Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Weekly Wrap-Up: Gold and Silver Find Slight Gains on the Week
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 5 25 2018
By: Ira Epstein

COT Gold, Silver and US Dollar Index Report - May 25, 2018
By: GoldSeek.com

Gold Juniors’ Q1’18 Fundamentals
By: Adam Hamilton, CPA

Trump "Victories" on Trade are Anything But
By: Peter Schiff

Debt Slaves, Part 1: Million Dollar Student Loans And The Coming Bailout
By: John Rubino

Three Drivers of Gold, Second Look
By: Arkadiusz Sieron

GoldSeek Radio Nugget: Peter Schiff and Chris Waltzek
By: radio.GoldSeek.com

Can We Really “Time” The Market?
By: Avi Gilburt

GLOBAL FINANCIAL BREAKDOWN CONTINUES: Economic Growth Chokes On Massive Debt Increases
By: Steve St. Angelo

 
Search

GoldSeek Web

 
New Loan Sharks Entering The Credit Card Business


By: John Rubino



 -- Published: Wednesday, 9 May 2018 | Print  | Disqus 

A while back, a writer (whose name and story details I unfortunately don’t remember) was researching the credit card business and tried to figure out how card issuers decide which customers to pursue. To this end he created a series of fake personas ranging from an affluent straight-arrow who always pays her bills on time to a white-trashy guy with impulse control issues and a history of multiple defaults and late payments.

The findings? Impulse-control-issues guy was deluged with card solicitations while straight arrow’s mailbox was relatively empty. Credit card companies, it turned out, make most of their money by extending credit to people who will be frequently late (thus generating massive late fees) and who are likely, when they do make a payment, to choose the minimum and let their balances accrue at double-digit interest rates. Customers who pay off their modest monthly balance are relatively unprofitable for the card companies and are therefore not as attractive.

Why bring this up, other than because it’s always fun to pick on such obvious villains? Because two uber-villains are now eyeing the business:

Goldman, Wells Fargo Look to Credit Cards for Bigger Returns

Two of the biggest U.S. banks, Goldman Sachs Group Inc.and Wells Fargo & Co., are on the brink of piling into credit-card lending, seeking a share of the $183 billion in fees and interest tied to the product.

Goldman Sachs is weighing the move as part of a push into consumer finance with its Marcus online lender, Chief Financial Officer Marty Chavez said during a conference call with analysts last month. Wells Fargo plans to resume targeting U.S. non-customers with mailed credit-card offers later this year and began accepting new applicants from outside affiliates in 2016.

The firms have pressing reasons to jump into card lending. Goldman is looking for a business that promises attractive returns even if the bank doesn’t win a large share, Chavez said. And for Wells Fargo, entering a market rich with fees is even more important after a Federal Reserve order crimped its business plans amid customer abuses in retail banking.

The lure is clear. The fees and interest U.S. banks collected from their card businesses jumped 12 percent in 2017 from a year earlier, according to estimates from payments consultancy R.K. Hammer. The average household that maintains a balance in credit-card debt pays $904 in interest a year, a study by Nerdwallet shows.

credit card income streams

Let’s take a quick look at these income streams. “Interchange income” is what card companies charge merchants for transactions. This is a legitimate fee that merchants don’t like but accept as the price of convenience.

Interest income is the loan-shark level rates cards charge their customers who carry a balance. According to Bankrate.com, the average rate is currently 16.9%. Anyone who pays this kind of interest on a loan in today’s artificially-low-rate world is clearly disabled in some fundamental way and should not be preyed upon by lenders. But in the world of credit cards they’re celebrated as ideal customers.

Late fees go hand-in-hand with exorbitant interest rates. If a customer/victim is desperate enough to pay 17% interest they’re probably going to miss the occasional payment, allowing the card companies to tack an extra $30 or so dollars onto the ever-expanding balance.
As for cash advance fees, here’s an explanation from financial site
TheBalance:

Your credit card issuer isn’t really doing you any favors by letting you take out a cash advance, which can be done via ATM or through convenience checks your card issuer sends in the mail.

They’ll make money off the transaction, by charging a cash advance fee each time you take out a cash advance against your credit limit. That’s on top of interest charged starting from the day you make the cash advance.

Most credit card issuers charge either a flat fee or a percentage of the cash advance amount, whichever is greater. For example, a typical cash advance fee is the greater of $10 or 5%. So, if you take out a cash advance of $100 under these terms, your cash advance fee would be $10 since 5% of $100 is only $5. On the other hand, if you take out a cash advance of $500, your cash advance fee would be $25.

With some credit cards, you may face a cash advance fee even if you don’t take out a cash advance from the ATM.

The readership of this blog skews older, wiser, and more affluent, so let’s have a show of hands: How many of you pay frequent late fees on your cards? Virtually none? Good for you.

How many of you carry a balance and pay double-digit interest? Virtually none again? Excellent.

How many of you pay an annual fee on your card? Some of you? Understandable because card issuers make fee-charging cards sound like status symbols, but in reality they do virtually nothing that a no-fee card can do. So cancel that high-fee card and replace it with one that lets you buy stuff and accepts full payment at the end of the month – which is to say any standard-issue Visa or Mastercard.

Now, if you’re not feeding the credit monster, where are all these billions in interest and fee income coming from? Obviously from the poor bastards who can’t manage credit and because of that are specifically targeted by these loan sharks with stock tickers. Now that Goldman and Wells Fargo are jumping in, look for mail carriers with trailer parks on their routes to have sore backs in 2019.

The only happy part of this story is the timing. This late in the cycle, an expansion into subprime consumer lending (which is what credit cards are as currently marketed) is virtually guaranteed to blow up in card issuers’ faces.

 


| Digg This Article
 -- Published: Wednesday, 9 May 2018 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus







 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.