This article is incorrect. The rule implemented a safe harbor for large card issuing companies that have to comply with rules regarding late fees. The safe harbor means issuers can charge $8 late fees and be sure they are in compliance.
Card issuers can still charge more than $8 for late fees. They just need to comply with existing regulation, specifically that whatever late fees they charge are “proportional” to their costs.
Don’t expect an $8 cap on late fees as a result of this.
It’s so odd to me that predatory credit card rates are just an acceptable thing, and that there is basically no widespread political movement to do anything about it. Most people don’t even know what usury is and the ethical history of that concept. Why is it even legal for a card to have 20-30% interest rates?
The answer is probably, “because people with credit cards spend more money, even if they are borrowing that money, and that’s ultimately what the decision makers really care about.”
It used to be much worse before the Obama-era "Credit CARD Act of 2009".
Some highlights from the law:
- Credit card companies have to give consumers at least 21 days to pay from the time the bill is mailed.
- Credit card companies must give consumers at least 45 days notice if their rates are about to go up.
- Credit card companies must apply payment amounts "in excess of the minimum payment amount" to a consumer's highest interest rate balances first.
Banks used to break all of those rules with abandon.
As I understand it, the interest rate used to be capped at something like 10%, but when the base interest rate rose above/near that, many people couldn’t get credit at all (why offer unsecured credit, which is high-risk to the lender, if you can’t charge the necessary premium over the risk-free rate).
You aren't paying interest if you never pay the bill. Late fees create a predictable minimum payment that credit card companies can account for and create incentives for consumers to keep spending more under control. Consumers may not realize or care how much their total debt is growing if they could charge their CC without having to pay a certain amount relative to the total debt.
If you miss a payment, you can make the payment and the late fee within 30 days and nothing hits your credit record.
Various fees like that are "allowed" to be added on when you start going delinquent, and get the amount total owned much higher. It's basically usury, in all senses of the word.
I suspect the banks were able to mount some form of "it actually costs us X" argument, which might even be understandable if you take into account mailing late notices, etc.
Easier to get them to swallow a limit than a complete removal (which could come later).
The indirect outcome - credit card approvals will become more strict and offer egregious interest rates, effectively locking out lower-income and/or those with poorer credit history.
Then in a decade or so, we'll be having an unnuanced discussion about how racist/classist/elitist credit cards have become.
This discussion is not about the people who had a single missed payment in 5 years... this is designed to "protect" the people who serially don't make payments and ring up a huge amount of so-called "junk fees". The reality is the late fees act as an incentive to make on time payments and keep debt at a manageable level. After all, that is why you make your payments on time, right? Who actually wants to throw away money on fees?
It's not difficult to not use a credit card. I don't understand why we're so focused on removing personal responsibility as-of late, including the discussion around overdraft fees. We need to encourage more "adulting" and less careless irresponsibility. Living on a credit card and missing payments is a very bad financial sign, and it should be discouraged.
While I agree there needs to be incentives to be credit-worthy, isn't that what the credit report is for? I think you'd probably argue the fees are better than it hitting their credit report, but I'm not sure those people would agree. Those late fees are then unable to be paid as well, causing further damage to the credit report than the actual debt. They get punished twice for it.
I have a friend who's in that situation. Medical bills for his entire family have basically crushed him. Without the late fees, he'd be just scraping by with bad credit. With the late fees, he's still got bad credit. But now he's got late fees, too.
> I have a friend who's in that situation. Medical bills for his entire family have basically crushed him. Without the late fees, he'd be just scraping by with bad credit. With the late fees, he's still got bad credit. But now he's got late fees, too.
Whenever I hear these stories, I often think they're made up, or the person has spent zero effort attempting to remedy their situation (and therefore are being financially irresponsible).
Has this friend contacted the hospital/insurer and worked out an affordable payment plan? Universally they'd rather work out an affordable payment plan and get on track vs. not get paid at all. Whatever this friend is doing right now is clearly unsustainable.
What about securing a loan at an affordable monthly payment with longer terms to help lessen the monthly impact on their budget?
There are many options to get back on track - and none of them involve perpetually stacking up late fees.
Yes you are correct, which is why credit card companies should simply not allow for large balances to be accumulated. You are forgetting that prying on the irresponsible is the entire point.
They generally do not. If you are low-income and/or have poor credit history, your approved credit will be relatively small. Even with a $500 credit line, people miss payments.
Often it's the folks with huge credit lines and carry balances that never miss payments...
> You are forgetting that prying on the irresponsible is the entire point.
The credit card market is not inherently bad. Many (most?) people use it responsibly, even if they carry a balance. We don't need to make it harder on responsible people just because some people are irresponsible and don't care to become responsible.
No one ever said credit cards are inherently bad so I'm not sure what you're responding to.
Anyway, credit cards are already harder to get without good credit. And yes it should be harder for people to get credit cards, but that's not in the incentive of the companies which is why they issue them anyways.
This policy seems to cover all credit cards, including those store-branded cards that sign up people with zero credit history and generally offer small limits. People miss those payments too.
> but that's not in the incentive of the companies which is why they issue them anyways
This is a good point. I do not agree we should do anything about it though. People need to learn responsibility, and it's not the government's job to prevent them from being irresponsible.
FTFA: `Millions of Americans could soon see lower credit card bills after a federal rule that caps late fees at $8 a month was finalized on Tuesday by the Consumer Financial Protection Bureau, which estimates that the change will save households $10 billion a year.`
This is the government enabling more irresponsibility.
Who is saving money here? Responsible households, or irresponsible households?
Who misses credit card payments? Responsible people?
> All the government is doing is simply reducing the fees.
Wrong. The government is reducing the consequences of being financially irresponsible. When something has less negative consequences, can we expect to get more or less of it?
> Because you are late on paying your entire balance
No, it is normal to carry a balance on a credit card.
The normal ("normal") way to use a credit card, before ubiquitous financing that seems to be everywhere today, is to allow you to buy something that costs a couple of pay periods, but instead of saving up and buying it later, you buy it now and pay it off gradually. It's the same way all debt is supposed to work (mortgages, business loans, etc).
You are still supposed to pay on time though, hence the late fee when you miss a payment.
Your comment sounds very strange to me, because it never occurred to me that credit card can be used to "buy something that costs a couple of pay periods".
I thought they are mostly for convenience, like when you can carry them instead of cash, or use them to pay in the Internet. But I always pay off the whole balance at the first occasion (irregularly, whenever I login to my bank website and notice the outstanding balance).
If you want to pay something off gradually, you usually have better options (car dealerships or shops selling electronics, and many others, they typically have their own credit offers, much better than your average credit card).
I think never in my life have I ever paid any interests on my credit card.
Individual shops like electronics, but before that department stores, etc offered charge cards (or charge coins) since the 1870's. Charge cards/accounts are distinct from credit cards because you settle the balance at the end of the period (month) and it's not revolving debt with an interest rate. Its more like Net 30 terms.
Diners Club card was introduced in 1950 as a multipurpose charge card, usable at a large selection of merchants.
Eventually banks got in the game in the 50's and 60's and that enabled true credit cards, which were like a charge card but you could carry revolving debt on them
The finance side of it is equally rich. Merchants did/do offer their own financing, with mixed results. Car dealerships did well, and eventually made so much money they spun off entities like GMAC (the GM financing arm), which now operates as a bank - Ally - because of regulatory requirements on deposits etc
The outcome of this proposed policy would be interest charges immediately, instead of being assessed monthly. It's not actually free to loan someone money... which is what happens when you swipe your credit card instead of your debit card and float the charges until the end of the billing period.
Wrong, I'm saying late fees are not an issue for anyone who makes on-time payments. They're literally called "late fees".
Heck, the late fees on my credit cards might as well be $1,000 per day or something - it doesn't matter because I make payments on time as a responsible adult.
Late fees discourage irresponsibility. That is why movie rentals had late fees, libraries have late fees, utility bills have late fees, rent, mortgage, and credit cards all have late fees. It encourages you to be responsible. Therefore, reducing late fees increases irresponsibility.
It's nothing to do with encouraging responsibility. The credit card companies are not benevolent uncles. They're doing it because they think it will make them more money through some mechanism and they are allowed to do it.
libraries and movie rentals had late fees because they can't rent out the same movie or book while you have it. Those require a different argument than mortage or other bills.
Arguably: because if customers keep movies past the due date, then it's not just that the video store can't rent it to someone else. It's also that the reputation of the video store will worsen, since other customers will find that they tend not to have good movies in stock.
(In other words, it's worth more to the video store to rent a film to two customers for one day each than to one customer for two days.)
So, the per-day opportunity cost to the video store goes up as each day passes.
Sure, they could just charge the customer an increasing per-day overdue rate. But that's basically the same thing as having late fees anyway.
That is what Redbox does now, you get one night and if you hold it longer they charge for more days, until they’ve charged you the full DVD price then you can keep it.
Libraries have most gotten rid of late fees because it didn’t do anything useful; only scared people off. (They still charge replacement cost of the book if you never return it.)
Because that would have a freezing effect: people would be so afraid of those late fees that they would prefer not to rent in the first place, because sometimes even with the best intentions you simply forget to return something on time.
So, setting the late fees is a delicate balancing act: you want them to be a bit scary, but no too scary to potential customers.
Where is the empirical evidence? You keep saying the same nonsense. Let's see it. Of course you won't produce anything since it's not true to begin with.
You’re asking for evidence that late fees are fees that are charged when one is late? It’s in every cardholder agreement. You don’t get charged a late fee if you aren’t late.
No - about the connection of responsibility and late fees. You can be responsible and incur late fees. Responsibility does not imply perfection or no mistakes.
Sure, banks have multiple revenue streams. They charge merchant fees per transaction, interest on outstanding debt, administration fees for some open accounts, interest on outstanding debt, etc.
I'm not saying I agree with all these fees or like the banking industry, but we can't just ignore some revenue streams because others exist. They all add up to a banks quarterly financial statements, and if one goes down they will do everything they can to make up for it in other areas.
Unpopular opinion, it isn't. "Junk fee" is based on opinion, one is just saying the cost is exorbitant.
I'd assume that no one here actually knows what the real cost of enforcing minimum payments is. Without knowing the real cost we couldn't begin to define what fee is too high (or how "too high" is even defined).
Imagine a secured card of this type, against your $1k in the bank. You could use it and never pay it off, but now you can’t use it again until you pay it down.
No, because the bank would always have recourse to something (the security).
If you're limited to something the bank can take (and only that, excluding fraud, etc), the bank will self-regulate and not loan more than negotiable amount - cost of negotiating - this is where the 80% maximum normal home loan comes from. The bank (mostly) ignores the risk the value could go down, but understands that when all is said and done a foreclosure of a $100k house will net about $80k for the foreclosing entity.
With this you can finagle yourself down to zero (own a home, take a mortgage for 80%, squander the money, get foreclosed, have nothing) - but if the bank will lend more based on being able to go after you for the difference (recourse) than you can finagle yourself down to negative amounts.
> Late fees create a predictable minimum payment that credit card companies can account for and create incentives for consumers to keep spending more under control. Consumers may not realize or care how much their total debt is growing if they could charge their CC without having to pay a certain amount relative to the total debt.
You just described minimum payment, which is separate from late fee.
If there is no minimum payment then, by definition, there can't be any late fee since you're never late and can simply not pay forever without being delinquent.
You basically just described medical billing. They claim bills are due upon receipt, and then can't consider them delinquent as long as there was action made within a year from my understanding.
GP is saying "minimum payments + interest already do the things you list as needing late fees for" not "there should be no minimum payments".
I.e. regardless if there are late fees or not: you can't be delinquent on any debt, regardless of label, indefinitely. Also regardless if there are late fees or not: the amount you're delinquent will already increase exponentially more than just the sum of the minimum payments you missed because of interest.
And if the borrower does not pay the minimum monthly payment (% of outstanding balance) several months in a row, that is already sufficient signal to the bank to take further actions, such as sending reminder letters or locking the card. Late fee is not needed for that function.
At the risk of only being tangentially on topic, I want to recount a story about how sleazy financial institutions will be with their fees if given the opportunity. This happened to me with Fifth Third Bank; I knew it was sketchy as hell and it infuriated me at the time.
On several occasions I would overdraw my debit account, notice the issue and deposit money, and then continue to make purchases with the newly available funds. Despite having sufficient funds, at the end of each day, Fifth Third Bank would reorder the day's transactions to maximize the overdraft penalties, as if all of them had been settled while overdrawn. Their customer support team would pretend this was actually beneficial to customers and launch into a nonsensical explanation where one of the terms involved was, literally, "the matrix." So you'd be sitting on the phone in disbelief as they talked about "the matrix."
Anyway, there was eventually a class action lawsuit over it. Ever since then, my inclination is to regulate the hell out of these sleazy institutions. They clearly can't be trusted to act in good faith.
It is not about the fees, it is about making you feel responsible. The average Joe will now not care about balances, amass them in collections, bad credit, and ultimately bankruptcy.
I saw more than one post about people maxing out credit cards to go long on Bitcoin or other crypto, ALREADY anticipating they will not pay back those cards and just go to collections to pay back 30-40 cents on the dollar. It's like it's become the norm to default.
Does your credit really matter after you have a car, house and everything you want? If you default and pay collections, it drops off your credit in 7 years… just in time to buy a new car that would need credit.
If you really need to declare bankruptcy, then that also drops off in 7 years. I knew a coworker that amassed 100k in credit card debt, declared bankruptcy and then in 2 years he had credit cards again from the SAME creditors. Even go a car loan and mortgage shortly after that.
They can't not give credit to people. If they stop doing that, consumption grinds to a halt and thus the economy grinds to a halt. Governments the world over will literally forgive debts, bail out the banks, whatever it takes if the situation gets bad enough. They prefer that to just letting people deal with the consequences. I feel like a sucker paying all these bills. I'm not sociopathic enough to take advantage because that's not the way my father raised me. The feeling never goes away though.
Even countries default. Such is the risk of giving money to someone else: they might not actually pay you back. Maybe these banks should think thrice before extending lines of credit to people.
But they want to efficiently allocate the funds, don't they? Let them reap the consequences of their own decisions.
Based on credit card balances being at all time highs and more people being behind again, will this make a real difference or just delay the inevitable?
Credit card balances are up in nominal terms even when credit growth hasn’t happened. Throw in income growth and it shouldn’t surprise people that credit card debt is up.
Imagine the horror if credit card companies stop being able to offer premium airport lounge experiences and free travel to their wealthiest customers by means of the late fees they charge to their most marginalized.
That's not a thing. You are horrified at something that doesn't exist.
If a credit card company offers this kind of perk it's because that customer gives them enough profit to make it worth it. It's simply not a thing to lose money on a wealthy customer and make it up on a poor one. That's would be a pretty poor business. (In general those kinds of cards have annual fees in the thousands of dollars.)
And what makes you say it's "their most marginalized" anyway? Is there something about being poor that makes people forget to pay a bill? Like I understand carrying a balance if you are poor, but forgetting to pay is just a human thing.
If anything these lower fees will be worse for them. Instead of a late fee that anyone might experience, the interest rates will go up, and those are paid mainly by the ones least able to afford it.
I take it that you’ve never been paid late while living paycheck to paycheck? No, it’s not just about forgetting to pay the bill on time, and in many cases the interest rate is already the highest one that’s legally possible.
When high-status people conspicuously consume through Birkin bags and exclusive club memberships, a lot of other people are led to desire those things.
In the case of credit cards, not only is demand drummed up by enlisting wealthy people as card-carrying brand ambassadors who flash their membership card every time they approach a cashier, it also distorts the perception of incurring debt for everyday purchases into something that financially savvy people are doing.
Your analysis is kind of correct if you entirely ignore marketing and psychology.
The banks will make up for this loss of revenue somehow. Maybe they will spread it out among customers that have not been late. That appears to be the democratic way.
>> They are already charging as much as the market will bear
As Telcos discovered, they only advertise a base price. If you ask for the full price you'll owe, they wont tell to you. You'd need to be a lawyer and read the 15 pages of fine print to figure it out. Then, you get stuck in a 2yr contract, get the first bill, and discover all sorts of things like the "Regulatory Recovery Fee" and the "Emergency Surcharge"
>As Telcos discovered, they only advertise a base price. If you ask for the full price you'll owe, they wont tell to you. You'd need to be a lawyer and read the 15 pages of fine print to figure it out.
Source? While I agree the advertising doesn't prominently display the all-in price, claiming that you need to be a legal professional to figure it out is a bit hyperbolic.
The market will only bear so little because there is competition creating a race to the bottom. If all of the credit card providers are to absorb the same hardship, then it is akin to moving the finish line, and the market will bear more because the market will have to.
Or maybe it’ll come out of the executive golf budget.
I’ve never understood why people always argue that we have to allow bullshit fees and overcharging “or else” when there’s clearly plenty of examples of existing waste and inefficiency in every business. Large monopolistic businesses especially so.
It’s good that this arrives at a time with downward pressures on housing costs (I think?), because otherwise these savings wouldn’t stand a chance against being gobbled up by rent increases.
Somewhat of a tangent, but I never miss an opportunity to tell the story of why I will never use a credit card from Citi.
Circa 2000CE: I was in college, living in the dorms. The person working in the mail-room at the dorms was somewhat unmotivated, leading to mail often ending up in the wrong mailbox. Sunday night, someone gives me a Citi card bill that is due on Tuesday. Monday morning, I call customer service and let them know the situation. I will mail them a check before the due date, and I would like to get a grace period on the late-fee and interest. CS rep informs me that they cannot do that, but can do an electronic funds transfer from my checking account for a $10 fee. I was rather astonished at this, and told them to do the EFT and cancel my account.
I should note that Discover (my other credit card at the time) and my next major credit card (95% certain it was Chase) both encountered similar situations and handled it reasonably.
Yes the classic one is that you make a transfer on the checking acct instead of savings and end up using a bit of you line of credit. So you get the payoff amount and pay it, but it doesn't include the interest for today. So tomorrow, you still owe a few cents and if you don't pay it off (because you thought you did pay it off already and they don't notify you until it's actually late), you end up with another $30 late fee for a fraction of a $ in interest. Looking at you Santander.
Back in the day the banks used to order your withdrawals largest first when posting them overnight to maximize the number of times you'd get overdrawn (and get an overdrawn fee). People would get hit by multiple overdrawn fees in one day. I think they outlawed that one a few years ago.
Citi is usurious. I once made a mistake in the payment by entering a slightly smaller amount than the balance - I detected the mistake after the due date and sent the remaining balance that day. I was still charged interest for 2 more payment periods, which their CS stated was in the card terms (I confirmed) so she couldn't do anything.
My experience has been that banks are very forgiving when you're otherwise generating income for them, but strict when fees are their primary source of revenue to them. So, you have a large installment loan, they give you a better checking relationship. You do a large volume of credit transactions, they waive fees pretty easily.
But if you have $30 in checking and a card with a $500 limit, it's fees on top of fees. These introductory accounts used to be ways if getting students in the system so that they could maintain the relationship, but now all thinking is short-term and they just want the money up front.
I have had both good and bad experiences with them. I recall they charged a ridiculous fee for a cashier's check when I was in law school and needed to move my student loan money. I seriously considered withdrawing it all (tens of thousands) in cash and walking it down the street to WaMu.
Another time, they completely refunded a several-hundred dollar charge for a hotel that misrepresented itself as a boutique luxury spot, yet lacked many basics. The hotel fought the chargeback and was going to make it a miserable process, so Citi just refunded the whole thing (we had only asked for a partial refund).
What I've found with banks and others is that lower-level people will say that it's impossible to help you, and that if you speak to a supervisor they will say the same thing. But most of the time, supervisors do have more power, and are able to make things happen. There's no particular rhyme or reason for why extraordinary relief is sometimes granted though — it seems completely random!
I suspect I’m just looking for the reps who aren’t entirely jaded yet, because they haven’t yet learned you get punished for doing the “right thing by the customer.”
> There's no particular rhyme or reason for why extraordinary relief is sometimes granted though — it seems completely random!
It comes down to being polite, persistent, and professional (and lucky) - the CSR has certain buttons they can press for you (for example, most banks/credit cards let the first-level hit the "refund one fee" button), and the higher up you get, the more discretion they have. If you're not yelling at them, you can often get what you want via some other method (which only they know) - like them reclassifying the problem to something else they have leeway for.
Citi consistently was the card who would freeze and not work when I was overseas despite me telling them I was traveling leading to many embarrassing moments. They always say, oh we're just trying to protect your account from fraud. I'm like, you already guarantee i'm not responsible for fraud so you're just making my life inconvenient to protect CITI from fraud.
I had the opposite problem - we received a card that we didn't activate (basically, lapsed account, being young and too lazy to close it).
They let someone in the USA (we are in Australia) pay a Netflix subscription with it. This was new, so it wasn't one of those inherited authorisations that sometimes exist when a card switches over. So not only did someone get the card number from a card that was never used, they let the transaction through when it was never activated.
It took numerous phone calls to sort out. Every time we did, there was a rounding error due to interest, foreign currency fees, etc, which meant we still owed money despite the only transactions being unauthorised. The ladies in the Philippines were nice, but it was ultimately an annoying ordeal.
This still happens consistently, and I don't even have to leave the country, I just have to buy flights to a foreign country (eg: for vacation) or buy something from a foreign website (eg: buying a gift for my family).
The only reason I use them is for their 2% cash back on everything, but I have stopped using them for any non-domestic purchases.
I saw the table but it appears to be wrong or misleading. None of the cards are over 2% unlimited.
If you click through the links to the bank websites, they say:
2- It shows the card is actually 1.5%
3- It is actually 1.5% (only 2.5% on the first 10K)
4- It is actually mostly 1%. (3% cash back on gas and EV charging and 2% on utilities and groceries (with a combined $1,000 monthly spend cap)—and 1% on all other eligible purchases)
5- Also 1.5%
Didn't keep going.
What about the first one? It says "up to 3 points per dollar". The words "up to" sound supicious. And what is a point worth? I spent 2-3 minutes on the website and didn't find answers to any of these questions so I concluded it's not really 3% cash back. Perhaps I'm wrong on this one but when they make the info so hidden it usually means there is a catch.
Hence your confusion. Read the footnotes. The 1.5 is actually > 2 if you fulfill the criteria, that's all it depends on. It's not that complicated, you just need to spend more than 30 seconds on researching it if you really want the cash back.
As for the 2.5 one, it's 10k per billing cycle, I believe. That's a $120k/year limit... if you're putting that much, well, you're in the minority, so to speak.
I paid my college tuition with my Discover card (back in the mid-90s). I was waiting in line at the student loan office, with my stack of paperwork, when I glanced over and saw a Discover kiosk in the student center. I filled out an application, and in about 10 minutes I had covered my tuition for the semester. I just kept charging my tuition to my Discover card. When I hit the limit, I called them and they bumped it. I probably paid more, but at least I didn't have to deal with the god damn student loan process. Ugh.
With the announcement of Capitol One planning to buy Discover, what are the plans now?
As far as I know, Discover had the best customer support experience I had with credit cards. I'm not sure if there are other cards with a similar level of support.
Am I understanding that you’re holding a grudge for 20 years because of a breakdown in delivery for an antiquated communication method, one that wouldn't be used in your socioeconomic class to handle finances any longer
because citi was inflexible then? inflexible to a financial woe you would also never encounter in your subsequent post-college socioeconomic status for decades?
I’m asking because I didn't completely understand the story
No, it's because they charged a $10 fee to move money from a checking account(at the same bank) to credit card account. That is just ridiculous! There should be no fees to move money between your accounts at the same bank.
More important, in my opinion, is autopay should generally be opt-out rather than opt-in. That is to say, you should provide your funding source when opening the account and some manual action should be needed on your part to decide to pay less then the balance automatically. It would be reasonable to allow you to choose between the minimum and full balance, but I've experienced some dark patterns making it difficult to setup autopay, and autopay setting "mysteriously" resetting by themselves. Banks should have zero incentive to make being responsible more difficult than it already is for most people.
People are human and life is hard (especially in the US, unnecessarily so). Good policy understands this, and protects the human while not overly encumbering business. This regulation is entirely reasonable based on the data [1] with regards to costs incurred.
This is the same reason 401ks will be gone soon [2]; we told a lie that pensions were untenable, foisted the responsibility on humans (who laughably were expected to be able to be sophisticated with regards to these matters, contrary to the evidence [3]), and now we have an entire cohort moving through 55+ to death who have little to no retirement savings to speak of [4]. Because policy failed them, and all those previous pension contributions went to shareholders instead. We don't have to argue this here, but it is to demonstrate systemic failures.
But see, we can make better policy. It is easy, and it scales (versus unrealistic expectations of the human). We outlaw the predatory behavior.
I doubt 401ks are going anywhere. It’s one thing to write an article about it and a whole other to actually get a law passed. Congress can’t even get rid of daylight savings time, which no one likes.
Every 2 year election cycle, ~3.6M voters over 55 will have aged out, and 8M voters will have turned 18. Today's Congress is not tomorrow's Congress, but I admit patience will be required as the electorate and the reps elected turn over.
The missing bit though is that those 401ks are taxed later than now. A politician who wants to pay for their policy (good) but doesn't want to raise taxes (bad) can just move the timings of that tax bill to juice the books. Its been proposed in the past, along with the implications of changing the RMDs to boost government income.
I'm so confused about how, on the one hand, I keep seeing articles about the enormous wealth transfer that's expected to happen, but at the same time, articles saying retirees don't have any money. Which is it?
Pretty much the only thing I would definitely trust less than any random individual on the street to manage savings well for retirement would be government. I don't know who or what should do it instead when people aren't working more than a few years at any given company, but it sure as hell shouldn't be government.
> I'm so confused about how, on the one hand, I keep seeing articles about the enormous wealth transfer that's expected to happen, but at the same time, articles saying retirees don't have any money. Which is it?
This is sort of silly? Older generation estates and owners have to pass their wealth down to somewhere, either their children or other causes. Concentrated wealth via ultra high net worth estates is moving between generations [1] [2], it's not being spread like butter across everyone.
> Pretty much the only thing I would definitely trust less than any random individual on the street to manage savings well for retirement would be government. I don't know who or what should do it instead when people aren't working more than a few years at any given company, but it sure as hell shouldn't be government.
Social Security is one of the most efficient benefits systems in the country, and expenses are less than private annuities (~0.5%) [3]. It is entirely possible to create effective pension management systems besides what the US has today [4]. We have made a choice not to. We could make better choices.
“You can always count on the Americans to do the right thing, after they have exhausted all the other possibilities.” ― Churchill
[2] https://ustrustaem.fs.ml.com/content/dam/ust/articles/pdf/20... (2022 Bank of America Private Bank Study of Wealthy Americans: The impact of shifting generational attitudes amid an historic wealth transfer) [Only 27% of the ultra wealthy are self made; 70% of Americans who hold more than $3 million are over 56 years old.]
Both. The average net worth of retired Americans is over $1million. But the median net worth is ~$200,000 (according to recently released data from the Federal Reserve).
I'm not familiar with the articles but where I live it wouldn't be surprising for an elderly person to have a million dollar home and not much free cash, since they bought and paid it off decades ago. So that is 'wealth' but not easily accessible as 'money'.
The government basically invented the notion of "retirement" in the first place, too, though. There was no historical precedent for just stopping working before you physically couldn't anymore, in which case you generally died very shortly thereafter.
At the time U.S. social security was invented, the age at which you could draw benefits was higher than the average life expectancy, the thought being, "Well you've put in as much good work time as most people do when they die, so if you live longer than that, we'll take care of you."
This whole notion of a decade or more of "retirement" being totally normal is extremely novel, and I'm not at all sure it's good for people. Is it good not to have to do physically demanding work when you're 70? Sure. But as a culture, we would benefit an awful lot from learning from elders in advisory roles, if we didn't idolize the innovative flash-in-the-pan-probably-won't-work-but-let's-try-it-anyway startup mentality.
> It's not unexpected because you're checking your statement summaries when they arrive and being notified of transactions as they happen. Right?
Do you design your software assuming users always do things in a well thought out, fully rational and responsible way? If so, I'd love to hear how that works out! :)
^This. A lot of people, myself included, got very upset with T-Mobile's decision to take away the autopay discount of $5 per line unless you gave them your credit card or bank account number. I changed carriers after they decided they wanted to take away grandfathered rate plans and reasssign customers to the latest, high-priced plans with all kinds of unnecessary stuff added.
The last straw for me was a couple years ago, when my health insurance turned over to the new (calendar) year...and I got double billed.
OODLES OF FUN LET ME TELL YOU
At the very least it proved to me that ACH payments through my bank were terribly unreliable and never to be trusted again. Now, everything goes through a credit card, which means I'm earning a not insignificant number of points every year just to keep the ball in the air.
I get the idea that this doesn't work for everything, because processing fees are an occasionally necessary evil if you go this route, but it is infinitely less stressful knowing that if there's a screwup, I'm not (directly) involved.
Case in point, my parents had their main checking account compromised a few months back and getting everything put back together after tearing it all down was weeks of effort that probably took a couple years off someone's life.
I’d note that compounding interest is already a “late fee.” The longer you hold the debt the larger it becomes, exponentially. In a meaningful way late fees are double dipping.
There's a difference between "paying interest because you didn't pay off your entire balance" and "paying a $40 late fee because you forgot the payment was due at 10:59AM Eastern Time and you were an hour late".
I read your comment as trying to troll/lampoon him.
There's times where banks seem to deliberately screw your payments, etc, up. There's no sane legal regime where they should make paying your balance artificially difficult.
Of course they should be able to charge a reasonable amount of interest for the use of credit.
> [Lindsey Johnson] added, “By normalizing being late on credit card payments, the administration is knowingly putting consumers’ financial health at risk.”
It's interesting that they are not at all concerned about the interest on credit card balance putting consumer' financial health at risk. For consumers at risk, the interest charge is far larger than the late fee itself anyway, which means the late fee is just gravy on top.
A more cynical view would be that the government is backed into an economic corner and need an ever growing level of consumer debt to prop up the markets and/or currency.
Well our monetary system is based on a few assumptions that are important here.
One is that a "healthy" level of inflation at 2-3% per year is needed.
Another is that our money supply is based on debt, meaning that growing the money supply (the original definition of inflation) requires new debt to be created faster them existing debt is paid off.
We can't have 2-3% inflation without creating more debt. Consumer debt is one of the forms of debt that creates new money, so I think its safe to assume we need that debt to be growing at a similar pace to keep up. If consumer debt disappeared entirely we would still need other forms of debt to pick up the slack, meaning on average we would still have the same level of debt per person to keep the system afloat.
Its not quite that simple unfortunately. Inflation can't be measured or controlled in such accurate detail that we can keep them pegged without any "real" growth. Debt will need to increase faster than inflation to keep a level of buffer in the system.
The monetary system itself does actually depend on inflation. Inflation creates an incentive to spend and invest your money, and without both our system of money would collapse.
Fiat currency and fractional reserve banking mean that the money requires flow through the system. The velocity of money is a bit of a controversial measure, though personally I don't understand why. Ignoring the specific measure though, our money must have velocity at some level and the system would collapse if velocity fell too low or increased too high.
> Debt will need to increase faster than inflation to keep a level of buffer in the system.
Creating a buffer only needs to happen once. So if debt increased faster than inflation 30 years ago, and then on average kept pace since then, we'd still have the buffer. That kind of buffer is sustainable.
I think that still assumes that we can reliably and accurately keep inflation and debt on the same page. If I were in charge of something similar I'd absolutely want to see a small but steady increase in debt vs inflation just to be sure, entire economies aren't easy ships to right when things go wrong
Why is that cynical? One of first things POTUS Bush #2 said in the wake of 9-11 was (effectively), "Keep shopping."
It's a fiat currency based system that persists simply on the belief that it's too big to stop (i.e., fail). Just keep your head stuff in the sand, keep pushing forward and pretend there's no cliff ahead.
What that poster outlined was not being "backed into an economic corner". Rather it is how our system is built. If everyone stopped spending and started saving we'd be in a world of hurt.
I'll even go a step further and say that the entire world would get into trouble if consumer spending stops in the lead economies. So don't get me wrong, it doesn't have to be the US that provides the spend-y consumers, but somebody has to provide them.
At a personal level, collecting IOUs works fine as a way to defer consumption (ie, you can save for retirement by putting money in a bank account or gold bars under your bed or whatever).
At a whole-of-society level, that doesn't really work and "saving" had to take the form of warehouses full of stuff.
I say its cynical mainly because in this context it was an alternative reason based on a distrust of the system and an assumption that there are ulterior motives.
I do actually think the cynical explanation is more likely, but the government isn't going to tell is they're limiting late fees to make sure we keep racking up more consumer debt.
I don't see the need for any *assumption* about ulterior motives. The motives are clear, and certainly not ulterior. All I had to do is pull my head out of the sand, keep looking around, and take notes.
Well I appreciate that. I consider it an assumption of ulterior motives only because its sold as a consumer protection play. Basically, they're claiming specific motivations and I think there are unspoken motivations driving it instead.
Definitely mincing semantics here though, and probably giving too much leeway to those making these regulations.
> It's a fiat currency based system that persists simply on the belief that it's too big to stop (i.e., fail). Just keep your head stuff in the sand, keep pushing forward and pretend there's no cliff ahead.
Any social contract operates on that principle.
Government only exists because most people believe in its legitimacy. Law only works because most people follow most of it. Property rights only exist because most people respect them most of the time. Contracts only work because most signatories follow them most of the time.
It's weird how fiat money is the one thing that gets singled out, here, when all the social agreements that actually make our society work are also artificial.
When a financial tradition (i.e., money) carelessly morphs into being a "social contract" red flags should be flying. Instead, we close our eyes and pray?
Money has always been a social contract. Just because it's a "financial tradition" doesn't change that. Shiny metals are no more valuable to hungry people than numbers in a database. The myth of King Midas shows this is nothing new.
Noah. That's simply not true. Lyn Alden's "Broken Money" does a couple+ chapters on the history of money. "Cross cultural" transactions are essentially. You can't have a "social contract" across sometimes conflicting cultures. Long to short, this is why we eventually ended up using gold.
You absolutely can have a social contract across conflicting cultures. You just gave an example: commerce valuing gold is a social agreement. Another example is countries at war each other following the rules of war (not always, but even one instance makes your claim false).
What would a money look like without any social contract? How would we even enforce the basic principles of fungibility, durability, etc?
All money is a social contract as far as I can tell. They're always based on the expectation that we as a society will continue to value an intermediary at a predictable price relative to things we may want yo buy or sell later.
I'm not sure what would make some money "real", is that the same concept as hard money?
Bitcoin isn't real money and no one actually tries to use it as money today. At best its a security, though realistically its more of a gambling chip than anything else.
Bitcoin fundamentally won't work as money, even if it can be a store of value. Second tier networks like lightning are required, but those only work by abandoning core pieces of the bitcoin protocol and avoiding actually using bitcoin at all.
Can we just do something about taxes? People would be able to pay for stuff if the government didn't steal so much of their money.
After the recent few years of inflation middle class is now subject to higher tax brackets than ever, and poverty class is being taxed at almost 30% if you include some states' state tax.
Then there are property taxes which should be abolished, or else landlords just pass them onto renters, which means poverty class now pays the taxes of the rich.
> After the recent few years of inflation middle class is now subject to higher tax brackets than ever, and poverty class is being taxed at almost 30% if you include some states' state tax.
Under the 2023 tax codes, a single filer in California would have to have an household income of $118,250 in order to see a 30% effective tax rate across federal and state taxes combined. I understand $118k might not go as far as it used to (depending on the specific location), but that's hardly the "poverty class". Under the same conditions, a $50,000 income would see an 18.84% effective rate.
I don't disagree with the premise that taxes, both federally and at state levels, could be more progressive than they already are, ceteris paribus. Property and sales taxes are broken in this regard, and the obscenely wealthy have too many pathways to avoid contributing meaningfully to the nation's collective tax burden.
$118k is close to poverty class in the bay area if you have a family.
For someone fresh out of college who can live in half a bedroom in a moldy group house, bike everywhere, and never see a doctor even in emergency, it's barely okay, but that income isn't sustainable.
Median income is $175k in SF and $181k in SJ, by the way.
Weird that “the wealthy abuse the poor” is literally part of your complaint but you’re not focusing on them and instead the only group that could potentially rectify that without violent revolution.(please note: “could” is doing a lot of work in the previous sentence and I understand that many of those in government are there to ensure the right for the wealthy to continue this abuse).
Do you believe landlords would lower rents tomorrow if their tax was lower absent any other force incentivizing them to pass that profit back? I’m pretty sure there was a post on here a few days ago about how current rent pricing software used by many many people may be violating price fixing laws.
Do you think that without regulation banks would be better? That somehow the process of reigning in their avarice is causing it? When has that ever historically been true, as almost any era or un/deregulation coincides with massive wealth disparity.
Is it? The government wants to persist and history shows it/they will do what it can to do so.
Whether that's direct taxes or other means of financial manipulation (e.g., printing more money), govs do whatever it takes to avoid chaos and persist.
And the gov runs deficits and prints money (read: indirectly taxing) to avoid the chaos of raising taxes. We're paying but in ways that are less transparent.
I'm always a bit annoyed by the need for new rules and legislation similar to this.
If consumers aren't willing to risk paying late fees, just don't use credit cards. They are a convenience product at best and a predatory lending mechanism at worst. There are benefits to credit cards, don't get me wrong, but they aren't a must and we can choose to live without them.
Why do we need yet more government intervention to solve this? How does the government actually land on $8 as a universal, reasonable late fee? Do they known what collections actually costs, or should cost, credit card companies? Do they know what every consumer would deem a reasonable fee? And more importantly, do they know that credit card companies won't recoup this amount through some other means, say by slightly higher rates to consumers or merchants?
Do you feel the same way about the limited liability offered to investors in corporations? After all, if they don't want financial risk, they should just not invest in anonymous businesses that they don't have any control over.
Which obviously I'm being oblique, but of course the government should do things that ensure corporations benefit society, because that's why government has regulations to encourage their formation, for the benefits they can bring.
> Do you feel the same way about the limited liability offered to investors in corporations?
I think you meant this a bit facetious, but yes I do feel similarly there. I don't expect investors to he held liable for internal decisions made by companies, but absolutely if an investor doesn't want the financial risk they shouldn't invest. I'd argue that we only have those liability protections to keep people investing, without that our monetary system crumbles.
> of course the government should do things that ensure corporations benefit society
That only seems necessary if society has become so large and outsourced that we can reasonably make impactful decisions as consumers. Consumers should be close enough to the companies that they invest in or work with to know generally what that company does. You obviously don't need to know all the details, but at least enough to know that you generally think they're on the up and up, and if not you just take your business elsewhere.
The necessity of government involvement, in my opinion, means that a society and the lives of it's citizens has gotten much to complex, and is ultimately then much too fragile.
> I don't expect investors to he held liable for internal decisions made by companies...
But they are liable up to and including the total amount of their investment.
Some may say that this is to enable people to pool their resources to accomplish goals that are beyond what the individuals can accomplish on their own without losing everything if their plans go awry, best laid plans of mice and men and all that...
> But they are liable up to and including the total amount of their investment.
That's how it should be! I don't think I explained myself well there.
I was thinking specifically of legal concerns. If a company breaks the law, I wouldn't expect investors to be held criminally liable unless they reasonably knew what was done. I would expect them to be financially liable if the company value falls and their investment loses value.
How are investments supposed to work if the upside is unlimited but the downsides are mitigated by regulation? Investing is a risk, effectively gambling. You should expect that anything you put in can be lost.
The downside in your scenario is limited by regulation!
It's hilarious that limited liability is an obvious assumption for how the world should work and then telling companies that they don't get to offer high interest unsecured loans that also have punitive fees is some kind of perilous overreach.
> It's hilarious that limited liability is an obvious assumption
I must have gotten myself lost if my comments read as though I was arguing that limited liability is a good thing. I guess if you consider limiting investor liability to criminal activity they were aware of, that's some form of limited liability.
But I don't agree that liability should be limited even when someone is, or can be, aware if the risks they sign up for. I'm not saying anyone should tell companies they can't offer high interest unsecured loans - I'm only saying that consumers don't have to take the loans.
The first one is not a “regulation” in the normal meaning of the word because it doesn’t restrict the actions of private individuals, but rather the government (in this case the courts). Usually we call things that restrict the power of the government “rights” not “regulations”.
Both are bad in my opinion. We shouldn't have a need regulation to protect our money, that'd a sign that the money itself isn't sound and the system is too fragile.
The credit card companies are still free to charge interest at the agreed upon rates, but now they can’t add a $50 fee on top because of what is a banking error for most people (they had the funds but perhaps in a different account from the autopay).
If this change actually affects the companies bottom line, I would imagine we will see a small increase in the interest rates being offered to cover the expense. Realistically though, banks make all of their money from the interest on the cards and the late fees are icing on the already overflowing extravagant cake.
> Realistically though, banks make all of their money from the interest on the cards and the late fees are icing on the already overflowing extravagant cake.
Standard accounting principles make it much more black and white. The banks' financials already account for late fees taken in. Removing the late fees alone would decrease revenue and hurt financial projections. They either eat this out of the kindness of their hearts, or more likely find other ways of taking a similar amount of money from customers or merchants.
People are really, really, bad (in general) at correctly managing these things, whereas companies are really good at it.
The sad truth is that for the financial health of much of the population, credit cards should be forbidden entirely, but that would cause too much howling because you can't just "forbid them for poor people" even though those are who are taken advantage of the most.
A "credit card" where it's not really a loan would do wonders. Standard limit based on your income and credit rating but you have to pay it off in full at the end of the month like any other bill else it gets shut off like a utility. You can still get the points, perks of spending other people's money/consumer protection, and 30 day float to smooth over paychecks but no debt.
Apart from the limit, that's basically what a "charge card" is, and it's how American Express cards used to work, but I think they've converted all their consumer-oriented cards into credit cards.
We can't legislate this away. If that's the problem we're chasing, a better approach might be investing in better financial education or decreasing the wealth gap.
Totally agree. This is a problem that is easily solved by the free market. You get a high fee once, you will learn the lesson and either be more diligent or use a bank that has lower fees.
I think it's just a cheap shot by some politicians to get easy points. It always sounds good when they punish big greedy banks/corporations. But in reality those small regulations slowly add up each year and in the long run it makes it harder for smaller players to get into the space. And lack of competition makes it easier for bigger players to abuse their position. So the opposite of the original intent. And the cycle continues. More intervention needed etc.
I agree but the government could try and solve this problem at the source by mandating the teaching of personal finance in public schools. It may not actually do much good, but we should at least _try_ it.
Then again, the federal government is rarely successfully at addressing problems at their source so I won't hold my breath.
Nor should they honestly. Lets not subsidize irresponsibility.
Thats not to say there shouldn’t be a reasonable cap on late fees. It is to say that even if the government could save people from all the consequences of their negligence, they should not.
That's really just a game of whack-a-mole unfortunately. There's no way to regulate away all ways a person can be taken advantage of. There isn't even a way for regulators to clearly distinguish between a person being taken advantage of and a person knowingly agreeing to something.
Late fees are a great example actually. I know my bank charges late fees and I know its roughly $35. This new federal rule deems that as me being taken advantage of, but I was okay with the fee as-is. The government somehow decided what was an exorbitant fee and how much it should cost banks to deal with past due payments when a customer is late. How can they really decide that, and why should they try?
> That's really just a game of whack-a-mole unfortunately. There's no way to regulate away all ways a person can be taken advantage of.
That's okay, it's fine to hit a few big ones when it's convenient.
> There isn't even a way for regulators to clearly distinguish between a person being taken advantage of and a person knowingly agreeing to something.
> Late fees are a great example actually. I know my bank charges late fees and I know its roughly $35. This new federal rule deems that as me being taken advantage of, but I was okay with the fee as-is. The government somehow decided what was an exorbitant fee and how much it should cost banks to deal with past due payments when a customer is late. How can they really decide that,
They didn't decide you in particular were being taken advantage of. Just that it's statistically causing people to be taken advantage of.
And what's wrong with them deciding $35 is too much? The change doesn't hurt you.
If it's the government, no they shouldn't be subsidizing this (or anything else IMO). If its banks, they can subsidize whatever they want as long as their customers are willing to allow it.
So, you don't trust your government to do the right thing, and also fully expect banks to screw you. When you talk about living without a credit card, do you mean cash at physical shops ?
Feels like you're advocating for a very peculiar way of life.
> Feels like you're advocating for a very peculiar way of life.
That's all based on perspective, but yeah I would expect plenty of people to find my life peculiar.
For me it isn't about trusting my government, though the US government was originally based on distrust. The government has to earn and retain my trust, it isn't a given or free.
There are alternatives to credit cards, including debit cards. Cash is also still viable in the US, though I know its becoming much less common in other parts of the world.
I personal don't think spending cash in physical shops I'd peculiar, but maybe I'm just that out of touch?
i avoid them like the plague because i hate owing money, but i'm not from the US and as far as i understand, having a credit card is really important for building a credit score there isn't it? would not holding a credit card not also make it harder to say, find places to rent?
You have better fraud protection with a credit card and you can generally get better kickbacks (some fraction of merchant fees - Amazon Prime credit cards have 5% kickbacks meaning if you buy something for $100 with it, you get $5 back).
I actually use credit cards most of the time, mainly for fraud protection. If I was in a position where I was regularly concerned with missing a payment, or the fee I'd be charged, I'd definitely consider a different form of payment though.
There are benefits for sure. Maintaining a good record on your credit card will help your credit score, though that only matters if you plan on regularly borrowing large sums of money.
I haven't rented in a while so I'm really not sure on that one. Most places I rented over the years assumed you paid by check every month, though its been about a decade now so that very well could have changed.
> I'm always a bit annoyed by the need for new rules and legislation similar to this.
Before the Obama-era credit card law, if you missed a single payment at a bank your entire balance would revert to the "default" interest rate, which was close to 30%. Then, every other bank you had debt with could also change your interest rate to the crippling "default" rate.
I think that was a good change and I think this is a good change. Credit cards are a widely-used financial tool that can provide a lot of benefits. If someone is on a fixed income or working for low wages, I want them to have access to that tool too without unneeded risk. People go to the hospital, relatives die, a computer fucks up, and it's suddenly really easy to miss a single payment. And given the history of banks' nasty policies towards consumers, we have zero reason to assume they aren't gouging.
> How does the government actually land on $8 as a universal, reasonable late fee?
If you read the article you will find a link explaining this to you.
> They are a convenience product at best and a predatory lending mechanism at worst
> just don't use credit cards
> Why do we need yet more government intervention to solve this?
I guess I'm a bit confused about your position here - you note that it's predatory, and then you continue on as if it's an easy choice: maybe we disagree on what predatory means?
I can't recall a single class in school or anywhere else that taught me about the dangers of credit cards and debt that grows cumulatively. Yet credit cards are aggressively marketed like candy through the mail and every time I shop at a big box store or even online. Not to mention other kinds of debt like student loans, car loans, mortgages, etc.
A lot of people don't even begin to understand the things they need to be aware of to make a truly informed decision to take on debt: compounding interest, amortization schedules, inflation, their budget and runway in case their income stops, etc. They do not do some quick back of the napkin math on how much extra they'll be paying during the lifetime of the loan, and whether that extra cost is worth it. And credit card companies are fully aware of this, and leverage it for maximum benefit of course. They jump at you at the situation where you're least likely to stop and think: you're spending a surprise 1000 bucks to replace your busted heater which is really gonna eat into your food and gas money - wouldn't it be great if we gave you 100 dollars off of that right now? Just sign up for a store card, it takes 2 minutes! Also, the minimum payment will be so low! That'd be the "predatory" part.
Just "choose to live without them" is not effective if you're both underinformed and poor, AND companies are incentivized to push debt on you. Heck - when I was a (supposedly educated) college student, I was hit by an overdraft fee: I bought some lunch, and later a snack from the vending machine. And I paid 20 + 20 dollars in fees for the privilege of 2 transactions totaling about 7 dollars. It made no sense to me: how could you spend money that you didn't have in your account? It just wasn't a thing in my home country. Should I have known better and read 15 pages of small print? Yes. Did I? No. When I called, the bank said I should be happy they've opted me in to this "service". If I had known, I would have just not made those purchases. I also ran into trouble trying to opt out. Predatory.
How do you propose we bridge a massive gap in financial literacy when we as a society are struggling with basic literacy and financial stability? I don't mean like 20 years in the future ("better financial education" which is the same as "hopes and prayers"), I mean right now. So that leaves us with not much other than regulation.
What this rule cuts down on surprise fees, which isn't nearly a complete fix. But it's an okay incremental improvement: it's one less thing to watch out for. Either offer a simpler, easier to understand financial product, or don't. There's no god given right to a profitable business, especially when it's not based on a mutually beneficial transaction.
I really don't know how to phrase it empathetically, and I know its an unpopular opinion when spoken, but if someone chooses to take on debt they can't afford then they have to deal with the consequences. What absolutely should be done, though, is to make sure that companies are kept 100% on the hook for their actions. Governments shouldn't bail out banks when they get caught holding an bag full of nothing but bad debt. Student debt for example, shouldn't be treated ant differently from other debt in bankruptcy proceedings. Companies should be legally liable for advertising that misrepresents their products.
Ultimately companies advertising debt products or making it easy to sign up isn't forcing anyone's hand. We all make our own decisions, and if that includes signing contracts that we didn't read or understand then I'm not sure what else can be done.
With that said, financial literacy and our education system in general are absolutely terrible IMO. I could care less if someone learns integrals in school, or practices dissecting a baby pig in biology class, if they don't learn the basics of how the society we've built works. Kids should learn finances, contracts, and politics above all else. Learn how money works, learn how how our laws and political system works, then if you have time read Shakespeare or play the trumpet.
I know I sound arrogant or crass, but these skills are extremely important and seemingly entirely ignored in school. We force most kids to be in school for over a dozen years. It doesn't take nearly that long to learn the few topics I called out. There will be time for biology, the arts, mathematics, history, etc. I'm not saying throw those out, just reprioritize them with an eye towards the world people will actually be in after graduation.
This is a deep rabbit hole you're digging towards.
I'd argue that if you can't afford to repair your car you can't afford the car. And if we've built a society where personal ownership of a car is a necessity we have failed on a fundamental level.
Having an open line of credit is helpful for sure, but you shouldn't depend on it. Having to dip into debt to cover an expense means you've fallen behind, and if you couldn't afford it before you are less likely to afford to dig out of the hole now. Not having a credit line means you may run out of money, but it also means you can't go into debt.
Having to dip into debt to cover an expense means you've fallen behind
It's fine to borrow to fund capital expenditure. Soon after I started working (not in the US) I got a job which paid 25% more than my first job. But I needed a reliable car to get to work. After six months of struggling with an unreliable car, I borrowed money to fund 2/3 of the price of a new car.
This wasn't because I had 'fallen behind'. The reliable car was a good investment, and it was fine to fund it with debt.
Car repairs extend the life of a capital asset. It seems reasonable to fund them with debt.
What you're describing isn't an open line of credit though. It sounds like you took on that debt in as a calculated risk to help pay for a one-time expense that was a luxury rather than a necessity.
I was replying to the scenario of having a credit card to pay for an unexpected expense that otherwise couldn't be paid for. That's extremely helpful in the short term, but risky long term since presumably if it couldn't be afforded before its that much harder to dig out from under the new debt.
I wasn't meaning to argue that debt is always bad. I may have just explained myself poorly if it read that way.
I think we're looking at things in a similar way. The key point of differences I think are:
1. Car repairs are capex, even if their exact timing is unexpected.
2. When it comes time for a car repair, you may not have time to apply for a loan specifically for that purpose. In that case, a credit card is a reasonable choice.
Perhaps car repair costs are predictable over 1 year, but not over 1 month.
It's sad that:
- many people can't distinguish between using debt to fund an investment in the future, and using it to fund current expenditure
- many people in the US live in places that aren't dense enough to make public transport viable
> many people in the US live in places that aren't dense enough to make public transport viable
Well that's for damn sure. We (collectively) never should have allowed our society to bake in an assumption that everyone will have access to a personal vehicle.
A huge majority of the US is extremely difficult to live in unless you (a) own a reliable vehicle or (b) are okay with being largely self sufficient and living a hyper-local lifestyle.
Why is there a fee for carrying a balance and paying interest on a credit card? I've never heard of that, and certainly have never paid a fee for that (not in US). Credit Card issuers like it when people pay interest... because that's how they make money.
It seems charging a fee is counter intuitive because you're incentiveizing consumers to pay their card off in full and never pay interest, thus making the issuer less money.
Late fees aren't for carrying a balance, they're for not making a payment (which is perfectly well allowed to be less than the outstanding balance) on time.
Seems like this will force credit card issuers to reduce their business with people who are likely to default, especially on small balances and spending patterns.
So basically lower income people will have less access to credit cards. Possibly better for them TBH, but I still don’t like it.
Secured credit exists for a reason. You can get one within your means and the collateral is what you put forward on it. When I was a young adult I got myself a secured credit card.
Yes, they're commonly used as "starter" credit cards, to increase credit score. I presume they also come with the other benefits of a credit card, such as the amount of security deposit required when renting a car, as well as fraud and chargeback liabilities and timelines.
It makes sense as exactly that. You show the bank that you can manage a float. When you’ve demonstrated you have the executive function to do so, your score goes up.
I've never used a secured credit card, and I'm with you that it seems ridiculous.
But I think a more honest question is: Why do people do this?
I'm willing to give folks the benefit of the doubt for being smart and rational. So genuine question we should be asking ourselves (or them): What is the appeal of a secured credit card? Is it really just about the credit score?
I did this when I first moved to the US, and had zero credit history (which the system considered to mean "high risk"). The entire point is to improve your credit score.
With no interest, and they typically take months to give the money back. They get to invest the money for that time, and you don’t. It’s an outright scam, but you have to have a credit score so whatcha gonna do about it?
I mean, ok... I guess... but just seems like this a bit of regulatory overreach. There's a lot of alternatives to credit cards available, just seems like a very random hill to die on.
I'm not sure what to take from this. It makes it less punishing to not make your payment on time, but is that a good thing? If you make this a habit, you will eventually end up spending more on interest than you do on groceries...
On the other hand, "You don't have the money to pay us, now you owe us more money!" is always kind of an interesting dynamic, on the order of "the beatings will continue until morale improves."
I'm not saying that this is a bad thing, just that it doesn't seem like a huge win for consumers. My bias is that this is not something that I deal with often (being late on CC payment).
There are a lot of people who always run balances, so interest is always accruing. It won't change a whole lot for them in that regard.
There's probably people on the margin will will pay late, then be hit with interest. Or they'll be late and cancel their no-interest grace period.
Banks are complaining about this, but I think in the net their income won't change all that much. They'll probably also rates rates slightly, and/or make penalty interest rates more common, or stricter.
I'm neutral on this subject, but I don't think "punishing people for being poor" is an accurate framing at all. It's more like "punishing people for making bad financial decisions".
This isn't reducing the power of any company. The money and fees will be shifted around. This accomplishes nothing other than encouraging people to rack up more debt.
It's not like this type of feel good legislation actually changes anything with the card issues. They'll just bump interest rates a few fractions of a percent or tweak one of the other knobs they have to extract rent from merchants.
There's some irony in the government pushing legislation limiting a penalty for breaking an agreement, when they have no problem imposing all sorts of high fees if your taxes or parking/speeding tickets are late.
