Why Credit Cards Are Gouging Customers - Because They Can

I couldn't help but laugh when I got the latest nonsense from a credit card company. Apparently, because they're "suffering so much" (whaaa) right now, they have no choice but to impose even more severe penalties on consumers than those that previously existed.

Here's the visual which just about says it all:

click to enlarge

Note that American Express shares have risen over 200% since the March lows, compared to a rise in the S&P500 of 47%. American Express, and I quote, "found it necessary to increase rates and fees..."

Let me get this straight - did they find it necessary? Or are they exploiting an opportunity to further gouge consumers who they know cannot and will not meet this month's bill because of the high rate of unemployment, foreclosures and other economic maladies?

And for the letter itself (laughable):

Don't get me wrong, if you can't pay your credit card on time, you probably never should have charged something on it to begin with - and your problem is likely behavioral and not the fault of the evil enterprise. I'm all for making a profit and capitalism - it's what makes the world go around.

However, just the mere fact that they're doing this now...

Why? Because they can. Not because they "need to".

Do I have an agenda?

No, I've never paid a late fee or interest payment since a couple in college (full disclosure-dumb college kid with a couple hundred bucks on the tab once). I actually love to exploit them by earning tax-free income to the tune of hundreds of dollars per year by simply using the same couple cards, paying the bills on time each month, and cashing checks via the best cash back reward cards.

Comments

[Hanoch:]

Maybe you don't have an "agenda", but surely you must have a point to make; it eludes me. And how, exactly, does a company "gouge" someone "who they know cannot and will not" pay?

Aug 13 09:43 AM

[Everyday Fi...:]

It's pretty obvious isn't it?

In March, the sky was falling, right? Bailouts, printing cash, anything to stabilize the financial system.

Well, now that there's an obvious recovery "at least in shares of financials" in route to the tune of triple digit returns, do you believe AXP is "on the verge"? They need to hike fees to remain solvent? Come on.

They're doing it because now's an optimal time to generate massive gains on late fees and interest rate hikes. There are millions of Americans out of a job or losing a job soon, out of a house, out of cash, running out of their severance/unemployment coverage, etc. This is the total pinch point for millions of consumers and they pick now to hike their penalties.

So, my question to you: Did they "have to" do this as purported in their letter? Or are they exploiting the perfect storm?

There's a great documentary on I saw called "Maxed Out" if I recall where they intererviewed former credit card execs and lower management. The bottom line is that they generate the vast majority of their margin from the people at the lowest end of the economic spectrum. Right or wrong, capitalistic or exploitation, it's where their sweet spot is.

Aug 13 05:32 PM

[User 471664:]

Hanoch, perhaps you don't realize, but small businesses, the engine of the ecomony, rely on credit cards to finance start up operations (not that we like it, the the way). Someday you may lose your job and hope to be hired by one of these very companies. When the rates are jacked up by double digits - EVEN WHEN MINIMUM PAYMENTS HAVE CONSISTENTLY BEEN MADE ON TIME - this has a very real effect on the card holder's ability to pay.

You are very naive to assume that your world, even with a great deal of savings, could not come crashing down at any time. But for the grace of God, go you...

Aug 14 12:17 PM

[Hanoch:]

"They need to hike fees to remain solvent? Come on."

Wow. That is an interesting statement.

First, since when are companies in the business to "remain solvent"? Isn't the goal to maximize profits?

Second, in a free and competitive market, prices (including the price of credit) are set by supply and demand, not by the whims of sellers or buyers. This is basic economics.

Third, no one is forced to assume a credit card loan and anyone who chooses to do so knows (or should know) going in that rates are variable and could go up. It makes absolutely no sense to castigate a contracting party (here the credit card company) for exercising its contractual rights.

Sep 17 10:16 AM

[Everyday Fi...:]

The credit card companies are changing the contracts.

And not because they "have to" but because they can.

Sep 17 03:15 PM