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Comment by blang | Hacker News Reader

I'm pretty sure the opposite is true for credit card companies. The wealthy tend to pay down the balance before interest is even charged, while the poor tend to carry balances forever paying mostly interest while getting hit with other fees.

It is true, however, that wealthy people carry much less risk for them so they may have similar expected values (this is just a guess)

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I question whether the interest is worth more than the merchant fees they get from wealthy people using the card constantly.

If one poor person is paying, say, 11% interest on their $500 balance for a year, then the company makes a few hundred bucks on the interest. If a wealthier person spends $50k (admittedly random number I made up, its going to vary vastly for different card-holders, and probably in the millions for many) with their card over the course of the year but pays it all off immediately, they've made between 1k and 1.5k risk-free on the 2-3% merchant fees, and the customer will probably continue to use that card.

I think his point is that wealthy people spend more, so the card brands can charge more interest to the merchants. If you spend $20,000 and Amex charges 5% that's $1000 in fees. But a poor person who spent $500 only earns them $25 in fees to the merchant. Now it's true that the poor person if they can't pay might pay 20% interest, but the real money maker for the card brands is not the late payment fees but the processing fees which is the gist of the lawsuit and the article.

You’d expect for them to hit an equilibrium where the expected values are similar. You’re absolutely right that a poor person who carries a balance forever and pays a ton of interest is extremely valuable, but that’s countered by people who stop paying altogether. It’s the same reason a wealthy person (or rather, a person with good credit, which I’m sure correlates strongly with wealth) can get a better interest rate on a mortgage or car loan.

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