No. of Recommendations: 1
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
Print the post  

Announcements

UGC Disclosure Notice Regarding Credit Card Posts
Community board discussions about credit cards are not provided or commissioned by banks who may have advertising relationships with The Motley Fool. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
TMF Credit Center
The Motley Fool Credit Center arms you with real tools and simple messages, that will help you in every credit situation.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement