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It might be a very European view to the problem but: Why does the American government does even tolerate this credit card garbage business in the first place ?
by adev_ 3y ago
It might be a very European view to the problem but: Why does the American government does even tolerate this credit card garbage business in the first place ?
We are in the 21th century. Most payment can be validated electronically and processed under 200ms. I can pay something with my phone and get money taken directly from my bank account within seconds. There is absolutely no need of Credit Cards where Debit Cards can perfectly do the job.
So Why ? Why sponsor a system that fuck up entire families and push vulnerable people to suicide by giving them a way to pay things they can not afford in the first place ?
Why tolerate an entire industry of debt management that put people to their knees and bring literally Zero value to the real economy ? For the sake of few profits in Wall Street ?
This is complete nonsense.
I understand why the credit card business was born in the first place: Amex, Visa and MasterCard has been invented in a time where electronic payment was still a dream.
In the 60s, indeed, holding a debt record to every card holder was probably the only way to get a non physical payment system to work in the first place.
We are not in the 60s anymore. A cashless payment system does not need debt.
So: Why ?
- deleted 3y ago[deleted]
- dsab 3y agoYes, for the profit of Wall Street
- relyks 3y agoA lot of credit card companies offer cash back or redeemable points towards other purchases like for travel. If credit cards are used effectively (you pay back every statement balance) and the merchant isn't significantly raising the price of goods or services for transaction costs, you can make a serious amount of money back, easily in the amount of thousands of dollars per year from normal everyday use. Edit: When I was referring to "transaction costs," I was referring to merchant fees
- nevir 3y agoBut those thousands of dollars are effectively subsidized by every one making a credit card purchase (e.g. merchant fees) - and not everyone being able/savvy enough to utilize them well Consider how much cheaper things might be across the board with lower fees
- eru 3y agoThat money still comes from your spending with the merchant, so ultimately out of your own pocket. But you are right, that the system is not very transparent, and merchants probably seldom give people the full discount of the costs saved when they use non-credit card payments.
- relyks 3y agoMost sadly don't give a discount for not using a credit card. I've only seen my local bagel place do that. Other places say they will charge a credit card transaction fee even if you use a debit card (which still has costs for the merchant but not as much as credit cards)
- eru 3y agoAgreed. You can indirectly see some of this happening though: lots of places with lower margins (ie cheaper prices) won't accept American Express, but might accepts Visa and Mastercard. That's exactly because of the difference in fees. If you go shop at merchant A that accepts American Express, you pay a higher price no matter how you pay. But if you have a non-American Express means of payment, you can shop at merchant B, which has lower prices overall (no matter how you pay). The economic effect is similar to directly passing on the fees transparently.
- adev_ 3y agoMoney does not grow on trees. From my understanding this cashback systems come from two sources: (1) Money taken on processing fees on Merchants themselves. (2) Money taken from the interests of debt from the people screwed by this entire system. The first one is just an hidden tax and garbage profits made possible only due to the monopolistic behaviour of credit card companies. The second one is just plain simply immoral.
- eru 3y agoI agree on your analysis of the sources. > The first one is just an hidden tax and garbage profits made possible only due to the monopolistic behaviour of credit card companies. I'm not sure any supposed monopoly is necessary here to explain anything. In fact, there's no monopoly and different competing issuers have different levels of fees and 'rewards'. Eg American Express explicitly has high fees and high rewards, and competes against Visa and Mastercard (and against domestic systems in eg Germany or Japan). A monopoly (or oligopoly or cartel) argument could perhaps explain why the smallest fees you can find are still 'high' by some arbitrary standard, but it couldn't explain why American Express is a viable competitor. See https://upgradedpoints.com/credit-cards/us-credit-card-market-share-by-network-issuer/ https://upgradedpoints.com/credit-cards/us-credit-card-marke... for market shares of the different payment networks in the US.
- pavlov 3y agoThere’s nothing productive in the system creating that output. It’s just money redistributed from fees paid by the merchants and other customers. It’s a bit like a casino: somebody can get lucky and get out more money than they’re paying, but most don’t. And the house (Visa/MC/Amex) always wins.
- anovikov 3y agoMoreover, it's an inequality engine. Get money from those who can't pay their bills (poor - they are punished bad back-breaking late fees and penalties) to those who can (middle class and the rich who usually pay their cards off in full every month so never pay any interest, and get cashbacks and bonuses/airline miles/etc).
- pavlov 3y agoA lot of the American consumer finance infrastructure seems to be set up like a regressive tax on poor people who can’t avoid using the system. If you don’t have money, banks will charge you $15 / month for a basic checking account, plus $50 overdraft fees if you make the slightest mistake in balancing the account (or if a company makes a fraudulent charge on your account — also dismayingly easy in the US system). If you have any reasonable income they start waiving the fees, and beyond that they’ll shower you with offers for credit card rewards and other benefits effectively paid from the massive windfall the banks and other companies collect from the poor. The market isn’t solving this, so there should be more regulation and very tight caps on these various fees. A bank account shouldn’t cost more than $2 / month. An overdraft shouldn’t be possible unless you opt in to a loan facility.
- anovikov 3y agoWhy is the market like this? It's naturally harder to make money off poor people because they have less money. It's also not how retail banking works in Europe, they tend to make money off the rich here in ridiculous ways ("keep $400,000 frozen on your deposit for an almost zero interest rate and get a few useless perks like a red-carpet priority lane at the airport"). And i don't think it's regulation. Maybe European poor and American poor are different (can't do the math, don't care, have planning horizon too short)?
- c1sc0 3y agoBecause it stimulates the economy by making it easier to consume. Without consumption the whole house of card falls down.
- eru 3y agoIt doesn't really make consumption easier. In any case, you can just print more money, if people in the economy aren't spending enough. (In more formal terms: the central bank can control nominal gross domestic products.)
- tourmalinetaco 3y agoThe Federal Reserve already overprints, that’s one reasonwhy the USD and almost every other major currency is currently struggling. Printing more money during high inflation only worsens the problems.
- eru 3y agoMaybe. But in that case, adding more consumer spending via consumer credit would be a negative, not a positive? (Only money that's actually being actively spent makes a difference. If the Fed prints oodles of money but buries it in their backyard, it would have no impact on inflation.)
- qwytw 3y ago> adding more consumer spending via consumer credit would be a negative, not a positive? In a way yeah. I mean you increase demand for goods/services without an equivalent increase in productivity you just end up with higher prices (of course the idea is that "economic" stimulus still tends to increase productivity somewhat, just by a lower % than the increase in money supply. That generally seems to be fair).
- tourmalinetaco 3y agoAbsolutely. I am not advocating for consumer credit, in fact I find the current system immoral. I am saying that injecting Monopoly money into the economy is part of what’s gotten us into this mess.
- sixothree 3y agoI don’t know the answer to your questions. But I do know this. People generally are weary of using their debit cards for transactions because of the security and the direct access to bank accounts. We don’t have chip pin. And if a fraudulent credit card transaction appears there is generally a lot of consumer power to get that removed, after some time. But a fraudulent or simply inaccurate debit transaction happens to you can lose a lot more. And overdraft fees can cost hundreds of dollars in a bad situation.
- turdprincess 3y agoOn the other side, if you are privileged enough to be financially stable, in the USA it’s best to pay for every single thing with a credit card. Aside from the points and rewards, credit cards are much more likely to reverse fraud transactions. I’ve had banks deny fraud reports and demand police reports while credit cards always reverse the transaction no questions asked. Actually it’s best to not even have a debit card in your wallet if it’s linked to your main bank account - the only debit card I carry has access to an account with a hundred dollars or so just in case I need cash.
- kioleanu 3y agoThat is just another symptom of the problem I would say. Although it does happen, there are other mechanisms in place to protect you from fraud, which discourage fraud in the first place. I’ve been paying with debit cards for more than 15 years in Europe, tens of thousands of transactions and not once did I need to reverse one.
- piperswe 3y agoThe only time I've ever had to dispute a charge is when I bought something from a website that had apparently gone out of business without taking down their site. Weeks passed after my order, I reached out multiple times, and I never heard a peep from them. I just logged in to my Chase account, disputed it, got my money back instantly, then went on with my life. That doesn't sound like something that's super easy to prevent.
- lmm 3y agoLucky you. I have and it was an absolute nightmare, had to survive on no money for a couple of weeks until the reversal went through. Never again.
- qwytw 3y ago> Europe, tens of thousands of transactions and not once did I need to reverse one. Me neither. But (living in an EU country) every time I hear about someone who was a victim of a fraud/scam/etc. when SEPA/Bank transfers or debit cards are involved the banks just seem to pretty much tell everyone that's not their problem and that you should go the police (who obviously can hardly ever get the money back from the scammers directly, especially if they are in another country). Some banks ever offer some sort of a "scam insurance" for a fixed monthly fee, which just seems absurd. Why do I even have to pay them in the first place (most banks charge some monthly fee just a for a debit card) if they can't guarantee they won't just start giving away my money to random people with no recourse? OTH if you're using a credit card chargebacks seem to be an option even here (local banks just do their best to hide that from you)...
- habosa 3y agoYou're mostly correct but I should point out one thing that credit cards do that debit cards don't really do in America: fraud protection. Credit card companies spend a lot of money protecting their customers from card number theft (which is rampant in all parts of the world)
- sebazzz 3y agoDebit cards in the Netherlands at least don't have a number that can solely be used for payments. You need the physical card (with a pin code which isn't written on the card but memorised), or a virtual card like Apple Pay coupled to that card. It seems that fraud protection is rather something that is necessary because fraud is so easy.
- seanmcdirmid 3y agoNot all countries apply this protection to their credit cards, even if they are issued from visa/master card/Amex. For example, we knew if a Chinese restaurant in Bellevue WA would target Chinese visitors using ICBC AmEx cards because ICBC (a big bank in China) puts the onus on the consumer to prove they didn’t make the charge rather than in the business making the charge. American credit card issuers would never do that and just let you make the charge back.
- eru 3y agoThat might be true (I don't know), but then we are left with another mystery: why do credit card companies spend more effort combating fraud than debit card companies do? (Also keep in mind that it's often the same companies that do debit and credit cards. For example, I have debit cards in the Mastercard and Visa networks, but no credit cards. I assume most of the fraud prevention efforts benefit my debit cards as well. Also that relying on a bunch of numbers alone is pretty sketchy. But I am choosing to interpret fraud more widely, than just card number theft. I am pretty sure card number theft is pretty low(er) in parts of the world where people pay with chip-and-pin, and don't use numbered cards.)
- adev_ 3y ago> Credit card companies spend a lot of money protecting their customers from card number theft (which is rampant in all parts of the world) I only bite half to this argument. If they really wanted to fight against credit card number theft, they would: - Enforce pin payment everywhere around the world - Ban magnetic strip payment once for all - Enforce two factor authentication system for anything related to online payment. They do not. Why ? Because the fraud "real" cost is mainly thrown in the wild on the merchant that have to deal with their goods being sent and their payment being reverted. It is a liability issue. I am pretty sure that with a little law that, lets say, enforce Banks to reimburse their customers under 24h00 for a small fee, lets say 10$, in case of fraudulent transaction: This entire system of scam would fade away pretty quickly.
- benjaminwootton 3y agoBecause the vast majority of people use credit cards without messing up their lives? I suspect most people don’t even need them but use them for cash back and consumer protection. For people who do need them, there’s nothing inherently wrong with buying something and spreading the cost or paying for it later in return for paying some interest. Most people who do that won’t get into any trouble. There are a hundred legal but potentially dangerous things that should be banned before credit cards if you want to go down that route. Start with guns, processed food, alcohol and social media perhaps?
- metacritic12 3y agoFunny enough, Europe has indeed banned various degrees of the top items on your list. Generally Europe more paternalistic and Europeans like it that way. Americans are less so, and like it that way.
- atoav 3y agoGuns and alcohol banned in Europe? That will surprise my hunting, schnaps-drinking grandfather. My gun-smithing hometown and the people at the Glock factory will be shocked. I will need to tell them. Jokes aside: guns are regulated where I am from, they are not banned. That means you have to have a weapons license and store guns properly. That license can be revoked and the guns taken if you have shown to be not mature enough to carry them, by e.g. threatening people or acting unresponsibly with guns. Xertain guns require special permits or expertise to be handled. And if you wanna shoot with LMGs, enter the military. Sounds reasonable right? And alcohol? Legally we are allowed to drink beer at 16, hard alcohol at 18 — how is it at your place?
- adev_ 3y ago> I suspect most people don’t even need them but use them for cash back and consumer protection. Then make a debit card system with cash back and customer protection. And kill a system that screw people with useless debts when there is no need for it. Btw > Because the vast majority of people use credit cards without messing up their lives? You never know where life bring you. I can certify you that "good", "honest", "responsible" people can also get screwed under a mountain debts because some unfortunate life circumstances brought that on them. This system just make that much easier.
- cscurmudgeon 3y agoYou conveniently left out the part where credit cards offer ... credit. Essentially quick loans upto a limit with zero collateral. If the govt. banned credit cards, you will then ask why poor people can't get credit. They will then go to payday loans and loan sharks. Remember, nobody forces you to use credit cards. Also, the US is also not the top country for either credit card usage or possession. Some European countries top the US. https://www.theglobaleconomy.com/rankings/people_with_credit_cards/ https://www.theglobaleconomy.com/rankings/people_with_credit... > We are not in the 60s anymore. A cashless payment system does not need debt. Right, when I lived in EU briefly, I remember the insane complex and costly bank accounts. Nothing comes for free. https://www.cnbc.com/2023/08/31/savings-europeans-hit-out-at-banks-for-not-passing-on-higher-rates.html https://www.cnbc.com/2023/08/31/savings-europeans-hit-out-at... https://www.reddit.com/r/eupersonalfinance/comments/10usczr/why_are_eu_banks_so_painful_and_bad/ https://www.reddit.com/r/eupersonalfinance/comments/10usczr/... > EU banks also have many fees... To get a contactless debit card - there is a fee. Use your contactless debit card and pay a 1% fee on every purchase. Use your debit card in another EU country and get a 5% foreign transaction fee added on top. There is no checking account interest paid to you. You need to have a minimum balance. etc. Absolutely terrible service.
- eru 3y ago> If the govt. banned credit cards, you will then ask why poor people can't get credit. Or alternatively, poor people would get their credit more from alternative providers. Like payday loans or pawnshops, or even loan sharks. Those alternative sources of credit have exactly the same problem with shady collectors. The article alludes to that, but decides to focus on credit card debt. The article also implies that perhaps regulation that encourages banks to offload credit card debt from their balance sheet might be to blame. If you instead had regulations that encouraged banks to keep credit cards on their balance sheets, and/or to make it so that debt collection agencies have to keep mentioning the co-branded sponsors (like Apple and Amazon etc), then collectors might have more of an incentive to be less shady to protect the reputation of established brands. Reputation of established brands is very, very valuable, and does not require a lot of paperwork or bureaucracy to self-enforce. So that might actually be a better fix than enshrining yet more 'customer rights' in law, that only the literate classes who know how to navigate bureaucracy can actually enjoy.
- eru 3y ago> Why does the American government does even tolerate this credit card garbage business in the first place ? Why should the government be involved in tolerating or not tolerating this? Credit cards are perfectly legal, ie tolerated by the government, in most of Europe, too. The real question is: why do customers and merchants tolerate credit cards? > So Why ? Why sponsor a system that fuck up entire families and push vulnerable people to suicide by giving them a way to pay things they can not afford in the first place ? Debt in general, and buying things on debt in particular, ain't unheard of in Europe either. Debt collection agencies with shady practices exist in European countries, too. > Why tolerate an entire industry of debt management that put people to their knees and bring literally Zero value to the real economy? Who says it brings zero value? Have a look at why customers and merchants tolerate this industry. It's more complicated than 'banks are evil, and customers and merchants are idiots'. (They might very well be, but for your explanation to work, European banks would need to be less evil, and European customers and merchants need to be less stupid.) > In the 60s, indeed, holding a debt record to every card holder was probably the only way to get a non physical payment system to work in the first place. I don't think that's the case. And even if it was, your explanation doesn't explain the popularity of revolving credit, instead of just paying off everything every month. Compare also https://en.wikipedia.org/wiki/Direct_debit#Germany https://en.wikipedia.org/wiki/Direct_debit#Germany and https://en.wikipedia.org/wiki/Eurocheque https://en.wikipedia.org/wiki/Eurocheque Payment by 'Eurocheque' typically involved short term debt with the merchant as well, but I don't think it had the same 'bad' influence as credit cards had. Similarly, I don't think checks in the US cause the same issues that you are bemoaning here as credit cards do. But checks also work on something that works exactly like (short term) debt. > A cashless payment system does not need debt. Debt might not strictly speaking be necessary. But it doesn't by itself seem to cause the problems you are complaining about.
- uoaei 3y agoThree letters: GDP The economy functions "better" (for a very specific definition of the word) when people can spend money they don't have.
- logN_2 3y agoWhy have the money taken out of my bank account for a purchase made today when I can pay it without penalty 60 days later and let the money grow in my brokerage account. Along with the usual answers like cash bank/points/consumer protection, it also decouples spending from "pay day".
- unmole 3y ago> It might be a very European view to the problem but: Why does the American government does even tolerate this credit card garbage business in the first place ? TIL: Credit cards are banned in Europe. /s
- adev_ 3y ago> TIL: Credit cards are banned in Europe. /s They are not banned. They are heavily regulated in many European countries. In several of them: - Cashback systems are simply banned. - Credit card are by default Debit Card. The credit option need to be opt-in. - Credit Card payments spread over several months are discouraged or simply banned by default. Credit cards are also much more rare. With an average of ~1 Credit Card per inhabitant in some countries. Where the US average is ~4 Credit Card per inhabitant.
- mrweasel 3y ago> Credit card are by default Debit Card Credit cards are credit cards, even in Europe. It's just that banks issue debit cards, rather than credit cards and I think that the point. You're financial business in much of the EU is between you and your bank, not some third party credit card company. The debit cards rides on top of the networks built by VISA and MasterCard (and others) for the credit card industry, but the actual financials are between you and your bank. The bank doesn't want you to owe the credit card companies money, they want you to owe them money, but that's normally done using a loan or allow overdraft of your account. I really think the difference is in the banks and their involvement. Now I'm not suggestions that EU banks are awesome and cuddly entities, but they are more regulated and easily replaceable within many EU country. E.g. switching banks is really not a problem it takes a few days and you don't have to do anything.
- adev_ 3y ago> Credit cards are credit cards, even in Europe. It's just that banks issue debit cards, rather than credit cards and I think that the point Partially but not exactly. France "CB" are labelled "Visa" (not Visa Debit nor V-Pay) or "MasterCard" (Not Maestro nor MasterCard debit). Their interchange system will make these card accepted mostly everywhere where Credit Card are accepted. They are accepted even where Visa Debit or MasterCard Debit are refused (e.g Airlines ticket, Car Rental, Some Hotel booking). And still they are all debit cards by default with instant payment taken from your bank account.
- chipsa 3y agoSomeone mentioned fraud protection, to be more explicit: With credit cards, you haven't truly paid until the credit card bill gets paid. So, if you have a dispute, you don't have to pay the disputed amount until the dispute is resolved. With a debit card, you've already paid, and so you're out the money until the dispute is resolved. Now, if the dispute is not resolved in your favor, you may have to pay interest on the credit card. Related to the above, you don't need to make sure you have the money in your debit card account before buying things. You can just charge it and then make sure you're good to pay later. Example: you don't have the cash handy right now for an emergency car repair. You can still pay the mechanic, and then be able to pay off the car repair over the next two months. Credit is a tool. Sometimes the tool is good and useful. Sometimes you blow your foot off with it.
- distances 3y agoMy experience is similar to another commenter: never in my life did I have to dispute any payment (in Europe). I understand the idea of added consumer protection, but in practice there seems to be very little need for it. And apparently banks in Europe tend to side with the creditor anyway, so I'm not looking forward to the day I actually have to dispute anything, be it credit or debit.
- 2rsf 3y agoIt is a tool, I agree, but like any other tool it can be excessively pushed and alternatives can be prioritized or not. As far as I can say, with a European state of mind, is that a credit card poses a risk and temptation for the average person. Not everyone is financially responsible, many times simply due to lack of proper financial education, and they deserve a little attention.
- scatters 3y agoAn economy needs money to be created to ensure full employment. If that money is created as loans to businesses it will result in investment; to the government, in lower taxes; to homeowners, in house price bubbles, but if it is created as consumer credit it will result directly in consumption, which has the greatest social benefit since it is the purpose of an economy to enable consumption.
- argonaut 3y agoCredit card debt driving families to suicide is super exaggerated. America makes it relatively easy to get rid of credit card debt through bankruptcy. And even after bankruptcy it's possible to get credit cards again after a few years. And after seven years it's completely off your credit report.
- LorenPechtel 3y agoAs is the notion that it's mostly medical. That was a very unscrupulous "scientist"--what the study actually found was that the majority of bankruptcies included at least one recent medical bill. Of course that nuance didn't get into the popular press very well. A while back I saw an analysis that showed 5% of bankruptcies were actually medical--and of those half were retirees who were overspending and the medical debt was simply the straw that broke the camel's back.
- DanBC 3y agoThat's a misunderstanding of the antecedents to death by suicide. We know (from the NCISH work in the UK) that financial distress is a significant factor for many people who die by suicide. People who attempt suicide may be less able to see the situation with calm rationality.
- lmm 3y agoCredit cards are one of the few things where it feels like you're rewarded for playing by the rules and being prosocial and responsible. Everything else in society is set up to punish the middle class and the well-behaved, or so it often feels. So I very much doubt you'd get the middle class to vote for getting rid of them; if anything with the current breakdown in social trust I'd expect the opposite.
- fragmede 3y agoBecause it's a frictionless loan system. Instead of going to the bank in person, talking a banker, asking for a loan, working out a payback schedule, and then filling out the paperwork for that, just swipe your credit card.
- megablast 3y ago> Why does the American government does even tolerate this credit card garbage business in the first place ? Such a weird question. Cars kill over a million people every year, no one cares at all. Yet you think the US government should prioritise this??