Credit Card Points Are a Transfer from the Broke to the Comfortable

Credit Card Points Are a Transfer from the Broke to the Comfortable(willisallstead.substack.com)

26 points by willio58 3 hours ago | 12 comments

lyall 2 hours ago |

You hear this argument pretty often, but it's not true.

Credit card companies do make a lot of money off of interest. But they also make a lot of money off of interchange fees.

Businesses want wealthy customers because they spend more money, so they're willing to pay a higher interchange fee to access those customers. Higher interchange fees mean card companies can offer better rewards, which in turn attract more wealthy customers to their cards.

So even if credit card debt was not a thing, it would still be incredibly profitable for card companies to sell access to their rich cardholder clientele, and to in turn provide rewards to those cardholders.

pilotneko 2 hours ago | |

Businesses raise prices to cover the interchange fee, which impacts lower income consumers disproportionately.

imustbeevil 8 minutes ago | | |

That's completely arbitrary though. They could also increase prices without any interchange fee. If people are willing to pay, the price goes up.

Cost (of which the interchange fee is but one) only affects the lowest possible price. No one ever gets that price.

B1FF_PSUVM 2 hours ago | |

> make a lot of money off of interest

Looking at the debt numbers (something like 150 billion over 90 days delinquent) that may not even be the case, if you cover unpaid defaults with interest paid.

The mentioned idea of capping interest at 10% would probably mean credit cards not being issued to a large swath of the population.

variety8675 2 hours ago |

Pay in full customers can be profitable through interchange fees alone, so I don't really follow how it is a wealth transfer

theandrewbailey 1 hour ago | |

Merchants almost never pass along interchange fees to the customer. Instead, it's built into the prices that every customer pays the merchant, regardless if the customer uses a credit card, which means everyone pays for credit card rewards.

SpicyLemonZest 2 hours ago |

I don't disagree with anything the author is saying. But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit. That's the argument that banks raise every time and why interest rate caps always die in committee.

If advocates want to team up with Dave Ramsay and say "that's right, credit cards are bad, we want them to be less available", perhaps things could change one day. I'd donate to that cause. If we keep pretending that we could have exactly the same system with lower interest rates, I don't think we'll ever get anywhere.

willio58 2 hours ago | |

> But the corollary, which the article doesn't really acknowledge, is that reforms like credit card interest caps and the Credit Card Competition Act would substantially limit consumer access to credit.

That's a good point, and of course there are downstream affects of this, but I wonder if that's a bad thing. We're not talking about reduction in ability to access say mortgage debt or something of that nature, we're talking credit card debt. Making it possible for a person to be in $10k, $20k, $40k+ in extremely high interest credit card debt doesn't seem like a positive for our economy overall to me. It really just masks the root of the problem, which is that people are working paycheck to paycheck and can't afford the occasional emergency.

fragmede 2 minutes ago | | |

What is this hypothetical tens of thousands of credit card debt made up of though? Yeah, some of it is going to be unnecessary luxuries, but some of it is going to be essentials like baby formula and groceries. Limiting how high the interest rate can be can only be a good thing. Usury is considered a crime in-and-of-itself in other countries.

s1artibartfast 2 hours ago | |

I increasingly think people should have the option to define if they should be treated as an adult or not, kinda like an organ donor on their license.

Those who opt out would be protected from their own choices.

pixl97 3 hours ago |

Sam Vimes "Boots" Theory of Socioeconomic Unfairnes, in article form.

applfanboysbgon 3 hours ago |

It is jarring to read Claude talking like it uses credit cards or feels guilt over using reward points.

willio58 2 hours ago | |

Author here! I promise I didn't use Claude for any of this. I will admit I'm working on developing a "voice" in my writing, so maybe that's what you're sensing. Thanks for the read anyway.

B1FF_PSUVM 2 hours ago |

Bullshit guilt-tripping logic. Just the 150 billion from "interchange" (merchant fees) would be enough reason to fund the 15 billion (estimated) rewards.

What next, supermarket coupons as a wealth transfer mechanism?