As we know, credit card companies call people who pay their bills on time and in full “freeloaders,” and management highly resents such deadbeats because they’re not cash cows like people who sink over their heads in usurious debt. Credit-card issuers make something on us bums, of course, because each charged transaction nicks the merchant a percentage of the sale price. But it’s nothing like the criminal interest rates and extra gouges they get from people who run a tab on their cards.
Well, if you’re one of those losers who pays your bills on time, watch out! The legislation pending in Congress to limit credit-card penalties and curb wacko punitive fees is about to backfire on you. In response to having to quit ripping off feckless consumers who can’t or won’t clear their credit-card debt, the nation’s banks are about to curtail cashback and other rewards, eliminate grace periods, and sock every card user with an annual fee. As American Bankers Association CEO Edward L. Yingling told the New York Times, “It will be a different business. Those that manage their credit well will in some degree subsidize those that have credit problems.”
Don’t think so, Ed. Charge me a fee to carry your plastic around in my purse, and you can have the piece of plastic back. I, for one, do not and will not pay an annual fee (or any other kind of fee) for the privilege of going into debt at a usurious rate. While it’s a great convenience to have an American Express and a Visa card in hand, it sure doesn’t come under the heading of “necessity.”
So, what will we do if suddenly all our credit card issuers inform us that cash kickbacks and airline miles are things of the past, that we now have to pony up $25 or so to use any credit card, and that the grace period for paying one’s bill has died?
The AMEX cashback scheme is the sole reason I use my Costco American Express card for every purchase I make. The reason I got the AMEX card in the first place is that Costco quit accepting any other credit card at its gas pumps, which dispense the cheapest gas in town. Costco won’t accept cash for gasoline, and I don’t care to use a debit card. If AMEX reneged on its cashback plan, I probably would continue to use the card exactly as I do now, because it’s a great convenience and because the “float” between charge date and payoff date makes it easy to manage my budget.
However, if they demanded an annual fee, I’d cancel the card in an instant. Ditto the Visa card.
There are some good reasons to have a credit card, most of them related to booking travel arrangements and to the extra back-up in case of a dispute with a merchant. I’d be sorry to see the cards go, but go they would if I were made to pay to carry them around.
In lieu of cards…what? There are several fine alternatives:
• Use a debit card instead. Costco’s gas pumps accept debit cards, and so do most other merchants. Disadvantages: it’s a fair way to bounce a transaction, and there’s little or no protection if someone steals the thing and hacks into your account.
• Pay recurring bills with EFTs from your checking account, not by charging them on your credit card. Disadvantage: some vendors won’t accept EFTs. But they may change their attitude when their best customers dump credit cards.
• Use cash. Some people find they spend less when they carry cash instead of a charge card. I personally have the opposite experience: cash flows through my fingers like water, and at the end of the day I have no clue where it went. But I suppose you could keep every receipt and enter it in Quicken or Excel; if that helps you keep a grip on credit-card spending, it presumably would do the same for cash.
• Use checks. This creates a paper trail, just as charge card statements do. Disadvantage, of course, is that checks are an expensive nuisance.
My strategy: First, to find out if policies to shaft us “deadbeats” apply to the Visa cards available through the credit union. If not, get one of those; if so, get a debit card and start using lots more cash.
Times reporter Andrew Martin reminisces that in the good old days only the best consumers could get credit cards—and indeed, I do recall the time when flashing a credit card advertised your status. Now everyone will know that only the worst money managers have to use credit cards—pulling out a credit card at the grocery check-out will signal fellow shoppers that you can’t afford to pay your bills in cash.
What do you plan to do if your credit card issuer yanks your benefits and proposes to charge you an annual fee?
Right on! I couldn’t agree with you more. My business is to be earned and appreciated, and if any credit card tries to charge me an annual fee as a penalty for being responsible, I’ll cancel it an a NY minute for the principle. Like you, I have that Costco AMEX card, and b/c most of my expenses revolve around eating out (single guy, 30’s) it’s the perfect card for me with the 3% cash back. Even if I might still come out ahead factoring in an annual fee, I’d still cancel the card b/c I can’t stand being taken advantage of.
Hmm… There’s something to be said about the possibility that if AMEX kept the cash kickback but instituted a $25 or $30 annual fee, you’d still come out ahead, as it were. I usually get around $250 a year from that come-on. But there’s nothing to stop the issuer from canceling the cash-back scheme after they’ve persuaded you to stick around with the fee.
that’d be a major problem for me too. i’d be okay with continuing to use a cc if there was no annual fee and a grace period even without the rewards. otherwise i’d probably open a new bank account and keep my monthly spending money in it and use a debit card with it (wouldn’t want to go around using a debit card on my main account unless banks step up protection)
My card has already slashed my rewards benefits. That’s annoying but OK. If they charge me an annual fee or eliminate the grace period, though, that’s it for the card.
This smells like a scare tactic by the credit card companies to avoid this piece of regulation. The companies make plenty of money on each transaction I make from the interchange fees. That’s a steady, no-risk source of income for them. Some card issuer, or some alternative payment system provider, will always be happy to give me a free card to harvest that cash.
@ Synapse: “Scare tactic” is exactly how it sounds. Take a look at what the legislation asks credit-card issuers to do, which Jim summarizes neatly at Bargaineering:
Jim adds that “The House’s version also requires promotional rates to remain in effect for a minimum of 6 months” and that “credit card companies must warn a customer if they get close to their credit limit.”
There’s nothing unreasonable in any of this: it simply asks for fair play. The squawk emanating from the banks suggests they’ve been minting vast amounts of money by putting the screws to their customers, the very customers who have been lured into taking out revolving loans at exorbitant rates.
They surely must be aware that this legislation has been proposed because Congress’s constituents recognize they’re being treated scurrilously and are not going to put up with it any longer. Even the vaguest consciousness of this fact would clue a credit-card issuer that large numbers of people will drop credit cards that charge annual fees. So…the talk may be just that: talk.
Drop them like a hot potato, I say! If they’re going to threaten to put the screws to us responsible ones for being ordered to behave in a less knave-like fashion, I don’t need them.
I’m happy to say I really do not need them. Perhaps, once upon a time, their rewards were the only way I could afford frivolous purchases like gifts and such on a broke college student income, but that’s the case no more.
I’ll go to checks, cash or debit cards. And I’d stop shopping online as well.
It’d be less convenient but I refuse to start paying annual fees and higher interest (eff. immediately upon purchase) solely because they’re making less profit.
Good grief. Thanks for this piece of news, I don’t see myself going back to writing checks or carrying cash, but I have a little-used credit union account that I could put enough money in to cover monthly expenses, like Carrie suggests. Please keep us posted, Funny.
I, too, am wondering how much of these predictions are just scare tactics to try and fake legislators out. (That said, since they didn’t flinch, maybe card companies will do it.)
I can’t imagine that all card companies will install annual fees. Then again, I could just be overly optimistic.
We were planning on canceling our United Airways card, but now I think I’ll keep it around for awhile. Under present terms, the card lets you use some miles you earned to pay your annual fee, if you like. That will come in useful if annual fees become ubiquitous.
Still, I’m wondering why the card companies don’t simply charge a fee for the users that are being saved all those fees/penalties. It would be a good way to reward good customers and make more money off the financially problematic.
I would be really upset if my Citi card starts charging me an annual fee. I’ve had it for 12 years, and would hate to ding my credit by closing my oldest account. Still, if I can avoid paying a fee, I’ll say a fond farewell.
my main CC (used for travel and online purchases only and paid off every month) is from a credit union. I’d hope that as shareholders, we would not be hit with an annual fee. Of course there are no rewards on it either, but I use it so seldom, that’s not really an issue.
Am I the ony one who sees that Costco penalizes cash customers?
The people from whom they make the most, cash customers, do not get any cash rebates and are forced, by Costco, to use American Express Card.
Jim Sinegal, STOP PUNISHING THOSE WHO PAY WITH CASH FOR IT IS FROM THEM THAT YOU MAKE THE BIGGEST PROFITS.
@ JH: How does Costco penalize cash customers? The price is the same, whether you charge or pay cash. They have a deal with American Express that gives Costco a much better deal with AMEX than anyone out in the wild gets: a cash kickback, no annual fee, and so far none of the extra gouges other card issuers have instituted in the wake of the new credit-card consumer protection law. If you want to buy gas there without using a credit card, simply use cash to buy a cash card, which works at the gas pumps.
Funny,
The Amex card has cash rebates for all purchases made at Costco. Cash customers pay for the credit they do not use as well as the rebates for those who chose to use an Amex card. The idea of a retailer dictating what credit card customers will use, without choices and then charging them $50+ a year for membership is ABSURD.
If you buy gas with a cash card you do not get the 3% back!!!
Hi, JH– The AMEX card has cash rebates for all purchases anywhere, not just restricted to Costco. All merchants who accept any credit card have to pay transaction fees to the credit card issuers; that cost is passed along to consumers, whether or not they pay in cash or by credit. Thus the situation isn’t exclusive to Costco. It’s pretty much universal across the land and around the world, unless you buy from cash-only businesses.
Funny,
I see that my response to you of April the 23rd, 2010 hit a nerve. I do think that you are in some way affiliated with Costco because you have removed my response to your April 22nd, 2010 comments.
Once again: I am not convinced that Amex gives rebates across the board for all retailers. Regardless, cash customers pay a surcharge for all charges made. At Costco, they not only subsidize the customers who pay with credit but are further penalized by not receiving any rebates as well.
Since you have decided to remove my last comment, I am tempted to create an open blog where other responsible, dissatisfied Costco members can have a voice. Over the past three years I have seen this happen at other sites as well…it seems Costco does not like valid criticism and exerts influence to stifle its members’ concerns.
@ jh: You should do that–it could be useful. As for your last: I do not accept abusive comments. People are welcome to disagree with me civilly, but I feel no need to tolerate ad hominem (feminem?) attacks.
Funny,
The comments were not abusive and were based purely on logic…the looks like a duck syndrome. When one defends an indefensible policy the logical conclusions are:
the defending party is biased and or lacks comprehension. Ergo, the remarks were civil and logical.
JH, your comments were phrased in an accusatory, patronizing, and flat out rude manner. Ergo, you were coming across as abusive.
Perhaps a refresher course on web etiquette would be appropriate for you, as you think that using all caps is civil behavior and it’s not. Funny tolerates and welcomes all kinds of dialogue and disagreements but she doesn’t have any reason to tolerate poor behavior.