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posted by cmn32480 on Wednesday September 07 2016, @07:55AM   Printer-friendly
from the thieving-bastards dept.

There are substantial differences in the credit card offers that banks extend to different potential customers. Less-sophisticated borrowers receive offers with more back-loaded and hidden features, as well as more upfront rewards, visual distractions, and fine print at the end of the offer letter, according to Hong Ru and Antoinette Schoar in their new study, Do Credit Card Companies Screen for Behavioral Biases? (NBER Working Paper No. 22360). Banks also ratchet up these hidden features when their cost of funding increases, and when the credit risk of consumers is lower, which reduces the risk for the banks that customers default once they are hit with the unexpected charges. Hidden fees go up when state unemployment insurance benefits become more generous.

https://www.nber.org/digest/sep16/w22360.html

One more way in which Big Data is used against Little Guys.


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  • (Score: 0) by Anonymous Coward on Wednesday September 07 2016, @02:41PM

    by Anonymous Coward on Wednesday September 07 2016, @02:41PM (#398708)

    I posted my monthly budget above, with it working out to roughly $1111/month in total expenses. As such, if I was able to move 100% of expenses (city taxes, lol!) over to such a credit card with direct debit, it would represent approximately $11/year in income (assuming 30 days on everything). Additionally, I might be able to get 1% cashback, resulting in $11/month in income. Thus, the /maximum/ that this financial move would be worth would be 11*13=$143/year. On, what amounts to, a $200,000+/year income. It is near-certain that I wouldn't be able to move many of the primary expenses onto credit (city tax, home repairs, etc.), further reducing its benefit.

    I'm not saying it isn't worthwhile ($143/year is real money!), but the complexities in the operation of the account (another account, another direction that money moves, another account to track and link into accounting software, another place where automated payments can break, etc.) easily exceed its value. Of higher value (double!) and lower complexity is the "$250 bonus for opening up an account at Chase!" reward for banking. We have very simple finances (one checking, one savings, one investment with multiple tax-protected sub-accounts), which makes management easy/automatic. I don't know that it is worth $143/year for me to change the system away from its super-simplicity.

  • (Score: 0) by Anonymous Coward on Wednesday September 07 2016, @08:24PM

    by Anonymous Coward on Wednesday September 07 2016, @08:24PM (#398856)

    Posting anonymously due to personal data.

    We make about the same as you do. However, our outgoing is much higher, partially because we aren't as frugal as you (wish we did better) and partially because we have a more complicated lifestyle. There are kids, mortgage on a farm, some expenses due to my software consulting, tractors to fix, animals to feed, etc.

    In the past year we've racked up about 75k credit card points. I'm not really sure how we did that as generally 1 point == C$1 spent on the credit card but we did. We put everything we can on the credit card, minus purchases from local merchants where we know cash would be appreciated. So that amounts to a little over one "free" transatlantic flight per year in points, as I think it's 65k points to fly to Europe. And those are real, usable points: we flew our family to Europe last year on points.

    Using a credit card in this manner requires discipline, but it also isn't borrowing money as it's paid off in full every month. And this I think is the point of the article: people in my position are using premium cards which cost us money every year but offer us more benefits. We understand the risks and benefits better and a headline advertisement of "low introductory APR" is an immediate flag that the product being advertised is much better for the bank than the consumer. Run away.

    Sort of on topic, I was having a conversation with my mechanic this morning. His assistant just bought a used Jeep Compass for something like $35,000, at something like 18% interest. Shocking. He would have sold her a good used Volvo for $2k and fixed it right there in the shop but she bought this Jeep. She could have financed a NEW Jeep for 0%, and driven a new vehicle (well for 1 minute anyway) at much lower TCO. It's poor decision-making like this, combined with immoral and predatory lending practices, that keep poor people poor.

  • (Score: 2) by TheRaven on Thursday September 08 2016, @09:14AM

    by TheRaven (270) on Thursday September 08 2016, @09:14AM (#399097) Journal

    I'm not saying it isn't worthwhile ($143/year is real money!)

    It's often more than that, as I also put a lot of business expenses on the card. That's also ignoring the interest that you get on the extra money. If your monthly expenditure is $1,111, then that's an extra $1,111 that lives in a savings account at all times, earning compound interest. There's rarely a good reason to turn down interest-free credit for things that you can afford to buy without credit, because you can always lend the money to someone else (such as your bank). The important thing is not to avoid using credit, it's to avoid needing credit.

    Oh, and the other benefit of having a credit card for a long time and paying it off every month is that it helps bump up your credit rating. The first mortgage that I had was quite difficult, because it was at the height of the credit crunch when the banks had a bunch of new rules about lending, and I was self employed. Having almost a decade of responsible borrowing on my credit report made the bank a lot less nervous. After buying my first house, my expenditure on mortgage payments was about half of my expenditure on rent previously - and I was living somewhere nicer.

    but the complexities in the operation of the account (another account, another direction that money moves, another account to track and link into accounting software, another place where automated payments can break, etc.) easily exceed its value

    The account credit card bill is paid automatically from my current account. It shows up in the mobile app my bank provides alongside my other accounts. I've had the card cloned a couple of times (both when I visited America) and the transactions were flagged by the card company and reverted before they every touched a real bank account.

    I get far finer control for tracking my spending than when I use cash and a lot more buyer protection and other benefits than if I used a debit card.

    --
    sudo mod me up