele, and to in turn provide rewards to those cardholders.
- pilotneko 2mo ago
  Businesses raise prices to cover the interchange fee, which impacts lower income consumers disproportionately.
  - imustbeevil 2mo ago
    That's completely arbitrary though. They could also increase prices without any interchange fee. If people are willing to pay, the price goes up. Cost (of which the interchange fee is but one) only affects the lowest possible price. No one ever gets that price.
    - bryanlarsen 2mo ago
      People wouldn't be willing to pay the extra amount if it was cheaper at the store across the street. But the store across the street also has to pay the interchange fee, so they're not cheaper.
    - chneu 2mo ago
      CC fees are transferred directly to customers. It isn't arbitrary. There are plenty of low cost stores that don't accept CCs for this reason: it hurts low income people more than others. It saves 2-3% to the consumer for grocery stores.
  - lyall 2mo ago
    Yes, there is something to be said for this argument. Debit card and cash users pay slightly higher prices than they might otherwise, which do subsidize the rewards of credit card users. But this is distinct from the argument presented in the article, which is that poor people's credit card debt funds rich people's airline miles. But there factors that counteract this. Merchants pay different average fees depending on the mix of cards that they accept. A dollar store probably sees fewer Chase Sapphire Reserved or Amex Platinum cards than a Gucci store does. Accordingly, the average interchange fee they pay is probably lower. [0] Also fee surcharging is becoming more common in the US these days, and is already common is some other countries. Visa et al. still don't allow merchants to pass on the actual interchange they'll pay, but merchants can charge a fee to credit card transactions that they don't on debit or cash. But my original point is that giving rich people credit card rewards are not a transfer from the poor to the rich. It's a rational business decision by card companies that does not require any outside funding source, from poor people or otherwise, to make work financially. 0: There are some other factors that complicate this, such as the risk profile of the business. Riskier generally means higher fees.
SpicyLemonZest 2mo ago
I don't disagree with anything the author is saying. But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit. That's the argument that banks raise every time and why interest rate caps always die in committee. If advocates want to team up with Dave Ramsay and say "that's right, credit cards are bad, we want them to be less available", perhaps things could change one day. I'd donate to that cause. If we keep pretending that we could have exactly the same system with lower interest rates, I don't think we'll ever get anywhere.
- s1artibartfast 2mo ago
  I increasingly think people should have the option to define if they should be treated as an adult or not, kinda like an organ donor on their license. Those who opt out would be protected from their own choices.
  - SpicyLemonZest 2mo ago
    I think you're severely overrating the average level of financial literacy. If Alice has $3,000 in the bank with no credit card debt, and Bob has $10,000 in the bank with $7500 in credit card debt, who's richer? A lot of people will tell you that Bob is (he has three times as much money!), and a lot of reasonable, hard-working Bobs will tell you with a straight face that they're paying off as much as their budget allows each month. I don't think our financial regulations should require telling Bob that he's a child who can't be trusted to take care of himself; people shouldn't offer him products that are designed to exploit his mental accounting bias.
    - s1artibartfast 2mo ago
      Thats exactly what I am talking about. Make a class of people that are protected on the basis of the illteracy, comprehension deficits, or lack of self control. Let people decide if they want to be protected from their choices. > I don't think our financial regulations should require telling Bob that he's a child who can't be trusted to take care of himself; people shouldn't offer him products that are designed to exploit his mental accounting bias. It seems you want to protection and agree it is needed. If it hurts Bobs feelings, make the system opt out instead of opt in.
dev_daftly 2mo ago
The author couldn't even get through the first two sentences without being wrong. Credit card rewards are not funded by interest and this idea that credit card companies don't want you paying off your bill every month is retarded. The card issuer gets the majority of the interchange fee and makes a profit on every swipe even after accounting for rewards.
daft_pink 2mo ago
Aren’t they actually funded by swipe fees and the banks just make money off the interest but generally swipe fees are a transfer from the retailer to the consumer but ultimately built into the price.

36 points by willio58 2mo ago

pixl97 2mo ago

Sam Vimes "Boots" Theory of Socioeconomic Unfairnes, in article form.

applfanboysbgon 2mo ago

It is jarring to read Claude talking like it uses credit cards or feels guilt over using reward points.

willio58 2mo ago
Author here! I promise I didn't use Claude for any of this. I will admit I'm working on developing a "voice" in my writing, so maybe that's what you're sensing. Thanks for the read anyway.
soraminazuki 2mo ago
It's jarring to read a bunch of LLMs rushing to defend a predatory industry.
- eudamoniac 2mo ago
  There's a very basic financial instrument called a credit card and if you just exercise a modicum of control and a hint of reasoning, you get to have cheaper purchases for your entire life with no downside. Leftists think this is terrible, because when you voluntarily sign up for this instrument and then behave really stupidly, repeatedly over a long period with no reasoning or reflection, it's bad! We can't allow it! I can't say I agree with this worldview.
  - soraminazuki 2mo ago
    > you get to have cheaper purchases for your entire life with no downside If you uncritically believe things like this, I have a bridge to sell you. You should praise me for it too, because that's the kind of thing you explicitly condone. > Leftists think this is terrible Nah, it says more about your worldview than it does about your favorite bogeyman, especially when you ignore the entire article and start attacking a straw man.
    - eudamoniac 2mo ago
      I don't understand. Are you objecting to "cheaper purchases" or "no downside"? Yes the prices go up to subsidize the merchant fees. But they don't go up as much as I save in CC rewards, because my rewards are subsidized by people not using the card or using it poorly. I have 5% and 10% cards in certain categories and a 3% in all; abolishment of cards would never drop prices by that much. As far as downside goes I've been paying with cc exclusively for a decade and I've never paid a cent of interest, so I'm not sure what it would be.

deleted 2mo ago

[deleted]

variety8675 2mo ago

Pay in full customers can be profitable through interchange fees alone, so I don't really follow how it is a wealth transfer

theandrewbailey 2mo ago
Merchants almost never pass along interchange fees to the customer. Instead, it's built into the prices that every customer pays the merchant, regardless if the customer uses a credit card, which means everyone pays for credit card rewards.
- justinclift 2mo ago
  Are you saying that in the US, there's no "credit card surcharge" line item near the bottom of your receipts to cover it?
  - xboxnolifes 2mo ago
    Sometimes, not always.
  - fernie 2mo ago
    Yeah, they include the surcharge in the list price and give you a "discount" for paying in cash (or direct debit). Some merchants include it as a separate line item. But remember that taxes aren't included in the list price, so it doesn't stand out as much as it does in other countries.

B1FF_PSUVM 2mo ago

Bullshit guilt-tripping logic. Just the 150 billion from "interchange" (merchant fees) would be enough reason to fund the 15 billion (estimated) rewards. What next, supermarket coupons as a wealth transfer mechanism?

lyall 2mo ago

You hear this argument pretty often, but it's not true. Credit card companies do make a lot of money off of interest. But they also make a lot of money off of interchange fees. Businesses want wealthy customers because they spend more money, so they're willing to pay a higher interchange fee to access those customers. Higher interchange fees mean card companies can offer better rewards, which in turn attract more wealthy customers to their cards. So even if credit card debt was not a thing, it would still be incredibly profitable for card companies to sell access to their rich cardholder clientele, and to in turn provide rewards to those cardholders.

pilotneko 2mo ago
Businesses raise prices to cover the interchange fee, which impacts lower income consumers disproportionately.
- imustbeevil 2mo ago
  That's completely arbitrary though. They could also increase prices without any interchange fee. If people are willing to pay, the price goes up. Cost (of which the interchange fee is but one) only affects the lowest possible price. No one ever gets that price.
  - bryanlarsen 2mo ago
    People wouldn't be willing to pay the extra amount if it was cheaper at the store across the street. But the store across the street also has to pay the interchange fee, so they're not cheaper.
  - chneu 2mo ago
    CC fees are transferred directly to customers. It isn't arbitrary. There are plenty of low cost stores that don't accept CCs for this reason: it hurts low income people more than others. It saves 2-3% to the consumer for grocery stores.
- lyall 2mo ago
  Yes, there is something to be said for this argument. Debit card and cash users pay slightly higher prices than they might otherwise, which do subsidize the rewards of credit card users. But this is distinct from the argument presented in the article, which is that poor people's credit card debt funds rich people's airline miles. But there factors that counteract this. Merchants pay different average fees depending on the mix of cards that they accept. A dollar store probably sees fewer Chase Sapphire Reserved or Amex Platinum cards than a Gucci store does. Accordingly, the average interchange fee they pay is probably lower. [0] Also fee surcharging is becoming more common in the US these days, and is already common is some other countries. Visa et al. still don't allow merchants to pass on the actual interchange they'll pay, but merchants can charge a fee to credit card transactions that they don't on debit or cash. But my original point is that giving rich people credit card rewards are not a transfer from the poor to the rich. It's a rational business decision by card companies that does not require any outside funding source, from poor people or otherwise, to make work financially. 0: There are some other factors that complicate this, such as the risk profile of the business. Riskier generally means higher fees.

SpicyLemonZest 2mo ago

I don't disagree with anything the author is saying. But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit. That's the argument that banks raise every time and why interest rate caps always die in committee. If advocates want to team up with Dave Ramsay and say "that's right, credit cards are bad, we want them to be less available", perhaps things could change one day. I'd donate to that cause. If we keep pretending that we could have exactly the same system with lower interest rates, I don't think we'll ever get anywhere.

s1artibartfast 2mo ago
I increasingly think people should have the option to define if they should be treated as an adult or not, kinda like an organ donor on their license. Those who opt out would be protected from their own choices.
- SpicyLemonZest 2mo ago
  I think you're severely overrating the average level of financial literacy. If Alice has $3,000 in the bank with no credit card debt, and Bob has $10,000 in the bank with $7500 in credit card debt, who's richer? A lot of people will tell you that Bob is (he has three times as much money!), and a lot of reasonable, hard-working Bobs will tell you with a straight face that they're paying off as much as their budget allows each month. I don't think our financial regulations should require telling Bob that he's a child who can't be trusted to take care of himself; people shouldn't offer him products that are designed to exploit his mental accounting bias.
  - s1artibartfast 2mo ago
    Thats exactly what I am talking about. Make a class of people that are protected on the basis of the illteracy, comprehension deficits, or lack of self control. Let people decide if they want to be protected from their choices. > I don't think our financial regulations should require telling Bob that he's a child who can't be trusted to take care of himself; people shouldn't offer him products that are designed to exploit his mental accounting bias. It seems you want to protection and agree it is needed. If it hurts Bobs feelings, make the system opt out instead of opt in.

dev_daftly 2mo ago

The author couldn't even get through the first two sentences without being wrong. Credit card rewards are not funded by interest and this idea that credit card companies don't want you paying off your bill every month is retarded. The card issuer gets the majority of the interchange fee and makes a profit on every swipe even after accounting for rewards.

daft_pink 2mo ago

Aren’t they actually funded by swipe fees and the banks just make money off the interest but generally swipe fees are a transfer from the retailer to the consumer but ultimately built into the price.