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More rules clamping down on abusive credit card practices are on their way. But even when the final phase of the CARD Act is in place this August, credit card issuers will still be able to blindside customers with unexpected fees. The CARD Act, signed into law last year, aims to protect consumers by limiting fees, preventing over-the-top interest rate hikes and improving disclosure.

Rules that have already been rolled out require credit card companies to give customers at least 21 days to pay their bills and to provide a 45-day notice of major changes. In addition, credit card companies can no longer automatically apply fees to card holders who exceed their credit limit, and issuers can't raise interest rates on existing balances unless a payment is 60 days late.

Beginning Aug. 22, your credit card company won't be able to charge you inactivity fees or excessive late fees, and it will only be allowed to charge you one penalty fee at a time.

That's the good news.

But banks will still be able to get around many of these rules.

http://money.cnn.com/2010/06/30/news/economy/credit_card_act...

Fuskie
Who especially likes the part where the spokesperson from the American Bankers Association says that banks want to do what's best for their customers...
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All the more reason to pay off your credit cards in full. If they start hitting me with annual fees, I guess I will have to go back to paying with checks.

electrasmom
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American Bankers Association says that banks want to do what's best for their customers...

There was a something on the radio about banks being charged higher rates for insurance (FDIC, maybe) -- I think it was part of the "what's best for the consumer." Yeah, the banks may get charged, but gee, I'm guessing that somehow, the customers will see those fees passed along.

But my son's student free checking account is being eliminated so that he can open a $15K account that won't incur a monthly fee. Woo Hoooo!

Okay, color me cynical.
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{{Yeah, the banks may get charged, but gee, I'm guessing that somehow, the customers will see those fees passed along. }}


Yes, those fees will be passed along as they should be. If it costs more to provide a service, people will have to pay more for that service.



c
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Yes, those fees will be passed along as they should be. If it costs more to provide a service, people will have to pay more for that service.

I don't disagree, but not everything being done is for the benefit of the customer and I find it disingenuous for the banks and CC companies to claim it is.
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I don't disagree, but not everything being done is for the benefit of the customer and I find it disingenuous for the banks and CC companies to claim it is.

Actually, it was Congress and consumer advocates that were claiming that the new rules would benefit consumers. Unfortunately, they didn't recognize that the banks and credit card companies wouldn't take the loss of revenue laying down and would seek to replace that revenue.

In fact, with the current legislation, the banks have warned that there will likely be an end to free checking and that it will be bad for customers. So the banks are acknowledging up front that the customers will pay the price.

AJ
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So the banks are acknowledging up front that the customers will pay the price.

Actually, they are laying the groundwork to find new ways to gougue customers and blame it on Congress. Financial institutions have no credibility with me. I do not for a minute believe that the fees we are charged are based in the costs of the services provided. I think banks try to figure out how much they can get away with charging without causing a consumer revolt. They gamble that enough customers will suck it up than will walk, and for the most part, people are such financial sheep, they are right.

Fuskie
Who takes the view that a company whose business model is focused on placating shareholder demands for value growth or dividends is a company that has lost sight of the reason it is in business, but that a company that focuses on the servicing its customers well will produce the organic growth that ultimately rewards shareholders for their faith and trust...
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Actually, they are laying the groundwork to find new ways to gougue customers and blame it on Congress.

Oh, so being charged a fee for a checking account or credit card account now is a 'new way to gouge customers' and is completely different than the fees that I paid 25 or 30 years ago when I opened my first checking account and first credit card account?

Sorry, Fuskie - you are really stretching here.

It does cost banks money to handle accounts, whether you like it or not. How the banks chose to generate income to pay for those accounts had changed from 20 or 30 years. Now it appears to be going back to the same model - not anything new at all.

AJ
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Who takes the view that a company whose business model is focused on placating shareholder demands for value growth or dividends is a company that has lost sight of the reason it is in business, but that a company that focuses on the servicing its customers well will produce the organic growth that ultimately rewards shareholders for their faith and trust...

Banks are in business to make money. Offending your customers is not a good business plan. Somehow banks became addicted to overdraft fees. It is a cycle that isn't going to be easily broken. Now that the banks have a history of income from the fees, shareholders are expecting that income. Bank management will aggressively seek to maintain profits.

"Organic growth" works as long as the products being sold are profitable and there are more potential customers available. Many of the products offered by banks, such as free checking, are not profitable. It would not have produced the gains that were seen from the discovery that many people would complain about overdraft fees, but not change their behavior to prevent the fees.
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it was Congress and consumer advocates that were claiming that the new rules would benefit consumers.

Maybe another example of "be careful what you wish for."

;^D
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aj485,

You wrote, Oh, so being charged a fee for a checking account or credit card account now is a 'new way to gouge customers' and is completely different than the fees that I paid 25 or 30 years ago when I opened my first checking account and first credit card account?

Hum... I opened my first checking account with a credit union around 1980 - no fees. I closed my second checking account because they charged me a fee to use the ATM - that was in 1984. That was mostly my naive inexperience - the new account manager told me that their ATM access was free. Had I read their account terms first, it specifically said that they didn't charge a fee for accessing their ATMs; but they do charge an ATM transaction fee regardless. In other words, they'd charge you a buck per transaction for using any ATM; but they would waive the other usage fee if I used their ATM. My mistake - until that charge, I'd never used an ATM. But I'd felt like I'd been lied to by the account manager and since they wouldn't reverse that fee that one time I just closed the account.

My first general purpose credit card was a Bank One Visa around 1985. No annual fee.

I've always gone out of my way to look for fee-free accounts. Most S&Ls and credit unions would waive accounts fees if you maintained a minimum balance - $500 to $1,000. (A lot of money in the '80s.) Of course minimum balances were sometimes difficult to maintain - especially with that XSO of mine - so I tried to avoid even those when I could.

Finally, It does cost banks money to handle accounts, whether you like it or not. How the banks chose to generate income to pay for those accounts had changed from 20 or 30 years. Now it appears to be going back to the same model - not anything new at all.

Banks also make a little money on the spread with any deposits. The amount they make depends on the type of account and the amount of reserves they have to hold to satisfy demands on that type of account. As I recall, that is the rational for waiving fees for accounts that maintain a minimum balance. If you maintain a minimum balance, the bank can make enough money on the spread to cover its maintenance costs. The bank doesn't really make much money on small accounts - they really just want the accounts of high net worth individuals.

I suspect this legislation is basically just going to force all deposit institutions to require minimum account balances again.

And I'd add that most consumers rarely interact with a bank in person any more. While it costs money to maintain ATMs and electronic websites, direct deposit, ACH and other electronic means of banking are much cheaper than the personal interaction that was so commonplace back in the '70s and '80s. With the advent of electronic check conversion, even the cost of processing paper checks has come down. Remember when the bank would send all of your paper checks back to you in the mail...?

- Joel
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>>>Who takes the view that a company whose business model is focused on placating shareholder demands for value growth or dividends is a company that has lost sight of the reason it is in business, but that a company that focuses on the servicing its customers well will produce the organic growth that ultimately rewards shareholders for their faith and trust... <<<


You say this, but your willingness to have government step in and impose rules indicates that you really do not believe it.
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Hum... I opened my first checking account with a credit union around 1980 - no fees.

Well, I guess since I'm older than you, I had an earlier start, in 1976 or so. And I wasn't eligible to join any credit unions at that time, at least not that I knew of. So, my first checking account was with a bank, and they charged a fee, although since it was a 'student account' it was lower than a regular account fee. It was still a fee. So, fees to maintain a checking account are not new.

The bank doesn't really make much money on small accounts - they really just want the accounts of high net worth individuals.

I suspect this legislation is basically just going to force all deposit institutions to require minimum account balances again.


Right, and since many Americans are living paycheck to paycheck, without the ability to maintain a minimum balance in their checking account, they will get charge the fee to compensate for the lack of float.

With the advent of electronic check conversion, even the cost of processing paper checks has come down. Remember when the bank would send all of your paper checks back to you in the mail...?

And that dried up another source of revenue for financial institutions. It used to be that you could only get checks through the banks - at pretty high prices. So, they made enough money to cover being able to send your checks back to you. Then the check printers saw the margins that the banks were making, so they started marketing directly to consumers, which cut the revenue some. And so banks started charging to send checks back, so that helped make up for loss of the revenue from selling checks.

Then along came electronic banking, with ACH abilities open to consumers, and even banks sending checks to other people for their customers (which costs banks money).

I'm just saying that I remember when it was a big deal for a bank, or even a credit union, to offer free checking with no minimum balance, no restrictions and free checks. In a couple of years, it probably will be a big deal again.

But, it's still not a 'new way' of generating revenue. All of these things are things that have been charged for in the past. Wait long enough and almost anything will become fashionable again.

AJ
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{{Who takes the view that a company whose business model is focused on placating shareholder demands for value growth or dividends is a company that has lost sight of the reason it is in business}}


Really? If I start a business, it is to make money for me. That does not change as the company increases in size.


c
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Oh, so being charged a fee for a checking account or credit card account now is a 'new way to gouge customers' and is completely different than the fees that I paid 25 or 30 years ago when I opened my first checking account and first credit card account?

AJ, please do not put words in my posts. I never said that all fees were legitimate. I said that the fees we are charged today are not based on the costs of the products and services provided. I do not know how the fees were determined 25-30 years ago, but I do believe that today they are determined by how much the banks think they can get from us. That is gouging in my book.

Fuskie
Who does agree the annual fee model is a return to a previous business model, but still does not believe the annual fees being charged are based on the cost of maintaining the account but instead are based on how much they think they can get away with charging...
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I said that the fees we are charged today are not based on the costs of the products and services provided. I do not know how the fees were determined 25-30 years ago, but I do believe that today they are determined by how much the banks think they can get from us. That is gouging in my book.

I don't think that is gouging. I think that is charging what the market will bear, and that is a reasonable pricing model for most businesses.
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Offending your customers is not a good business plan.

And yet that is the path financial institutions have been taking over the last decade or so.

"Organic growth" works as long as the products being sold are profitable and there are more potential customers available.

There is a fine line between maintaining profiability and trying to drain every last penny out of their customers.

Many of the products offered by banks, such as free checking, are not profitable.

Neither were handing out toaster ovens to new account holders, but that didn't stop them.

Fuskie
Who has no problem with banks charging reasonable fees to earn a profit; his issue is with companies where management is more focused on appeasing the demands of shareholders instead of actually doing what they were in business for; the purpose of a business needs to be servicing its customers first and rewarding its investors in the process, not rewarding its investors first and servicing its customers in the process...
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I suspect this legislation is basically just going to force all deposit institutions to require minimum account balances again.

I would have no problem with this. Once upon a time, banks were were you stored your money. Their profits came from lending out the money that you gave them through mortgages and business loans. Then came consumer credit and they made more money through finance charges. Then came fees which were supposed to encourage proper money management by penalizing mismanagement and abuse.

As I have said before, at some point the banks decided to make fees and penalties a key revenue source and ever since then they have looked for ways to maximize that stream. This is what I mean by gouging consumers - the fees charged now no longer serve their original purpose of promoting proper consumer behavior or punishing consumer misbehavior. It is about getting as much of my money as they can any way they can while smiling and telling me all in my best interest.

Fuskie
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but I do believe that today they are determined by how much the banks think they can get from us. That is gouging in my book

Isn't market pricing the basis of our economy?

Gouging by price fixing is a different problem.
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You say this, but your willingness to have government step in and impose rules indicates that you really do not believe it.

I don't follow.

Fuskie
Who has not spoken as to his willingness to have government step in and impose rules, but does think that there is a role for government to play in ensuring a fair marketplace between business and consumers...
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Since many Americans are living paycheck to paycheck, without the ability to maintain a minimum balance in their checking account, they will get charge the fee to compensate for the lack of float.

Or they will have greater incentive to establish savings instead of living off credit, which would be a good thing according to many experts.

I remember when it was a big deal for a bank, or even a credit union, to offer free checking with no minimum balance, no restrictions and free checks. In a couple of years, it probably will be a big deal again.

I can agree with that.

it's still not a 'new way' of generating revenue.

I guess the difference of opinion is that I don't believe that the banks' original motive was to generate revenue but to enforce compliance by its customers. Sure it was a revenue source, but it was not a primary profit center as it is now.

Fuskie
Who is concerned that with banks, still being sluggish about thawing out credit and thus not generating as much revenue from received interest payments, are completely turning the business model upside down, making bank fees their primary line of business with lending a less critical revenue component and is hoping that the pendulum will soon swing back to a resonable balance...
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Really? If I start a business, it is to make money for me. That does not change as the company increases in size.

Most small businesses and startups are created to make money doing something you love to do. Their first concern is building a satisfied customer base and turning a profit in the process. When you start making key business operations decisions based on how it will affect shareholders rather than how it will be received by your customers, your focus has shifted.

Fuskie
Who maintains that a company that focuses on placating the demands of shareholders over serving the needs of customers will eventually have too many of the former and too few of the latter, which in turn will be bad for the former...
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I never said that all fees were legitimate.

I meant that I never said that all fees were illegitimate.

Fuskie
Who was not feeling ill enough with that post...
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Gouging by price fixing is a different problem.

When the big monster megabanks control a majority of the banking market, isn't that close to price fixing?

Fuskie
Who thinks this brings in the whole Too Big To Fail argument when a banking institution becomes so big that it can ride roughshod over its customers because they are so dominate in the market...
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AJ, please do not put words in my posts. I never said that all fees were legitimate. I said that the fees we are charged today are not based on the costs of the products and services provided.

Sure, when you stop doing the same. My comment that you responded to was about banks telling customers upfront that free checking was going to go away if the new rules pass. Your response was Actually, they are laying the groundwork to find new ways to gougue customers and blame it on Congress. I was only trying to find out how charging for checking accounts or credit cards was a 'new way to gouge customers' - as it still doesn't seem new, or gouging, to me.

Who does agree the annual fee model is a return to a previous business model, but still does not believe the annual fees being charged are based on the cost of maintaining the account but instead are based on how much they think they can get away with charging...

Banks are in business to make money. Like any other organization in a capitalist society, they charge what the market will bear. Whether that price is directly related to the cost to provide the service doesn't really matter in a capitalist society.

For instance, retail stores offer 'loss leaders' all the time - the pricing isn't related to their cost on those products. To make up for the losses on the 'loss leaders', some of the prices they charge on other items are not directly related to their costs. Yet, I don't see rants that retail stores are gouging customers.

AJ
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{{Who does agree the annual fee model is a return to a previous business model, but still does not believe the annual fees being charged are based on the cost of maintaining the account but instead are based on how much they think they can get away with charging...}}

So you think they are based on supply and demand curves. Sufficiently high to raise revenue without causing too much drop in business.



c
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{{When the big monster megabanks control a majority of the banking market, isn't that close to price fixing?}}


Aren't there currently regulations that limit the percent of customers who bank with any given bank? I thought that Bank of America ran into this limit and had to divest some branches.


c
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I do believe that today they are determined by how much the banks think they can get from us. That is gouging in my book.

I think this is the business practice of most companies in existence. when new products are developed, studies are done based on "what the customer will pay"

Most companies base pricing on what they think they can get from us.
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Actually, it was Congress and consumer advocates that were claiming that the new rules would benefit consumers.

I never expect Congress to do anything that would benefit me, but just who are these "consumer advocates"? Much of what they do also just make my life worse.

foolazis
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>>>fees we are charged today are not based on the costs of the products and services provided.<<<


So what? The price of a service is determined by the amount that those who use the service are willing to pay. Not by the cost to provide the service.
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>>>Who has no problem with banks charging reasonable fees to earn a profit; his issue is with companies where management is more focused on appeasing the demands of shareholders instead of actually doing what they were in business for; the purpose of a business needs to be servicing its customers first and rewarding its investors in the process, not rewarding its investors first and servicing its customers in the process... <<<


Sure as long as you or government get to determine what they were actually in business for. Right?
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>>>You say this, but your willingness to have government step in and impose rules indicates that you really do not believe it.

I don't follow.<<<


Fuskie:

My issue is that you often state in one form or another that business that do not serve there customer will wither and die while those that do will ultimately grow and prosper. Yet you do not seem willing to let this process occur. Instead you fully support government stepping in and imposing rules to "force" companies to serve their customers, i.e. not charging fees that you feel are unreasonable.

To me this is disingenuous.

It could be that I am incorrectly, in this instance, taking your arguments that the fees are unreasonable to mean you support the legislation and if so then I am sorry.
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Sounds like another reason to stick with the Credit Union (no matter how many $100 bonus promises Chase Waves in my Face).

joycets
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Sounds like another reason to stick with the Credit Union (no matter how many $100 bonus promises Chase Waves in my Face).


Couple threads up, I talked about how my CU is not immune from some of these changes. Ok, mine is a freaking huge CU, but. . .

Ishtar
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about how my CU is not immune from some of these changes. Ok, mine is a freaking huge CU, but. . .

Ishtar
....

I was wondering if mine was huge enough. I mean, locally its pretty huge (originally just for University of Texas employees, then grew) but that's nothing compared to the Navy.

joycets
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I guess the difference of opinion is that I don't believe that the banks' original motive was to generate revenue but to enforce compliance by its customers.

What 'compliance' are banks enforcing by charging a monthly fee for a checking account? Because those are the fees that are going to be re-implemented when free checking goes away.

Sure it was a revenue source, but it was not a primary profit center as it is now.

And you have what to back up your assertion?

AJ
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$10 Billion in assets is the cut off for some of the regs (at least the ones that may effect free checking that I was looking into). Your CU's webpage should have a statement somewhere that says what their assets are.

Ishtar
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ed1007,

You wrote, The price of a service is determined by the amount that those who use the service are willing to pay. Not by the cost to provide the service.

Not precisely true.

All other things being equal, most businesses will not offer a service at a loss - at least not for long. So the cost of a service does tend to place a floor on the price of that service. If the service becomes too expensive for part of the population, demand for the service simply falls until the size of the market (both the number of consumers and producers of the service) reaches equilibrium.

Of course not all things are equal. Some business will offer a product or service as a loss-leader. Loss-leaders are a form of advertising expense - an expense attributable to yet another product or service - the business gives away one product at a loss to encourage customers to engage in these other, more profitable transactions.

For the past decade or two banks have offered free checking as a loss-leader to encourage customers to engage in other, more profitable transactions such as borrowing, deposit/savings accounts, debit card purchases and overdraft fees. Recent legislation does not eliminate most of the bank's profitable services, so I suspect checking accounts will continue to be a loss-leader for some institutions.

- Joel
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joycets,

You wrote, ... (no matter how many $100 bonus promises Chase Waves in my Face).

But Chase has been very good at paying me all of those bonuses. I don't really understand why they think it will make them any money; but I'm always happy to take theirs if it's easy pickings...

- Joel
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Offending your customers is not a good business plan.

And yet that is the path financial institutions have been taking over the last decade or so.


I have banked with the same bank and credit union for the last couple of decades. They have at times annoyed me, but it never reached the level of offense. Credit cards companies on the other hand have reached the level of offense with mistakes and fees. 3 accounts had mistakes in the same month. I attempted to close every store account, but there were zombie accounts that survived for a number of years.
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>>>Not precisely true.

All other things being equal, most businesses will not offer a service at a loss - at least not for long. So the cost of a service does tend to place a floor on the price of that service. If the service becomes too expensive for part of the population, demand for the service simply falls until the size of the market (both the number of consumers and producers of the service) reaches equilibrium.

Of course not all things are equal. Some business will offer a product or service as a loss-leader. Loss-leaders are a form of advertising expense - an expense attributable to yet another product or service - the business gives away one product at a loss to encourage customers to engage in these other, more profitable transactions.

For the past decade or two banks have offered free checking as a loss-leader to encourage customers to engage in other, more profitable transactions such as borrowing, deposit/savings accounts, debit card purchases and overdraft fees. Recent legislation does not eliminate most of the bank's profitable services, so I suspect checking accounts will continue to be a loss-leader for some institutions.<<<

Joe: I think we may be singing from the same sheet of music.

I have been involved in the role out of many new products, when it came to pricing the starting point was always without fail, what will customers pay. Period. Every time. Never started anywhere else. Now having said that if that price was less than ~30% over the cost to produce, distribute, advertise, etc. the product it died. If it was between 30 - 50% over that cost then some more work was in order mostly to further pin down actual cost or perhaps a test market. However, never once did we price something less than what we felt the market would pay just because the profit exceeded some cost.

Now having said that I can see and understand that in the retail business prices are set a little more holistically than in the manufacturing sector. But as a whole I guarantee the prices are set "overall" at what the sales people (or corporate) thinks the market will pay, regardless of the "overall" cost of providing the products. As a result prices for individual services or products can be set as "lossleaders" and thus be offered below cost. However, even in these cases the cost is a secondary factor to setting the price. I.e. a gas station manager wants to drive in store sales. He/she decides that if the stores gas price is X the will increase in store sales by Y. The cost of the gas has not come up yet the price has been, at least tentatively, set. It is the net traffic vs gas price curve that helps the manager decide on the price of gas, not the cost of gas. Now the manager may look to see if by setting the new price for gas if the net profit of the store will go up or down and of course at this point the cost of the gas and other goods come into play.

Having said all that in markets were there is competition eventually someone enters the market that will take a little less profit in exchange for customers, the gas station above. This drives what people are willing to pay down, after all if I can go across town and get it for $5 cheaper I might be willing to do that. The long term "floor" to which the price can ultimately be driven is the cost to produce/provide.

The original point I was in opposition to was that prices should always reflect cost. i.e. 30% profit is all anyone should be allowed to make. My point is that prices are never set by a cost + method. Instead they are set by maximizing net profit; charging what the market will bear.
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Sure as long as you or government get to determine what they were actually in business for.

No, that is not what I said. That is what the company's Board of Directors is supposed to decide.

Fuskie
Who does think that a company with out a clear picture and focus on its line of business is a bad investment...
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ed1007: "Sure as long as you or government get to determine what they were actually in business for. Right?"

The government does, if the businesses want to take advantage of the government granted privilege of limited liability for investors by forming a corporation, limited partnership or limited liability company, etc.

If the businesses are willing to forego such limitation and form as sole proprietorships or general partnerships, then the government is more limited by the polic power and interestate commerce.

Otherwise with government largesse comes governmental strings.

JAFO
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It could be that I am incorrectly, in this instance, taking your arguments that the fees are unreasonable to mean you support the legislation and if so then I am sorry.

I do think regulation is necessary when an industry has been shown repeatedly to act in a manner that preys on its customers rather than act in a reasonable and equitable manner. For most Americans, owning a credit card is not an optional reality.

Building up a credit history and positive credit score is now essential for everything from buying insurance to getting a job. If you do not have a mortgage, an auto loan or some other form of credit line, then a credit card is needed to establish a record. In my book, this puts an additional level of responsibility on the credit card industry to deal with customers fairly rather than seeking to drain every last bit of blood from their bank accounts.

The banking industry in general has been irresponsible and this has resulted in a huge bailout using taxpayer money. A consequence of this generosity by the American People should be to voluntarily change their business operations and to self-regulate so that this never happens again. Instead, the financial industry has been unrepentant and seeks to continue business as usual without regard to the impact on the national economy or their customers well being.

Fuskie
Who notes that self-regulation, as is exampled by BP, only works when the industry and companies have a sense of corporate citizenship rather than just a single minded focus on appeasing shareholders and paying out executive bonuses...
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What 'compliance' are banks enforcing by charging a monthly fee for a checking account? Because those are the fees that are going to be re-implemented when free checking goes away.

I have said before I have no problem with charging a monthly fee for a checking account. Banks have long charged a monthly fee for a checking account but waived them for minimum balances or direct deposit service. Even my credit union charges a $5 monthly fee for any month in which I do not have an electronic transfer.

And you have what to back up your assertion?

My Financial Management merit badge earned too many decades ago. Unless the BSA was just spreading propaganda for the banking industry. I was taught that banks made money by using the money I left in my savings account to lend to others. I even got a cut of that revenue with interest paid on my savings (as a thank you for allowing them to use it). Penalties were in place to discourage me from breaking the account rules. These days there are so many fees and gotchas, not to mention barely any interest earned, you have to wonder what is the value of using a bank at all.

Fuskie
Who notes that some banks these days are also waiving monthly or annual account fees for using their bill pay system as well...
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I have banked with the same bank and credit union for the last couple of decades. They have at times annoyed me, but it never reached the level of offense. Credit cards companies on the other hand have reached the level of offense with mistakes and fees. 3 accounts had mistakes in the same month. I attempted to close every store account, but there were zombie accounts that survived for a number of years.

I have been with my big mega bank for over 2 decades now through 4 iterations. My customer loyalty means zero to them. My business means zero to them. If I walk, they have loads of marketing dollars securing my replacement. DF once taught me that the most important thing you could do was establish a relationship with the manager of your local bank branch. Those days are a thing of the past.

Fuskie
Who has been fortunate in that he has for the most part avoided most of the traps and pitfalls set out by his credit card issuers by playing a rather conservative game when it comes to his credit card use...
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>>>I do think regulation is necessary when an industry has been shown repeatedly to act in a manner that preys on its customers rather than act in a reasonable and equitable manner. <<<


And there is the rub. If companies that proverbially "S????w" their customers will eventually go out of business, then why is regulation necessary? In the long run bad practices will be weeded out of the market.

JAFO makes a valid argument that corporations shield their owners from liability. He goes on to suggest that this "use of government" means that government should be allowed to regulate the organizations. To me yes and no. This regulation should extend only so far as to protect those who have lost the ability to recoup damages from the owners. i.e. protect those that are impacted by the limit of liability the corporate structure provides. Good examples regulations regarding loan to assets ratios the FDIC managed insurance for account holders. The discussion here is in regards to the ability for the government to regulate the fees that banks charge for services. To me it is an apples and oranges comparison.

To the question of BP. BP was drilling on PUBLIC land. As such the owners of that land, the people, have every right to "regulate" that activity. The same way the government regulates your driving privalages. Again apples and oranges comparison to the question of whether or not the government should regulate the fees banks charge.
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Oh, so being charged a fee for a checking account or credit card account now is a 'new way to gouge customers' and is completely different than the fees that I paid 25 or 30 years ago when I opened my first checking account and first credit card account?


I've had free (or interest-paying) checking since 1977. Sometimes I had to change banks to do it though.

Vickifool
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ed1007:

>>>I do think regulation is necessary when an industry has been shown repeatedly to act in a manner that preys on its customers rather than act in a reasonable and equitable manner. <<<

"And there is the rub. If companies that proverbially "S????w" their customers will eventually go out of business, then why is regulation necessary? In the long run bad practices will be weeded out of the market."

The "long run" can leave a long trail of misery in its wake and a lot of trouble.

Who protects those who are injured in the interim before the long runs set in?

And if we know the eventual outcome, why not accelerate the process with easonably regulation?

Regards, JAFO
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>>>The "long run" can leave a long trail of misery in its wake and a lot of trouble.

Who protects those who are injured in the interim before the long runs set in?

And if we know the eventual outcome, why not accelerate the process with easonably regulation?<<<



I would argue that we do NOT know the eventual outcome. We do not know what services or products will be developed by the free market. We certainly know what happens if we go to the extreme of over regulation.

If we short circuit the market then I would suggest that the result may not be as favorable as one might think. Wittness the current events that have and are unfolding after the recent credit card regulations.

I would further argue that the idea that the government acceleration of a process is an oxymoron ;-)
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JAF031,

You wrote, The government does, if the businesses want to take advantage of the government granted privilege of limited liability for investors by forming a corporation, limited partnership or limited liability company, etc.

Bank charters and bank holding companies are even more regulated than regular corporations. They can only operate within the confines of regulations set by the Fed and the Office of Thrift Supervision. In exchange they get special treatment when it comes to things like fraud liability and government-backed insurance.

Of course bankers are always looking for creative ways around regulations to pad their bottom lines while still maintaining those protections...

- Joel
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And there is the rub. If companies that proverbially "S????w" their customers will eventually go out of business, then why is regulation necessary? In the long run bad practices will be weeded out of the market.

Not if the consumer has nowhere else to go. Whether it is collusion or not, financial institutions tend to operate in lock step - what one can get away with, the others follow. It reminds me of the end of Die Hard 2: Once the first plane sees how they can use the fire from the bad guys' exploded plane to see to land, the others follow on their own. Airlines do it too. If one figures out a way to charge for lavatory access, you can bet the others will follow.

To the question of BP. BP was drilling on PUBLIC land. As such the owners of that land, the people, have every right to "regulate" that activity. The same way the government regulates your driving privalages. Again apples and oranges comparison to the question of whether or not the government should regulate the fees banks charge.

Banks operate with public tender (it is the government that declares dollars and cents as legal) and are almost all operating with public financing (TARP). By the same extension, don't the people have every right to regulate that activity as well? Even outside of the bailout, doesn't the Fed provide the banking services that allow the financial institutions to operate, setting rates and such?

Fuskie
Who has no problems with banks having fees, but their fees should not be predatory and policies should not pad an extra zero to their profits at the cost of endangering the national economy again...
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If we short circuit the market then I would suggest that the result may not be as favorable as one might think. Wittness the current events that have and are unfolding after the recent credit card regulations.

Again, I would catalog some of the outrages that have taken place by the banks over the last year as predatory. Cutting credit lines or inflating interest rates for customers with premium credit scores is a sign of bad faith by the banks. These are institutions that took public money for the purpose to thaw out credit but they continue to be slow to lend (although not slow to pay themselves).

The banks act as if nothing happened and the recession was not their fault. When an industry behaves irresponsibly to the national interest, it is the proper role of government to step in. A free market economy is not perfect. It depends on all parties agreeing to concepts and practices of fair trade. When one party seeks to take advantage of the other through legalese and unethical practices, the system no longer works. The balance is upset.

Just like our constitutional freedoms are regulated by reasonable (in most cases) laws to protect the exercise of one's rights from infringing on the rights of another, so is regulation necessary for businesses that grown beyond the ability of a free market to modify behavior that threatens the individual or society as a whole.

Fuskie
Who thinks that like the three branches of government provide checks and balances against each other, a national economy needs to have a set of checks and balances to ensure that no one sector of the economy has the power to do irresponsible harm against the other...
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Banks . . . are almost all operating with public financing (TARP).

And you got this information from where? Because your source is incorrect.

According to the FDIC Statistics on Depository Institutions http://www2.fdic.gov/sdi/main.asp as of 3/31/10 there were 7932 banking institutions, 5794 of them state chartered and 2138 nationally chartered.

According to page 36 of the April 20, 2010 Quarterly Report to Congress from the Special Inspector General for the Trouble Asset Relief Program (SIGTARP) http://www.sigtarp.gov/reports/congress/2010/April2010_Quart... there were a total of 707 "qualifying financial institutions" that received TARP money from the CPP (Capital Purchase Program) before it was closed on Dec 29, 2009. It is no longer disbursing funds.

So, 707 out of 7932 = 8.9% - about 80% - 90% less than "almost all."

Even if you only count the nationally chartered institutions (incorrect, as state chartered institutions were eligible, too), it's 707 out of 2138, or 33.1% - still a far cry from "almost all."

And according to the SIGTARP report, as of 3/31/10, more than 55% of the money had been repaid. And since then, even more has been repaid. Here's a link where you can get the latest reports on what's been paid if you are interested in actually looking at the facts: http://www.financialstability.gov/latest/reportsanddocs.html...

AJ
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And a half dozen of them have 90% of the market.

Fuskie
Who notes that the big monster megabanks dominate and set the tone for the industry...
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*** Wait long enough and almost anything will become fashionable again. ***

Even my purple velour hotpants? Oh wait, you said "almost". Never mind.
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And a half dozen of them have 90% of the market.

Again, your source is incorrect.

Here is a listing of the top 50 banks by assets as of 3/31/10: http://www.ffiec.gov/nicpubweb/nicweb/top50form.aspx

The top 6 (i.e. 'half dozen') hold $9.40T in assets. The top 50 hold $14.67T in assets. So even as a percent of the top 50, the top 6 hold 64.1% - way less than 90%. To get to 90% of just the top 50 (not all banks), you need to go down to #22.

Even if you were correct, of the top 'half dozen' (BofA, Chase, Citi, Wells Fargo, Goldman Sachs and Morgan Stanley), all except Citi have completely repaid their TARP debts, and Citi is in the process of doing so. Additionally, the taxpayer made a profit on their payments.

You really need to get sources that deal in facts, instead of listening to the talking heads.

AJ
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Even my purple velour hotpants? Oh wait, you said "almost". Never mind.

Well, Joel would probably think you were fashionable in those :-)

AJ
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They weren't even fashionable in 1978, let alone now.

Joel's fashion sense must be in the toilet. Not his taste in women though, I hasten to add!
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Ok, maybe fashionable. But definitely not attractive.
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They weren't even fashionable in 1978, let alone now.

How about 1968?

Joel's fashion sense must be in the toilet.

Joel's fashion sense has more to do with what the clothes reveal :-)

Not his taste in women though, I hasten to add!

That taste has definitely improved from when he was younger.

AJ
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{{Again, I would catalog some of the outrages that have taken place by the banks over the last year as predatory. Cutting credit lines or inflating interest rates for customers with premium credit scores is a sign of bad faith by the banks.}}

What you see as outrageous and predatory, I see as reasonable and a sign that the banks realize they made a mistake extending so much credit previously and are trying to correct it going forward. to me, it seems like you want to punish banks that are acting in a more responsible manner in extending credit. The other issue is that good credit scores are no longer as good of a predictor. In fact people with good credit scores are more likely to walk away from an underwater loan than are people with bad credit scores.


c
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What you see as outrageous and predatory, I see as reasonable and a sign that the banks realize they made a mistake extending so much credit previously and are trying to correct it going forward. to me, it seems like you want to punish banks that are acting in a more responsible manner in extending credit. The other issue is that good credit scores are no longer as good of a predictor. In fact people with good credit scores are more likely to walk away from an underwater loan than are people with bad credit scores.

The banks would love to blame the recession on consumer debt. But while consumers have had more outstanding credit card debt than ever before, we did not cause the crisis. It was the way the financial industry sliced up and sold mortgage securities and then used credit default swaps to insure theirs and others investments that resulted in over leveraged banks.

What the banks are doing now is harming those who have used credit wisely, not exceeded their limits, paid off their balances monthly and on time not only by squeezing their available credit and jacking up their interest rates for no individually justified reason (just general market conditions) which in turn affects their credit score, all so they can improve their bottom line. But have they stopped doing the things that got them into trouble in the first place?

I have not heard that those with premium credit scores are more likely to walk away from loans. And certainly I haven't heard anyone suggesting that it is no longer necessary to have a good credit rating to be able to get decent terms. So I don't really buy the line that the banks are trying to do us a favor. I think the are just trying to cover their bonuses. They used government funding to keep themselves from going under, and now they are using consumers to hide the fact that they aren't changing their ways.

Fuskie
Who expects it will be a long wait for the banking industry to admit they made mistakes, apologize, and promise to be more responsible in the future...
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{{I have not heard that those with premium credit scores are more likely to walk away from loans.}}



http://www.washingtonpost.com/wp-dyn/content/article/2010/07...

"In a study released June 28, researchers from credit-bureau giant Experian and the Oliver Wyman consulting firm found that borrowers with "super prime" credit scores accounted for 30 percent of all mortgages outstanding in mid-2009 but produced just 5 percent of all serious mortgage delinquencies.

However, 28 percent of those elite scorers' defaults were calculated and strategic, versus 18 percent for the overall population of borrowers in the sample. This pattern, in turn, is forcing lenders and the credit industry to seek new ways to evaluate risk beyond traditional credit scores. "



c
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But while consumers have had more outstanding credit card debt than ever before, we did not cause the crisis.

Well, it takes two to tango. Banks lend, consumers borrow. If banks had been responsible lenders, the consumers would not have been able to borrow so much. On the other hand, if consumers had been responsible borrowers, the banks wouldn't have been able to lend as much. Trying to blame this solely on the banks isn't any more correct or productive as trying to blame it solely on the consumers. You are being just like the banks, except on the other side.

It was the way the financial industry sliced up and sold mortgage securities and then used credit default swaps to insure theirs and others investments that resulted in over leveraged banks.

That would be an overleveraged AIG, which is an insurance company, not a bank. They were the ones that wrote most of the credit default swaps. Additionally, it was Fannie Mae and Freddie Mac, to support government intiatives, that started slicing up mortgages and selling them as CDOs. So why aren't you ranting against the government and insurance companies, too?

What the banks are doing now is harming those who have used credit wisely, not exceeded their limits, paid off their balances monthly and on time not only by squeezing their available credit and jacking up their interest rates for no individually justified reason (just general market conditions) which in turn affects their credit score, all so they can improve their bottom line. But have they stopped doing the things that got them into trouble in the first place?

Look, you were the one who just said that banks were lending irresponsibly. They didn't lend irresponsibly to just people with low credit scores - they gave too much credit, at too low of an interest rate, to people with 'premium' credit scores, too. So now that they are trying to be more responsible in their lending, you want to crucify them, too? Sorry, that is so hypocritical as to be laughable.

I have not heard that those with premium credit scores are more likely to walk away from loans.

Where have you been? Google 'strategic default' - you will find lots of stories about people who have good credit scores and can afford their mortgages, but are walking away because they are underwater.

And certainly I haven't heard anyone suggesting that it is no longer necessary to have a good credit rating to be able to get decent terms.

Nobody ever suggested that. In fact, to get the best terms, you now have to have a better credit scores than you used to, along with more assets and cash flow. That's the type of responsible lending that you seem to advocate that banks should have been doing all along.

So I don't really buy the line that the banks are trying to do us a favor.

I don't see a line where anyone said that banks are trying to do us a favor. Putting words in people's posts again?

AJ
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What the banks are doing now is harming those who have used credit wisely, not exceeded their limits, paid off their balances monthly and on time not only by squeezing their available credit and jacking up their interest rates for no individually justified reason (just general market conditions) which in turn affects their credit score,

For those who are paying off there balances monthly, interest rates are not an issue. Our interest rates are 16-25%. Other than one mistake at the end 1999, I haven't paid a cent in interest in many years. Unless there monthly charges are greater than 25% of the credit limits, decreasing credit limit would not cause a large change in their credit scores. With a good credit history, these customers have the option to apply for an increase in the credit limit or a new account.

Credit Card Customers that are being squeezed are those who carry balances. Being in debt places the debtor in a weak position. Credit limit isn't "owned" by the account holder. Those that view credit limits as an unrevokable right are being unpleasantly surprised that it isn't.

Fees for inactive accounts will decrease the number of inactive accounts. The new regulations will likely result in more credit card with annual fees. It is going to become more difficult to find good rewards credit cards without annual fees. Realistically, I don't want to live without a credit card, but I will do what is reasonable to avoid/minimize fees.
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For those who are paying off there balances monthly, interest rates are not an issue. Our interest rates are 16-25%. Other than one mistake at the end 1999, I haven't paid a cent in interest in many years. Unless there monthly charges are greater than 25% of the credit limits, decreasing credit limit would not cause a large change in their credit scores. With a good credit history, these customers have the option to apply for an increase in the credit limit or a new account.

I am in a similar situation - I manage my credit carefully and avoid late fees, finance charges and am very careful before taking advantage of any promotional offers. I did have one credit card limit reduced by about $5000. There was no explanation for it - they just decided I didn't need it - and the consequence was a drop in my credit score as my debt to credit ratio increased.

Fortunately my score was solid to start with so I did not have difficulty replacing the credit (which I did for reasons other than to lower my debt to credit ratio), but that also resulted in a ding to my credit score because of the opening of a new account. These indiscriminate actions taken by the banks do have real world implications and in a number of cases have pushed consumers who have been dealing with major issues such as reduced or loss of income, devalued mortgages and such, over the edge.

Credit Card Customers that are being squeezed are those who carry balances. Being in debt places the debtor in a weak position. Credit limit isn't "owned" by the account holder. Those that view credit limits as an unrevokable right are being unpleasantly surprised that it isn't.

Not necessarily. Issuers have targeted those who do and do not carry balances. And yes, the credit is being extended by the issuer. However, there is an implied promise that banks will not make arbitrary and harmful decisions as to their relationship with the customer in return for the customer following all the rules set forth by the bank. When a bank chooses to harm a consumer for reasons not based on customer action or inaction, that relationship becomes unbalanced.

As to the squeezing of inactive accounts, the mantra here and elsewhere has long been to not close inactive accounts because of the impact on your credit score. I have worked in banks where I have been told the cost of maintaining an inactive account is minimal - it exists only as a record in a database. But by clearing credit off their books, the banks can make it look like they are less over-extended. It is easier for them to do that on the backs of consumers than to stop borrowing money from each other to buy mortgage securities, CDSs and other higher risk but more profitable instruments. This way they can pass the Fed's leverage tests without actually changing the behavior that got them into trouble in the first place.

Today's society values money over citizenship. Those who have more money have power over those who have less. You see it in the financial industry, oil and energy industry, and of course in politics. Greed is good is back in vogue (as is Wall Street II I hear). When those with power use it to cause harm against those who do not, civilization suffers. Just because you have the power to do something doesn't mean it should be done. And when a party is not able to control their own abuse of power, someone needs to step in and do it for them.

Fuskie
Who takes advantage of rewards offered but has never opened up a credit card specifically to get rewards...
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Would you consider lower your credit line from $16K to $2K on one card and $9K to $1.5K on another a major change? I would. That's exactly what happened to me last weekend two days before I was going to get married and charge a ton of stuff on these two Chase cards. I was give absolutely no notice. They just lowered my credit lines 2 days before the wedding. Talk about bad timing. When I called them, the said it was because I had too much revolving credit. I do have over $100K in credit, but it is second mortgages on two rental properties and a loan to buy stock options at my company all backed by assets. That doesn't matter according to them and they can check your credit report at any time and make a change.

I have had both of these cards for many years and my revolving credit line is definitely higher than it was when I took the cards out. I just think I should have been notified. I am contemplating having an attorney look at this if I thought I could get something out of it. It just seems wrong the way they did it.
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There was no explanation for it - they just decided I didn't need it

Well, it probably wasn't that they decided that you didn't need it - it was more likely that they decided that they no longer were able to keep that amount of credit open for you with your income and credit profile, based on their new risk profiles.

and the consequence was a drop in my credit score as my debt to credit ratio increased.

Only a $5k drop in your credit limit caused a drop in your credit score? That implies that you had a pretty low overall limit, or you are carrying a fairly signficant amount of debt in relation to your limit. I had a $20k drop in my limit, and there was no change at all to my score.

These indiscriminate actions taken by the banks do have real world implications

The actions are not 'indiscriminate.' They are based on risks that the lenders are allowed to take on by their regulators. (You know - those regulators that you want to impose more regulation on the banks.)

Issuers have targeted those who do and do not carry balances.

Correct, since they were too lenient in offering credit to everyone, not just those carrying balances, nor just those who don't have 'premium' credit scores.

However, there is an implied promise that banks will not make arbitrary and harmful decisions as to their relationship with the customer in return for the customer following all the rules set forth by the bank.

An implied promise? It's a business relationship that is governed by the contract. If you are trying to hold the bank to an implied promise beyond the contract as it is written, then you also need to hold the consumer to the implied promise to provide profit to the bank by using the line of credit that they have been issued.

When a bank chooses to harm a consumer for reasons not based on customer action or inaction, that relationship becomes unbalanced.

It's also unbalanced when the customer doesn't make use of the line of credit that they have been issued. If you're trying to make 'balance' arguments, you need to have both sides of the equation balance - it's not just one party's responsibility to keep the relationship in balance.

I have worked in banks where I have been told the cost of maintaining an inactive account is minimal - it exists only as a record in a database.

Whoever told you that was incorrect. Lenders are required to send out at least one statement a year to each and every account (at a cost), and they report to the credit bureaus (which also costs them money) on the status of those inactive accounts. Also, the bank isn't making any money from the customer who's not using the credit line. Additionally, they must hold capital against the credit line, in case the customer decides to start using it.

But by clearing credit off their books, the banks can make it look like they are less over-extended.

No, it doesn't make them 'look like they are less over-extended.' It actually does reduce the amount of credit that they have issued, and therefore, they have to hold less capital. I suspect that you will say something like "but if it's inactive, then the customer isn't using it and is unlikely to use it." According to those pesky regulators (that you seem to think will fix everything), the fact that the customer isn't using the credit line doesn't matter - the banks still have to hold capital against the credit that has been extended because the customer might use it. So, dropping the lines of credit that are not being used allows the banks to concentrate their available credit on customers who both meet the tighter lending standards and have demonstrated that they value the line of credit that they have by using it.

It is easier for them to do that on the backs of consumers than to stop borrowing money from each other to buy mortgage securities, CDSs and other higher risk but more profitable instruments. This way they can pass the Fed's leverage tests without actually changing the behavior that got them into trouble in the first place.

And your proof of that is? Because the CDO and CDS market between banks have been pretty much non-existent, compared to what it used to be, for the past couple of years. From http://www.sifma.org/research/research.aspx?ID=10806

Year      CDO Issuance (Millions)
2002 83,074.3
2003 86,629.8
2004 157,820.7
2005 251,265.3
2006 520,644.6
2007 481,600.7
2008 61,886.8
2009 4,336.0
2010(YTD) 3,187.2

So the banks have actually changed their behavior. Again, you need to get sources that deal in facts.

AJ
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Would you consider lower your credit line from $16K to $2K on one card and $9K to $1.5K on another a major change? I would. That's exactly what happened to me last weekend two days before I was going to get married and charge a ton of stuff on these two Chase cards.

Sorry that you were caused inconvenience. Did you have money in the bank to pay off all those charges, or were you planning on carrying the debt? Because if you did have money in the bank, that's all it should have been, was an inconvenience. If you didn't, and were planning on carrying the debt, then I would say that the bank was probably justfied in assessing the risk and cutting your line.

I was give absolutely no notice.

Correct, banks don't give any notice when decreasing or closing lines of credit. That's because, given any notice at all, even an hour, it's quite possible for the consumer to go out and use up all of the credit line that the bank was trying to reduce.

When I called them, the said it was because I had too much revolving credit. I do have over $100K in credit, but it is second mortgages on two rental properties and a loan to buy stock options at my company all backed by assets.

Revolving credit is revolving credit. And even though it's 'backed by assets,' the value of the assets in comparison to the amount owed is often questionable at this time.

It has been mentioned in the past on this board that having a highly utilized real estate backed LOC is bad for your credit utilization ratio, which is one of the main criteria used to determine how much additional credit should be granted.

I am contemplating having an attorney look at this if I thought I could get something out of it.

You are always welcome to try, but I would not recommend hiring an attorney other than on a contingency basis for a suit like this. As described above, lenders generally don't give notice of credit line reduction or closures, and there is no requirement that they do so. In fact, if you ask their regulators, they would probably say that the bank would be imprudent to provide notification of a decrease in credit lines.

AJ
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Would you consider lower your credit line from $16K to $2K on one card and $9K to $1.5K on another a major change? I would. That's exactly what happened to me last weekend two days before I was going to get married and charge a ton of stuff on these two Chase cards. I was give absolutely no notice. They just lowered my credit lines 2 days before the wedding. Talk about bad timing. When I called them, the said it was because I had too much revolving credit. I do have over $100K in credit, but it is second mortgages on two rental properties and a loan to buy stock options at my company all backed by assets.

If they gave notice, many consumers would immediately use the credit limit. Timing was very bad. It is also a reason to have credit cards from different companies.

It is likely that your spending patterns before the wedding attracted attention and a review. If you recently also took the loan to finance the purchase of company stock, that new credit would also be a red flag.

Just because the other credit might be backed by "assets", the credit they are extending to you is unsecured credit.

In this market, even if the loan is secured, it doesn't mean that the property has sufficient value to cover the loan. Second mortgages aren't revolving credit. HELOCs are revolving credit.

I don't know how you financed the company stock, but likely is also be reported as revolving credit. Whether or not the loan is secured, by the stock, Chase doesn't have anyway to know what the loan is secured or how much the securing asset is worth.

I have had both of these cards for many years and my revolving credit line is definitely higher than it was when I took the cards out. I just think I should have been notified. I am contemplating having an attorney look at this if I thought I could get something out of it. It just seems wrong the way they did it.

You can try, but it is unlikely that you have any basis for a lawsuit.
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; the purpose of a business needs to be servicing its customers first and rewarding its investors in the process, not rewarding its investors first and servicing its customers in the process...

That hasn't been and I doubt it ever will be the purpose of 99% of businesses. Best to get used to it.

I'm not terribly worried about losing my free checking accounts. I think they will always be available, just with different requirements. Even in a worst case scenario I bet Charles Schwab or Citi or a number of other institutions will offer free checking to people who have brokerage accounts with them.

It will get more difficult to get the "best" account of each type now, I think multi-account relationships will become very important. I've tried to keep just one brokerage but I could see splitting it to meet the terms of various arrangements.

The game will change but we're all smart enough to find the new angles right?

My biggest worry is the effort right now to limit the interchange fees for accepting card payments. I get a LOT of benefit from rewards cards and I was planning to look for a consulting job at the end of the year that would make these cards even more lucrative. If the fees are limited that might not be possible anymore...it's a big internal struggle, because although I know how to take advantage of the system I do think it's probably better overall for the opaque fees being collected per-transaction to be shifted to transparent fees consumers can actually see and make rational choices on.
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I'm not terribly worried about losing my free checking accounts. I think they will always be available, just with different requirements. Even in a worst case scenario I bet Charles Schwab or Citi or a number of other institutions will offer free checking to people who have brokerage accounts with them.


Of course.

Because those who can keep large balances will probably be able to get free checking.

But for someone like me, it's gonna hurt.

Ishtar
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>>>Not if the consumer has nowhere else to go.<<<


I find this a poor argument for several reasons.

1. Of course the consumer has somewhere else to go. As many people on this board any in other places have pointed out you can get by without a credit card. I personally know people that do not use a bank, everything is cash.

2. The fees which you decry will create other alternatives, as people look for ways to avoid them. That is one of the ways competition in the marketplace creates new services.

3. Your solution to the issue "The consumer has nowhere else to go." (regulate fees) will likely further limit choices as it will stifle competition.

4. >>>financial institutions tend to operate in lock step<<< Really? Then why the wide range of fees currently? Why do some banks refund you ATM usage fees and not others? Similar perhaps but certainly not in "lock step."
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As to the squeezing of inactive accounts, the mantra here and elsewhere has long been to not close inactive accounts because of the impact on your credit score. I have worked in banks where I have been told the cost of maintaining an inactive account is minimal - it exists only as a record in a database.

Plus the risk of fraud, reissuing cards and any other overhead. Estimates I have seen are $10-15 a year.

The mantra here has been not to change any credit before applying for major credit. Those in debt paydown need to make certain they don't have inactive accounts.

These indiscriminate actions taken by the banks do have real world implications and in a number of cases have pushed consumers who have been dealing with major issues such as reduced or loss of income, devalued mortgages and such, over the edge.

Banks should take action to protect themselves from those who are no longer credit worthy. Living off of credit is not a right. It may push someone into bankruptcy or foreclosure. More likely it will push them there sooner rather than just delaying it.

Fortunately my score was solid to start with so I did not have difficulty replacing the credit (which I did for reasons other than to lower my debt to credit ratio), but that also resulted in a ding to my credit score because of the opening of a new account.

How much did both change your credit score? Credit scores don't always drop when new accounts are opened. Since you score decreased with the loss of the previous credit limit, the new credit limit should have offset some of the change due to new credit.
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More rules clamping down on abusive credit card practices are on their way.

Are we going to get any rules clamping down on abusive consumer practices? You know, like borrowing and not paying back according to their side of the agreement. Are we going to get some rules clamping down on that?

xtn
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I do not know how the fees were determined 25-30 years ago, but I do believe that today they are determined by how much the banks think they can get from us. That is gouging in my book.

Ummmmmmm... all product pricing on everything you buy is based on how much they think they can get.

You wanna sell something you plot predicted sales at various price points (considering whatever data you can get about the probable supply and demand) and pick the price that gives you the most revenue. That's true for banking products the same as it is true for camping products, clothing products, grocery products, etc.

xtn
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the purpose of a business needs to be servicing its customers first and rewarding its investors in the process, not rewarding its investors first and servicing its customers in the process...

I'm sorry but that is just idealistic mush. Our free enterprise system is based on the profit motive, not the "Serve your customers" motive.

Now HOPEFULLY many businesses would find that serving their customers as best they can in turn creates the most profit for them. But that isn't usually the case. If it were then Walmart would always have all the check-out lanes open.
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DF once taught me that the most important thing you could do was establish a relationship with the manager of your local bank branch. Those days are a thing of the past.

Even these days it's good advice. My local branch manager and I have lunch together once a month or so, and I've hung out at his house on a Saturday helping him work on his car.

No, it doesn't change their official fee policies. But it has made any and every possible banking hassle into no hassle.

I lost an entire checkbook. I called Jerry Saturday a.m. and told him I had lost it and the number range. He said no problem could I come in Monday afternnoon and sign a couple of papers. It was a thirty second phone conversation. When I got there he had fixed everything. He had closed my account, opened a new one, made the transfer from the old to the new, ordered new checks, got with the online department and deleted and re-setup any regular auto-pays, etc. He went to the desks of each staff person who could get the task done and made sure they got it done. He had the account docs I needed to sign prepared and ready, and had my new box of checks for me. I was in and out in five minutes. Imagine if you walked into a branch, approached an unknown teller, and needed to do all that stuff....

You know how banks put holds on incoming deposits? He's waived that for me a couple of times. Once I needed a cashiers check for a large sum and I called him. He friggin left work and drove across town and brought me the friggin cashiers check!

I think I'm going to call Jerry right now. It's my turn to buy lunch.

xtn
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"Are we going to get any rules clamping down on abusive consumer practices? You know, like borrowing and not paying back according to their side of the agreement. Are we going to get some rules clamping down on that?"

http://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and...
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I am in a similar situation - I manage my credit carefully and avoid late fees, finance charges and am very careful before taking advantage of any promotional offers. I did have one credit card limit reduced by about $5000. There was no explanation for it - they just decided I didn't need it - and the consequence was a drop in my credit score as my debt to credit ratio increased.

Fortunately my score was solid to start with so I did not have difficulty replacing the credit (which I did for reasons other than to lower my debt to credit ratio), but that also resulted in a ding to my credit score because of the opening of a new account. These indiscriminate actions taken by the banks do have real world implications and in a number of cases have pushed consumers who have been dealing with major issues such as reduced or loss of income, devalued mortgages and such, over the edge.


Wasn't it the indiscriminate action taken by the banks - of granting you credit and reporting your good history to the CRAs - that helped you get a good score in the first place? And haven't those actions in general provided many benefits to our population of consumers?

If I hear a person whining about his car not being good enough, I'm going to wonder if he's forgotten what it was like to walk everywhere.
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Even these days it's good advice. My local branch manager

It's good advice, but it's not always feasible -- my local branch manager has changed several times as the PTB make transfers.
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http://en.wikipedia.org/wiki/Bankruptcy_Abuse_Prevention_and......

Doesn't really do anything to prevent "not paying back according to their side of the agreement" which is what I asked about.
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"Are we going to get any rules clamping down on abusive consumer practices? You know, like borrowing and not paying back according to their side of the agreement. Are we going to get some rules clamping down on that?"

The bankruptcy changes a couple of years ago, did attempt to make it more difficult for higher income debtors to completely walk away from their debt.

At the time there was much to do about it resulting in people being required to meet a draconian multi-year payment plan. There was a significant increase in bankrupties just before the new regulations were implemented. Overall, I don't believe that the changes have made much difference.
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The bankruptcy changes a couple of years ago, did attempt to make it more difficult for higher income debtors to completely walk away from their debt.

Right. I know all about it. I didn't ask about rules making it more difficult to completely walk away. I asked about rules that reduce the incidence of people not paying as per their agreement in the first place.

Why don't we make it against the law to borrow past monthly payments of X% your monthly take-home income?

I mean I keep hearing about how lenders shouldn't have loaned out so much so easily. Some people want regulations to limit such thing. But they always want it aimed at restricting the lending side. Why isn't it just as useful to restrict the borrowing side?

There is some debt/income ratio where if you've kept it low and been responsible but run upon hard times and miss a payment then I'll feel some sympathy. But you get much above that ratio and miss a payment, I tend to feel like it's your own fault for choosing the high life instead of being responsible.

So why don't we pick some reasonable ratio that we can all mostly sort-of on-average agree on for monthly debt payment/monthly cash available, and make it illegal to borrow beyond that? Simple. Personal responsibility, and even better no loopholes for the lenders to figure their way through.

xtn
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So why don't we pick some reasonable ratio that we can all mostly sort-of on-average agree on for monthly debt payment/monthly cash available, and make it illegal to borrow beyond that? Simple. Personal responsibility, and even better no loopholes for the lenders to figure their way through.

You have less faith in the ingenuity of lenders than I - especially when faced with a determined debtor who doesn't WANNA take no for an answer.
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So why don't we pick some reasonable ratio that we can all mostly sort-of on-average agree on for monthly debt payment/monthly cash available, and make it illegal to borrow beyond that? Simple.

==========================

Well, no, it's not that simple.

First*, if someone has no hobbies, doesn't travel, hasn't any kids. They can certainly pay a higher payment than someone who has one or more of those things.

Second, if it's against the law, what is the punishment. A fine for not paying an obligation you aren't able to pay? We did away with debtors prison.

It would be nice if we could legislate responsiblilty, but we can't.

Jean

* Yes, I know those ratios already exist...doesn't mean I think they are fair or that I like them. I think we've gone too far with percents and ratios, but I, also, don't see a better way in our complicated society.
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A fine for not paying an obligation you aren't able to pay?

That statement reminds me of a friend in high school who'd skipped a day or two of school. The school suspended him as punishment.

His mother asked, "You're suspending him for cutting school? He didn't want to go to school so you're not letting him go to school?"
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His mother asked, "You're suspending him for cutting school? He didn't want to go to school so you're not letting him go to school?"

==============

Exactly, what are they thinking?

Jean
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Does anyone else ever wish that AJ was fact-checking the news that gets reported? Or is it just me?


--Booa :-)
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DrBooa,

You wrote, Does anyone else ever wish that AJ was fact-checking the news that gets reported? Or is it just me?

Oh...! She does fact-check all the news! (Maybe that's an exaggeration.) But you have to live with her to benefit from it! ;-)

- Joel
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I'm not terribly worried about losing my free checking accounts. I think they will always be available, just with different requirements. Even in a worst case scenario I bet Charles Schwab or Citi or a number of other institutions will offer free checking to people who have brokerage accounts with them.

---------------------------------------------

Of course.

Because those who can keep large balances will probably be able to get free checking.

But for someone like me, it's gonna hurt.


Ish, have you looked at any smaller, local credit unions? I think they're going to keep some checking accounts free. And ING is offering free checking at the moment--I don't know what the requirements are, but I hope that there will still be free checking options for people, even if they're not holding a large minimum amount of money at a bank, or have their brokerage account there, or somesuch.


--Booa
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ING Electric Orange account doesn't have a minimum, but they pay interest based on the account balance, so if you have less than $50,000 in the account you get interest of .25%. However, they do have much cheaper overdraft fees and I just realized they have 12 free ATMs in our area. I may have to consider them, we already have a savings account with them.

http://home.ingdirect.com/products/products.asp?s=ElectricOr...

LWW
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Soooo many benefits to cabana boy-dom. :-)


--Booa
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So why don't we pick some reasonable ratio that we can all mostly sort-of on-average agree on for monthly debt payment/monthly cash available, and make it illegal to borrow beyond that? Simple. Personal responsibility, and even better no loopholes for the lenders to figure their way through.

You have less faith in the ingenuity of lenders than I - especially when faced with a determined debtor who doesn't WANNA take no for an answer.

Okay good point. But so what? Why should it be the lenders' responsibility to keep us in check? If the borrower borrow too much, he's in trouble.

xtn
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So why don't we pick some reasonable ratio that we can all mostly sort-of on-average agree on for monthly debt payment/monthly cash available, and make it illegal to borrow beyond that? Simple.

==========================

Well, no, it's not that simple.

First*, if someone has no hobbies, doesn't travel, hasn't any kids. They can certainly pay a higher payment than someone who has one or more of those things.

Second, if it's against the law, what is the punishment. A fine for not paying an obligation you aren't able to pay? We did away with debtors prison.

It would be nice if we could legislate responsiblilty, but we can't.

Jean


The whole reason we're in credit trouble is because we let people think "I can afford a higher payment." I don't care what you CAN pay. Take whatever you CAN pay and cut in in half. If you borrow more than that, I'm going to get mad.

Addressing two of your points... we COULD legislate responsibility if we brought back debtors prisons. You have a debtors prison, I bet you five dollars there wouldn't be a credit problem.

xtn
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>> Addressing two of your points... we COULD legislate responsibility if we brought back debtors prisons. You have a debtors prison, I bet you five dollars there wouldn't be a credit problem. <<

"So what are *you* in for?"

"Serious medical problem after losing my job and my health insurance."

#29
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Addressing two of your points... we COULD legislate responsibility if we brought back debtors prisons. You have a debtors prison, I bet you five dollars there wouldn't be a credit problem.

Yeah, because the debtor's prisons were *so empty* when we had them.

And people, who were only supposed to be imprisoned until their family could pay their debt, spent years in there, because if the main money-earner in a family goes into prison, their situation gets a lot more dire. And it gets harder to pay back the debt.

And wouldn't holding someone in prison rapidly get more expensive than the most expensive debts? It costs between $18 and $31K a year to incarcerate someone--why should the state pay for that (and ultimately, the taxpayer)? We're always saying on here, you didn't get into debt overnight, and you're not going to get out of debt overnight, either.

I mean, once the debtor's prison's went away, shouldn't banks and whoever was lending money gotten a lot more careful, since now people didn't have the threat of debtor's prisons hanging over their heads?


--Booa
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Addressing two of your points... we COULD legislate responsibility if we brought back debtors prisons. You have a debtors prison, I bet you five dollars there wouldn't be a credit problem.

Debtors prisons are making a comeback. Surprisingly, Minnesota leads the way.

Debtors prisons were federally abolished in the United States in the 1800's, yet in certain states, they seem to be making a comeback. Out of Minnesota come disturbing reports of Americans being thrown in jail due to outstanding bills -- sometimes for as little as $85.
http://www.walletpop.com/blog/2010/07/15/americas-new-debtor...

Perhaps even more surprisingly, the debt problem has not disappeared in Minnesota! Hard to believe, I know.
 
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Perhaps even more surprisingly, the debt problem has not disappeared in Minnesota! Hard to believe, I know.

Also, if you read the article, it is failure to appear that results in jail time. There are a few rare cases where there is outright defiance of a court order, and the judge becomes annoyed.

If someone is truly to the edge where they cannot pay, bankruptcy is an option.
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Nobody in that article went to jail for debt. They went to jail for ignoring court orders. That's wildly different.
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And people, who were only supposed to be imprisoned until their family could pay their debt, spent years in there, because if the main money-earner in a family goes into prison, their situation gets a lot more dire. And it gets harder to pay back the debt.

I suggest reading "Little Dorrit" by Charles Dickens for a nice illumination of this. The entire Dorrit family is imprisoned in the Marshalsea, long enough for Amy Dorrit to be born and spend her childhood there.

I think Dickens' father was a debtor in the Marshalsea, during Dickens' childhood.
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Yeah, because the debtor's prisons were *so empty* when we had them.

And people, who were only supposed to be imprisoned until their family could pay their debt, spent years in there, because if the main money-earner in a family goes into prison, their situation gets a lot more dire. And it gets harder to pay back the debt.

And wouldn't holding someone in prison rapidly get more expensive than the most expensive debts? It costs between $18 and $31K a year to incarcerate someone--why should the state pay for that (and ultimately, the taxpayer)? We're always saying on here, you didn't get into debt overnight, and you're not going to get out of debt overnight, either.


Well, you get some people spending their lives in there and most of the rest of us will quit over-borrowing.

Oh okay fine; then house arrest - with exceptions for a job - anybody who borrows over the limit. Borrow over the limit and you're grounded. Get it paid back down under the limit and you're free again.

xtn
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