The Motley Fool Discussion Boards

Previous Page

Personal Finances / Credit Cards and Consumer Debt

URL:  http://boards.fool.com/vkg-i-wrote-what-fraud-risk-is-this-there-more-30485306.aspx

Subject:  Re: Secure Credit Card and APR Date:  1/14/2013  9:02 PM
Author:  joelcorley Number:  306713 of 308882

vkg,

I wrote, What fraud risk? Is this there more fraud risk specific to a secured credit card? In this case, the bank has money on account as surety for payment. The cardholder fails to pay, the bank can refuse to redeem their CD...

To which you replied, Covering fraudlent charges is part of the cost of doing business.

But the interest rate charged has nothing to do with covering fraudulent charges.

Credit card companies and bank haven't received an interest payment from me in well over a decade. They still seem to want my business and still seem to be willing to take on the fraud risk.

I believe the cost of fraud is built into the cost of merchant fees. Credit card interest rates are primarily a function of default risk and interest rate risk (and profit), with a small amount attributable to the cost of loan servicing. Fraud risk is associated with the initial borrowing transaction and is born almost entirely by the merchant through merchant fees, charge-backs and offsets.

Of course merchants tend to pass this back to customers in the form of higher prices. But they don't do any of this based on whether or not you have a secured credit card.

- Joel
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us