Hacker News Reader

Comment by willio58 | Hacker News Reader

Credit Cards are so frightening. I remember having to hide from my Mom that I had gotten one when I was 18, because she was so scared I would ruin my life with it. Of course it's done the opposite.. I've built credit and saved lots of money in doing so, but I do get her fear.

These cards are accepted by society because they benefit those who know how to use them, but it's hard to look past the fact that so many people, if not most, are financially illiterate (because of failings of education due to lack of funding) and so many people screw themselves financially for decades if not their whole lives because of them.

Part of me wonders what the world would look like if we massively regulated credit card terms, like no more than 5% APR. Of course I wouldn't get my 3% cash back for being a responsible user of my card, but we also wouldn't be screwing people so hard on the other end. We can say "but they signed the terms!" all we want, but we all know that people agree to things that are a detriment to them and the world for short-term gain. Regulation should be there to prevent that as much as possible.

View on HN

>>Part of me wonders what the world would look like if we massively regulated credit card terms, like no more than 5% APR.

What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt.

IIRC, they used to be capped at 18% many years ago, still high, but much more reasonable then some of the rates that are out there now; so not opposed to a cap, but it can't be so low that it kills the business altogether.

I doubt that. Visa and MasterCard make most of their money via seller transaction fees, not credit card debt payments.

If anything, we should limit seller transaction fees, as I believe the EU does.

Visa and MasterCard make most of their money that way, but they don't by and large underwrite the debt -- various banks do[0]. That's why you don't get credit card offers directly from Visa or MasterCard, you get them directly from banks. Visa and MasterCard only care that debtors default insofar as it affects the market as a whole.

[0]-American Express and Discover have somewhat different business models, and do underwrite most of the debt themselves. I don't know about foreign systems, but I'm given to understand they are mostly not credit based.

Visa and Mastercard are payment networks, not banks. They don’t own the debt at all.

Yeah isn't this because visa and mastercard are the issuers, and the banks handle taking on the debt?

The exception to this is Amex who is the issuer and lender.

Discover is also.

Discover is pretty much unheard of in Europe, amex has grown a lot in the last 10 or so years, it’s almost as common as visa/Mastercard for acceptance.

But my inference from futurama is very few outlets take discover even in the US?

I would not say very few. All big businesses or franchises accept it.

Visa/Mastercard don't lend money. Banks do.

That seems unlikely. Settling accounts instantly in that kind of system is almost impossible. Unless the money is going directly from payer to the payee there must be some slack in the system somewhere, and that means debt. I will admit though I could have an incorrect understanding of how these accounts are settled.

They're not settled instantly, but broadly, this is one of the reasons the credit card networks are a massive accomplishment; they settle deterministically enough that a commanding majority of financial institutions will trust the networks sufficiently to transact with them. Yes, this is accomplished by absolutely massive amounts of (mostly offsetting) debts carried between various parties every day of the last several decades.

I should probably write more about this subject at some point, but the GP is of course correct; the credit card networks (except for Amex) generally do not put up money at any point. Each entity in a chain about 5 links long makes simultaneous and very quick agreements about offsetting transactions between themselves, with probabilistic assurance of eventual settlement to the business being "very, very quick" and physical settlement happening in a few days to about a month later. Typically an important step is the issuing bank settling with an intermediary (not the network) who will settle with the merchant bank or payment processor who will settle with the business.

I think you misunderstood the GP: there is debt, but it's owned by banks, not by VISA and MasterCard. They just provide the payment network.

Do the banks directly transfer to one another? I'm genuinely naive on this topic. I don't even get the value add of visa at that point.

Yes, banks do net settlement with each other. They tally up all the debits and credits on both sides and then make a single transfer to settle between each other. Say Bank A owes Bank B $200, and Bank B owes Bank A $150. Bank A will send Bank B $50, as that is the net amount after subtracting 150 from 200.

https://en.m.wikipedia.org/wiki/Net_settlement

Not an expert either. As I understand it, credit card networks provide the infrastructure that lets entities settle payments: providing cards and authentication, routing payments from consumer's bank to seller's bank, handling clawbacks, etc. At world scale it's got to be a huge engineering problem.

Yes the settlement happens almost instantly even for international transactions. It’s the bank that allows the transaction or not; not the payment network.

This is not the usage of the word "settlement" which prevails in the financial industry, which tends to use it to describe the transfer of funds to give effect to a promised transaction. It is factually not the case that credit card payments generally settle instantly. It depends on many factors but typical timelines are a few days to about a month, largely dependent on which network is at play and where the business getting paid is. (For complex reasons, prevailing settlement times in some countries are long compared to most HNers expectations.)

People should only be borrowing money to spend on productive capital. If you're not investing borrowed money into something more profitable than the interest, what you're actually doing is falling into a hole. We should be helping people who are falling into holes, not exploiting them.

I have never used a credit card to borrow money. I've always just used one as a basically a more secure and convenient debit card.

Credit cards to me are just convenient payment facilitators for money I already have. If they aren't being used that way, they probably shouldn't be used at all.

Do you pay off the card the second you spend the money? Or wait until your billing statemen? Most people borrow with credit cards and in fact I pay as late as possible for the statement to arbitrage the interest difference between the 0% of the card for the first 30 days and the interest I can draw in the bank. I try to delay big purchases to the very beginning of the billing cycle as that's an extra month to earn interest before paying it.

Just put it on autopay. Once a month the whole balance gets paid off.

Does your arbitrage strategy really make enough money to make it worth it? Personally, I am not going to stress about a few extra bucks by leaving the money in a 3% HYSA for an extra week. That kind of micro-optimization is fun for some people but I just can't be bothered.

I mean it doesn't take me any more or less time to pay it one day vs the other. Why not make basically an extra free $60/yr if you're carrying aroudn $2k in balances? For the median worker that's basically an extra couple hours of wages for no difference in workload.

Yeah, that makes total sense. For me, the extra mental of thinking about when to charge something and when to pay it off just isn't worth $60/yr.

Counter-factually: If autopay didn't exist, I would gladly pay $5/mo to have all my bills paid automatically.

I’m in the same boat.

I’d love to care about $60/year, but I waste more money on under-utilized subscriptions. Not saying it’s an either-or, but if I can work to earn $60 more, I’d probably rather do that than save $60. :-)

> in fact I pay as late as possible for the statement to arbitrage the interest difference between the 0% of the card for the first 30 days and the interest I can draw in the bank. I try to delay big purchases to the very beginning of the billing cycle as that's an extra month to earn interest before paying it.

No where near enough payoff for the mental gymnastics. I just pay the bill when I first get it and it is completely off my todo list.

So are you against giving people of limited means a way to shift part of the purchase cost of a necessary replacement item into the future? As a concrete example, it seems entirely reasonable to me for someone of limited means to spend something like $2,000 on a credit card to repair a broken car so that they are able to get to their job. If you don't give people a legal means to access money like that (even if the rates are borderline usurious), I would expect them to seek out illegal methods -- and that seems worse all around for society.

Not American, but giving one of your country's credit cards to someone too poor to pay for vital car repairs is just throwing them into the street with extra steps. What that person needs is public aid that gets them out of the hole.

Politician A: I will increase aid to poorer people to get them out of the hole. I will need to increase taxes.

Politician B: I will increase access to credit to poorer people to get them out of the hole. I will not need to increase taxes.

Voters will go for B every time. See taxpayer subsidized loans for home purchases, education, small business, etc.

Are you agreeing with me? State-subsidised loans are the first example of state aid I was thinking of.

Taxpayer funded loans inevitably lack the requisite underwriting, and hence turn into subsidies to the businesses that the loans are eligible to pay, hence allowing them to increase price.

See higher education and home prices in the US.

Having most people be leveraged to the max, using their own children’s future tax payments, is great for employers who want workforces with less negotiating power.

Proper state aid would be cash, or giving people houses and education. Not chaining them with debt to pay for houses and education.

Not at 24% APR.

What about borrowing money to pay for transport to a new job? Not ‘productive capital’, but probably worth it. There are lots of cases that don’t fit into your narrow category, where credit makes sense.

That is productive capital. A car or your payment of rent for someone else's offer of transport to you is akin to say paying for a milling machine that creates widgets.

I said 'transport', not 'buying a car'. Many people take the bus or other transport to work, especially when coming off a period of joblessness.

Yeah that's why I also said transport.

But that portion of your reply didn't address the fact that a bus ticket isn't 'productive capital'.

It is.

>"Capital is a broad term that can describe anything that confers value or benefit to its owners, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual."

https://www.investopedia.com/terms/c/capital.asp

A bus ticket is something "that confers value or benefit to its owners".

That's not what capital means. The bus ticket is an everyday expense that doesn't bring you anything by itself long term, you stop owning it as soon as you use it. Otherwise food would be capital too and the word would become useless.

Thought experiment: why is a one month software license to operate a conveyor belt to move product stock considered productive capital, but not a one month license for the employee to ride to the product stock. Indeed in at least one city I lived in, the taxes were deducted from my transit pass as the state counted it as a capital expense for my employment (technically the pass was not supposed to be used for anything else, but no one is checking).

In the grim thought slavery still existed, I would say food would be considered productive capital. In modern day (from the view of the company) that value is just captured in the wage so it would be inappropriate to double account it into capital expenses (a business lunch I think would count though).

Software licenses are not considered capital; they’re expenses. This is why they’re preferred for tax reasons, as expenses are fully written off in the first year, but capital purchases are gradually depreciated.

In that situation, food would still be an expense. The capital would be the slaves. Weird example though.

There's a huge gap between regular consumer items and what you call productive capital.

For example, a land with a house is productive capital, because it insures you against rent hikes. A reliable car is productive capital, because it lets you commute to the job and insures you against switching to jobs with a worse commute.

But those things both cost so much more than you can (or should) put on a credit card, generally.

We always have a surplus of officious busybodies who love to tell others how to spend their money. I mean you're not wrong, but most people don't want to listen to personal finance advice and only learn as a consequence of making their own mistakes.

> What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt.

What is the rate of (sorry, I don't know the correct term) how often current credit card companies get "shafted"?

aka somebody runs up a $10,000 balance or whatever and then doesn't pay it

Here is the data for credit card delinquencies from the Fed: https://fred.stlouisfed.org/series/DRCCLACBS

Is 'rate of default' the term you are looking for?

What there really needs to be is a lifetime payback cap. 20% interest would be fine if you had say a maximum payback amount of 2-3x the original amount adjusted for inflation. The companies can still make money, but it prevents a hole with no bottom.

The all could still keep growing in this case, just not at a higher rate than inflation once it hits the cap

Yes, but after the cap only the number grows, not the value.

> What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt.

Credit cards are a single product that serve a lot of different use cases simultaneously, and credit card issuers are able to profit off of most of those through different mechanisms. Not everyone carries a balance on credit cards, including some of the most lucrative market segments[0].

Furthermore, BNPL is an example of lending money to the general public at 5% (or less, in many cases) for unsecured debt. In that case they make their money back on fees for late payments.

[0] If you'd like an overview of how credit cards make money, this post from patio11 covers the basics: https://www.bitsaboutmoney.com/archive/how-credit-cards-make...

> In that case they make their money back on fees for late payments.

Not primarily accurate; several BNPL providers don't even have a late payment fee. BNPL manufactures ~25% APR debt out of 0% consumer contribution and ~6% merchant discount (interchange) which, since BNPL payments revolve very quickly, annualizes quite healthily. The primary source of revenue to the BNPL provider was historically keeping a portion of the discount for themselves; the rest compensates the capital provider, who is usually not the BNPL itself.

https://www.bitsaboutmoney.com/archive/buy-now-pay-later/

From this comes a fairly important realization that if you don't have a second party (the business) funding the cost of credit, or if the extension of credit is for a weighted average of longer than 3 weeks, it is in fact quite difficult to provide unsecured credit to the general public at ~5%.

I think what would happen is that collateral for credit cards would become commonplace

Which has a similar effect to the cards not being available. If you're renting an apartment and riding a bus to work, what exactly are you going to put up as collateral? Organs?

If you live in Massachusetts, you might be able to soon:

https://www.technologyreview.com/2023/02/03/1067768/massachu...

I was really holding out hope this would be a story about piano playing

That's called debit card. Limit is the money in your back account.

It’s not quite the same thing. Secured credit cards exist, primarily for people with bad credit. e.g. https://www.hometrust.ca/credit-cards/secured-visa-card/

Personally, I already keep hefty minimum balances to avoid monthly fees on bank accounts that allow me to waive credit card annual fees. They could use that as credit card collateral.

That’s much worse than interest rates for the vast majority (that don’t have any assets to put up or can’t afford to actually lose them).

And much lower limits.

Less credit is not zero credit. Plenty of cards offer stupid low introductory rates and excessively large credit limits.

Smaller credit limits + lower interest rates makes it much harder for people to become unable to pay.

I took out a 7 year unsecured 25k loan last year for 1.99%.

Today it’s 4.9% after the rate increases

Set it at 5% above a given base rate (fed rate, Bank of England rate, etc) and what’s the problem?

> Set it at 5% above a given base rate (fed rate, Bank of England rate, etc) and what’s the problem?

All the credit cards I've ever had do have a variable rate like you describe, though base+5% would be pretty good. I'd expect super low rate cards like that to have limited or no rewards (which can otherwise be substantial in the US).

I'm guessing part of the reason banks dont tend to go that low is that people that carry balances as opposed to paying off their bill every month are much higher credit risks.

there would just be less credit out there.

> These cards are accepted by society because they benefit those who know how to use them, but it's hard to look past the fact that so many people, if not most, are financially illiterate (because of failings of education due to lack of funding) and so many people screw themselves financially for decades if not their whole lives because of them.

I went through the U.S. education system in 8 different states in schools in poorer areas, and even then, the education was sufficient to understand the concept of not spending money you do not have.

Set the thing to auto pay the balance every month, and do not spend more than you earn. I expect that much from the 95% of the population that has had the opportunity to learn how to read and write.

Almost everyone in the U.S. spends money they don’t have. We borrow to buy a car, a house, to go to college. When one does not live on the precipice of missing rent and whatnot it is easy to say, “ Don’t spend money you don’t have.” Such advice is as useless as it is easy to say.

The thing is, if you go into debt, you eventually reach a balance of income and expenses. (Or you declare bankruptcy.) You can’t keep going into deeper debt indefinitely. If you’d taken those same actions to equalize income and expenses before going into debt, you’d be better off.

Edit to “spending money they do not have for unnecessary purchases at huge interest rates”.

Obviously, certain circumstances can cause someone to need to use credit card debt to shelter/feed themselves and their family. I would be willing to bet the vast majority of credit card interest is not caused by essential needs.

It's not useless at all. There are countries where the average workers earn 5 times less (even PPP adjusted) than our minimum wage and they don't rack up vast amounts of credit card debt, car loans, etc.

We first need to start changing our values to be more financially conservative. Once that happens and voters start making these values apparent to politicians, they can take actions that will help reduce costs for citizens.

> We first need to start changing our values to be more financially conservative.

Think about the economy! If political leaders were wanted the elderly to sacrifice thier lives to COVID "for the economy", then the overspenders have no chance of being save from bankruptcy. The purpose of a system is what it does, and the American one moves money upwards.

There’s a huge difference between borrowing money at 5% (and this loan is collateralized) to pay for a car you commute to work in, and putting a $10,000 trip on a credit card at 24% interest and then making minimum payments. The former is a good idea, the latter is a terrible idea.

I would also argue that it's not due to a lack of funding, just misplaced priorities. Even one course on financial literacy would go a long ways.

I doubt it would make much of a difference. The kids with the wherewithal to take and pay attention to a finance course would be able to figure out "high interest debt = bad" on their own. The other kids wouldn't pay attention anyway.

Really, an hour on Google will give you all the information you could need to manage credit cards. It's not complex.

At what point is one expected to forego their basic needs (including dignity) to avoid debt?

Logically, this question must be answered with sincerity before blaming financial illiteracy.

> the education was sufficient to understand the concept of not spending money you do not have

My public schooling in a podunk county TN had no component for financial management.

Even so, you assume that such education exists in a vacuum. It does not. It runs counter to a deluge of culture and advertising that tries to induce people to go into debt the moment they are able to pass a credit check.

Yeah it did, it's called basic math.

My high school in a town-that-refused-to-admit-it-was-a-small-city had no course called "basic math". Compound interest was taught in exactly two classes: calculus and economics.

Economics was a de facto personal finance class, which was nice. It refused to admit that because "economics" looks better on a transcript than "personal finance". This meant it was a rarely taken elective for folks who wanted to look good to colleges.

Calculus was also an elective for folks who wanted to go to college, which was notoriously more difficult but more popular in spite of this. People not going to college weren't taking either one.

I believe grandparent that compound interest wasn't taught anywhere in a small public school. A lot of those schools don't even offer calculus.

I think the factor of financial literacy is overstated. I think the biggest factor is self control and addiction, mirroring a lot of other issues we see, EG obesity.

As an example, I have a friend who is really struggling with credit card debt, but they are in no way financially illiterate. They have an accounting degree and work in finance.

It is extremely sad to watch them suffer because they know exactly what's going on, but they can't control their spending habits. I think this is a more common situation than the alternative.

I agree with this. Most people that abuse credit card debt know the ins and outs of every bylaw on credit cards, they just… need the money and don’t care about their credit rating.

And much like weight gain, the propensity for buying things varies from person to person.

Some don't need much, others will always or almost always spend more than they have, but traditional financial advice will be the same for both groups.

This is real. I approach these conversations based on if the person would be open to learning the same way I avoid religious and political discussions.

It is a deeply emotional response from most people, they know what they are doing is stupid. They almost never need me to tell them.

My mom was an accountant and she looked flabbergasted when I told her her $2k/month timeshare was costing her $24k/year, sucking up almost all of her social security.

Does this not point to more of a psychological issue such as avoidance, not a financial illiteracy one?

I don't want to come off as aggressive because this is your family, but I'm guessing your mother can multiply 2 by 12.

I'm not at all disparaging accountants here but I don't see any reason why they would have superior budgeting capabilities. Accountants are generally in charge of recording the accounts and not actually setting and spending the budget no?

The person I would be shocked to be bad at this would be someone like the owner of a boring and non-expanding local business, like a tire repair shop.

Yep, most people are hyperbolic discounters. Cash Today is worth 10x more than Cash even from a month now. So, 20% APR doesn't faze them

"(because of failings of education due to lack of funding)"

I think there are other reasons for the failed education. Even with more money, I doubt they would prioritize it. Most schools offer personal finance as an elective. It should probably be part of the core curriculum. Even then, you will have students that are unintered or don't apply themselves.

The easy fix is to reign in the lending by setting low limits that only increase with good payment history and cap lifetime interest payments as an percentage of the original purchase, like 200% adjusted for inflation.

Want a credit card? Here's one with a $250 limit. Didn't pay it back? Now you'll owe $500 adjusted for inflation, and you can't get another card or more credit unless this one is paid back.

The political/legal ability to do this is more questionable.

> cap lifetime interest payments as an percentage of the original purchase, like 200% adjusted for inflation.

Is people paying more than 200% lifetime interest on credit card purchases a normal thing?

I don't know how common it is. I have heard of people making interest only payments for a long time, or taking years to pay off credit card debt. At something like a 20% rate, it's possible to pay back double the original purchase price if it's taking years to pay it off. In general it's probably fairly rare, just like the people who ruin their lives by carrying over a high balance to begin with.

Anecdote, but I was required to take an economics class in high school with the basic one being consumer economics which taught me all about personal finance.

Everyone has to avoid getting screwed until a pile of CC debt. While refusing to own one isn't my personal plan, I appreciate people like your mother. She sees the downside as >>>> the upside, and just swears off the entire thing.

Day to day, the only use of my credit card is just buying stuff online - so when my # gets stolen, my money isn't taken out of my bank account (like it would be if I used a debit).

This is the way. A Credit Card is just a Debit Card, but with rewards and better fraud protection.

We need more basic financial education in the US and probably the world.

I know people some people with thousands of dollars in credit card debt.

Currently I make about $50 a month in credit card rewards and after using them for 30 years I have never paid a penny in credit card interest. I looked at the credit card interest rate and it just seems ridiculous so I just don't buy things I can't pay off at the end of the month.

I know that most of the financial institutions purposely advertise and try to deceive people into going into debt so they can make more money from them.

I know that people run into difficult times but I see so many people buying things they don't really need with a credit card.

> We need more basic financial education in the US and probably the world.

We do, definitely. However wouldn't that also produce the same result as regulating the cards?

Ie i imagine cards are profitable for the responsible folk because they so heavily abuse the irresponsible and/or uneducated folk. If we were to educate everyone then the cards wouldn't exploit "anyone" and suddenly the card makers have no incentive to offer the profitable cash back/etc.

Now of course, we can't educate "everyone". And i'm not a fan of systems that build themselves on the back of the exploited.

Do i have the wrong framing here?

> These cards are accepted by society because they benefit those who know how to use them

No, they're accepted because the only way we can figure out how to continue economic growth is through a massive credit system. This means doubling down on a strategy of infinite growth as that is the only way such a system is sustainable.

Cheap money coupled with expanding credit is the foundation of the global economy for the last decade. You could also argue pretty easily that cheap money is just another view of expanding credit.

If we increased the cost of money and reduced the amount of consumer credit available the global economy would collapse. Ever since the GFC we've pushed off collapse only by expanding global debt.

5% on unsecured debt? Absolutely no one would offer credit cards, period. They wouldn't exist. I'm not saying a lower regulated rate couldn't work, but it would be to be considerably higher than 5%.

You get almost 5% at the moment by lending money absolutely risk free to the US government. OP is living in a fairytale if he thinks anyone would lend to random people at 5% with no collateral.

It's not risk free. It's just incredibly low risk on a short/medium timeline.

If the US defaults on its debt we have bigger problems.

Right? There are people paying higher rates than that on a mortgage, which is usually a pretty safe bet to underwrite

Which would be OK, I think. There is no reason fer credit cards to exist. Debit cards are just fine for what most people do.

The #1 feature of a CC is the fraud protection.

If my credit card gets stolen, the criminal has access to the bank's money.

If my debit card gets stolen, the criminal has access to my money.

Just don't be an idiot like me, have your credit card at the same bank that you have your bank account at.

Then have someone steal your card info, spend lots of money, and then use the vast legal resources of eBay to fight your fraud claim with piles of paperwork.

I've found the fraud protection of CC quite lacking. Bank puts up no real fight to the counterparty appeal of the charge back and then you're fucked, especially if the bank already has your assets. In my case the appeal was from some guy with literally 'pirateArrrggh' in his email address and they stated it absolutely must have been me. My bank literally laughed at me and insinuated I was a fraud for daring to claim I couldn't have been the buyer of religious and women's beauty products as a straight atheist man.

Not everyone has as much liquid capital as you do. Short term loans can help cover necessary expenses (broken AC, car, etc) for those with less means.

Taking these loans for someone without my means is even worst idea, because the interest payment will hit them more.

And I mean, broken AC is not necessary expense. It is a luxury item. A car may be necessary expense if your place don't have public transport, but at least here, poor people don't have cars.

>We can say "but they signed the terms!"

I've always hated this "caveat emptor" mentality. It just assumes the seller can't be blamed out the gate, no matter how manipulative or opaque they may have been.

See: the classic memes about fresh army recruits buying expensive cars/truck at 25% APR. There are car dealerships outside of bases that make it their sole mission to separate fresh 18 year old recruits from their money.

they're already required to clearly display the total interest over the full loan term on the contract you sign. there's no hiding the fact that 25% APR with a 72 month term means paying ~100% of the principal again in interest. I honestly don't see how it could be made more clear that this is a terrible financial decision. it's like it just doesn't occur to people that they might have to pay for things other than a car note sometime in the next six years.

>there's no hiding the fact that 25% APR with a 72 month term means paying ~100% of the principal again in interest. I honestly don't see how it could be made more clear that this is a terrible financial decision.

According to Michael Saylor, the value of the dollar halves every ~5 years.

It's still not a great financial decision but if that capital is being utilized well, it may not be so terrible for people with no access to lower apr loans.

You literally have to sign a paper which states the total cost of the loan to buy a car on credit. How could it be _less_ opaque?

Frankly I just think sleazy sales tactics/pressure are wrong. Contracts or not.

The world is a hostile place and everyone wants to drink your milkshake (including me).

Don't think there's anything that can or should be done about it. This is how it's always been and this how it will always be: it's fundamental to humanity.

> The world is a hostile place and everyone wants to drink your milkshake (including me).

This is a cynical take that frankly I find very grating and pointless. “Life’s hard nothing we can do about it.” Just hand waving it away and deciding there’s noting that can be done when there’s plenty we can do, as we have done since we first organized into groups.

>Don't think there's anything that can or should be done about it. This is how it's always been and this how it will always be: it's fundamental to humanity.

Consumer protection laws exist. Laws against murder, stealing, etc. exist. Would you agree we have fewer people taken advantage of and fewer people murdered and stolen from as as a result?

As for saying we shouldn’t do anything…that I can’t make heads or tails of. You want the world to be cutthroat? By choice?

Practically, a lot of these can be dealt with regulation, warning people in advance about known frauds and so on.

It is not true that all societies would be equally corrupt, fraudulent or dishonest. They differ due to laws differing, law enforcement differing and culture differing.

It amazes me that people's default way of dealing with something they don't like is to ban it. It's the most neanderthalic way of regulation.

Failure of financial literacy is not because eduction has a lack of funding. The subject isn't even being taught, at least not when I was in school.

Could that be because of lack of funding? I had friends in a private highschool and they were taught financial literacy, which isn't a big surprise. The rich getting richer.

> Of course I wouldn't get my 3% cash back for being a responsible user ...

My impression is that the cash back (& similar rewards) are mostly paid for by the merchants - who do not get (say) $100.00 when you pay them $100.00 with your credit card.

Exactly. The interest covers the cost of capital, delinquencies, administration, but it's the merchant fees that are paying the rewards.

Before Dodd-Frank and the regulation of debit card interchange fees, many debit cards were also offering lucrative rewards, despite there being no interest at all. With debit cards now limited to $0.20 + 0.05%, those debit rewards cards are gone.

Right, and then they in turn need to charge higher prices to make up this loss. Cashback is a scam.

but since they charge the same prices to holders of credit (2% fee) and debit (0.05% fee), users of credit cards are de facto subsidized by cash/debit payers in the US

so as an individual it still may pay you to have one

> users of credit cards are de facto subsidized by cash/debit payers in the US

Yes, sadly. So you have to play the game in order not to lose, and playing the game means that the credit cards take their cut, which means everyone loses except the credit cards.

Im not sure where this incredible fear of CCs comes from. It literally doesn’t matter what the APR is unless you’re irresponsible. Just pay the card off before it’s due. CCs are not complex beasts you don’t need a degree to understand them you barely need a high school diploma. The rules are simple:

- don’t pay for one, unless you can justify the perks

- don’t spend more money than you have. That’s a general rule of finances. I know people get into emergencies. Try to keep the overage as small as possible for as little time as possible. As soon as you have an overage your whole goal should be getting that debt cleared up as fast as possible.

- credit cards are only a tool to tell the financial world you are are responsible. So don’t use one if you can’t pay it back.

> Im not sure where this incredible fear of CCs comes from. It literally doesn’t matter what the APR is unless you’re irresponsible.

That's exactly where the fear comes from. Credit cards are really a test of financial self control, and a lot of people have really poor self control. Many people also don't seem to truly understand how interest works, they just see easy access to money in exchange for a monthly payment that they can afford.

Credit card companies have also intentionally targeted people with poor financial literacy. When I was high school and college (late 90s/early 2000s) it was really common for companies to set up booths on college campuses offering credit to kids who had little or no understanding of what they were signing up for and no source of income. I think regulations were eventually passed after some public outrage in response to news stories about college kids wracking up five figures of CC debt with no means to pay it off.

The same way obesity is a problem.

The rules are simple:

- don't eat unless you're hungry

- don't eat more calories than you expend. That's a general rule of health. As soon as you have an overage your whole goal should be getting that cleared up as fast as possible

- calories are only a tool to fuel your body. so don't eat them if you don't need them.

The overabundance of unhealthy but relatively cheap food that makes people fat and the abundance of large unsecured credit at high interest is actually a pretty good comparison.

Are you sure your cash back is funded by people paying interest on the loans as opposed to businesses paying credit card fees?

Really, most people should have charge cards and not credit cards. Charge cards are meant to be paid off at the end of every month.

Why not just debit cards? Pulls money directly from your account, you can only spend what you have, expenses are visible directly and works everywhere a credit card works. In many parts of the world, people basically use debit cards for everything, credit cards only for some cases.

In the US, using a debit card frequently means that you are liable for fraudulent use, lost money, etc.

A credit card offers a ton of legal protection (stolen number is not your problem) and frequently other protections as a benefit. For example, anything I buy with my cc has the warranty doubled up to 3 years as a benefit.

> In the US, using a debit card frequently means that you are liable for fraudulent use, lost money, etc.

Sounds like the US needs to modernize a little bit then, I have the same protections with my debit cards, besides the extended warranty.

There are fraud protections on debit cards in the US as well, but the problem still starts with your losing your money, and you have to take action and time to get it back. With a credit card, the bank is out the money initially instead of you.

Last time I had a fraudulent charge on my debit card I went to the web portal, hit "Dispute/Chargeback" or whatever it said, it asked me for a reason, I answered "fraud" and it asked for details and blocked my card. Couple of hours later I had the money back in the account and a couple of days later I could pick up the card at the bank. Doesn't feel like a major hassle really.

That sounds like a hassle to me, and from the point of the fraudulent charge to the chargeback you could have been affected by bounced checks due to unexpectedly deplete funds. I don't see the value when you get complete protection, and 30 day free loans from a credit card for no cost.

Ideally this would be good, but it's bad advice today for anyone capable of paying off their balance monthly.

In the US, credit card companies charge 2.5% - 3% merchant fees on every swipe, and their agreements forbid merchants from passing these costs on to customers. The net result is that merchants raise their prices for everyone to cover the cost of the credit card fees. Essentially, even if you're paying in cash currency, you're still paying a sales tax to the credit card companies.

The only way you can avoid this tax is with a lucrative rewards card. Anything else you do -- pay by debit card, check, cash -- will result in you paying a sales tax to the credit card industry.

> In the US, credit card companies charge 2.5% - 3% merchant fees on every swipe, and their agreements forbid merchants from passing these costs on to customers.

That's out of date. Since 2013 merchants have been able to surcharge for using credit cards since 2013 (except in places where it is illegal). Here's a Q&A from Visa about this [1].

There are five states (Colorado, Connecticut, Kansas, Maine and Massachusetts) where state law makes credit card surcharges illegal.

Even before that they could effectively surcharge by offering a discount for not using a credit card. (That also works in the states that ban surcharges).

[1] https://usa.visa.com/dam/VCOM/download/merchants/surcharging...

Sounds like legislation has failed then, when credit card companies are effectively forcing people to use credit cards because otherwise they'll have to pay this fee. And if they do use credit cards, they get a fee too.

Damned if you do, damned if you don't.

Businesses issuing credit cards are not forcing people to use credit cards, merchants not offering a lower cash/debit price are encouraging people to use credit cards.

For example, Target in the US gives you 5% off for using ACH (which debits your bank account).

But other retailers, like Walmart and Home Depot, are betting that people spend more if they use a credit card to buy.

(Beaten to it, woops) One of the major upsides of a credit card is that in the case of fraud, mischarge, etc your bank account isn’t affected while you get things sorted.

From what I understand many debit cards do have fraud protection of some sort but among other things it’s not instant so if the timing is bad…

debit card requires you to have the full amount available at the time of payment. safe credit/charge card usage only requires that your monthly income exceeds your monthly expenses. most people get paid biweekly or monthly. if you have enough surplus income, you can just maintain a bigger buffer in your checking account to offset this, but it's nice to not need to.

> debit card requires you to have the full amount available at the time of payment

Yes, and for many, this would be a benefit rather than a drawback, as it forces them to wait and acquire the funds for the purchase before doing the actual purchase. Purchasing things with credit and then not being able to pay it back would put you in a worse position, in most cases.

yes, I get that. some people can't consistently balance a monthly budget. but you asked why not use only debit, and I gave you a reason. for people that can manage a monthly budget, a credit/charge card is strictly better, even if you don't take cashback/rewards into account.

From the (US-based) user perspective: better buyer protections, non-negligible rewards

What is so complicated to understand about credit cards? Do you really need to have a Nobel in economy to understand that you shouldn't charge for things you won't be able to pay at the end of the cycle?

Reply on news.ycombinator.com