The CARD act

[Tammarion]

http://news.yahoo.com/s/ap/20100222/ap_on_bi_ge/us_credit_cards_new_law

Here's a WTF moment for you:


At the same time, the law is expected to cut into future profits. FICO Inc., the company best known for its credit scores, projects the average card will generate less than $100 a month in revenue within three years, down from $200 a month before the law.

Really? How the hell does the average credit card generate $200 a month in profit? Does anyone here fall into that category?

[]LoL[Harm]

Though the loss of jobs would suck (though many of those jobs are on foreign shores) I wouldn't really feel all that bad if the entire credit industry disappeared.

[Hollus]

LoL[Harm;172378'] I wouldn't really feel all that bad if the entire credit industry disappeared.


Agreed.

[Noleader]

I would like to see a trend back when most things were paid in cash.

To answer your question: No Tamm... I carry no balances on my credit cards.

[]LoL[Harm]

Personally I don't think heading back to cash as in "cash in hand" is the ideal way to go, I like debit cards, I just wish they were more like a directly linked charge card to your bank account instead of what we have now which is some type of hybrid credit card that even has overdraft protection automatically applied to it (you have to push to opt-out of it in most cases).

Or better yet, the card would be linked to a secondary account your "Card" account and you could transfer money from your savings into that "Card" account, basically turning your debit card into a card you "charge" as you go (like the cellphones you buy minutes for).

Sorry for the drift in topic.

[MickeyFinn]

Don't forget that businesses pay a fee every time someone uses a credit card (I think).

[Tammarion]

I don't hate credit cards as a concept. Its just the sheer rapaciousness implied that boggles the mind. In order to rack up $200 monthly you'd have to be lending a lot more than Joe Average could be expected to pay back, or fee gouging out the ass.

I think that a 'safe' amount of unsecured credit to give is about 1 month's pay. Anything more than that is predatory lending IMHO. But getting 'paid back' isn't the current business model, is it.

[Muadi]

Average credit card debt per household -- regardless of whether they have a credit card or not -- was $8,329 at the end of 2008. (Source: Nilson Report, April 2009)

http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php

With the high interest rates that credit card companies charge, its easy to see how they can make so much money each month. That $8k is an average. Since I don't carry a balance, nor does NL, that means 2 other people are carrying a monthly balance of $16k. Thats simply nutz....

[Noleader]

The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008. One year earlier, that average was $10,637. (Source: Nilson Report, April 2009)

More like 22K Muadi :D

Anyone with a $10,679.00 balance with an intrest rate of 20% (which tends to be the norm with credit, more so when you run out of cards to swap to) would pay $2,135.00 in intrest a year (uncomponded).

[Hollus]

Not only are businesses charged a fee, they are charged a fee on any state tax that is applicable.

[Slicks]

The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008. One year earlier, that average was $10,637. (Source: Nilson Report, April 2009)

More like 22K Muadi :D


Triple it because i do not have any credit cards either.:fuct:

[Allison]

Quadruple!

[Post]

How do you not have a credit card? I can see having no balance, but no credit card? Or is that what you meant?

My friend got a house this year for the first time since his divorce. He's never had a credit card, but makes about as much as I do. They made him jump through monstrous hoops just to get a mediocre house, all because he didn't have any credit cards or serious impacts to his credit rating.

[Slicks]

I have a firestone card but that is all.....i pay everything with debit card.

NO cash NO buy.


Makes life super easy since my credit melt down.

[Post]

Our society is unfortunately a difficult place without proof that you're "tied down" to something. ie, debt.

[Muadi]

Until recently, I was pretty determined to get my son a card when he turns 16/17 range, to start establishing credit. Based on what is going on today, I may have to rethink this.

I carry 3 cards, only use one, pay it off every month. Same philosophy as Slicks... I make sure the money will be there when the time comes. I do use my card for the rewards though... think of it as a slight discount for each purchase. I'm such a tight person when it comes to money, that I try to maximize when I can. However, with the current changes, I think the rewards will become fewer, if not disappear all together.

[Tammarion]

Muadi, you might want to watch out for "inactive fees" where credit cards ding you for NOT using your cards. One of the side effects of the CARD act is how banks are piling on new fees just to screw people out of money, and locking down unused credit.

[MickeyFinn]

My old man had a very good point, "Pay cash for something that depreciates, borrow money for something that appreciates". He was referring to getting a mortgage and not borrowing for a car, but meh.



Muadi- That is a good idea! You can do what I do for myself, and get a prepaid card. It still reports a credit line, but you'll never have "late fees" because you paid it ahead.

[Tammarion]

Well, it was the attitude of "real estate can only gain value" that caused the last round of bleh. The way I see it, is that borrowing is something that by definition involves plans for repayment.

Whatever means of short turn borrowing you pick, read the fine print/fee structure. The bankers got big bonuses this year, and I believe they worked hard for the money, its just that they worked really hard at screwing the rest of us over.

[Muadi]

Its all been good so far for me, no inactivity fees. I know its bad for over all credit (to have too much credit available to you is a bad thing) but I like the comfort it gives me to be able to pay for emergencies if the need ever comes up.

I have to admit that I have never looked into a prepaid. My current active card is paid directly (automatic withdrawls) through my checking account (mostly to avoid missing a payment and getting hit by a late fee). I just make sure my checking has enough cash in it to cover the bills.

[MickeyFinn]

Give it a try Muad!

Tamm, the "real estate only gains value" attitude wasn't wrong at all. The problem was that people were jumping into mortgages that they couldn't afford should their APR go up (which it always does). Some of those houses went up in value before the big foreclosure debacle, but it didn't matter because the owner couldn't afford the new payments. Anybody getting into a fixed thirty seems to be just fine

[Tammarion]

Really going to have to disagree there. The "real estate only gains value" formed the basis of the AAA securities that everyone dived into as investments where they were handing out no-money down mortgages. The people making the loans thought that if everything went to hell, they could always foreclose on the house, and sell it for the value of the loan.

Now exotic mortgages are dropping like flies, causing a glut in the housing market, which causes real estate prices to drop, and now people owe more money than their house is worth. For some people, thats a good enough reason to default on the loan.

Markets tend to function on shared delusions. People believe that something has value, and so therefore refuse to sell it, restricting the supply, causing it to become scarce, and thus gain value. As soon as something messes with this chain of events, things go downhill really quickly.

[MickeyFinn]

http://img19.imageshack.us/img19/1093/unitedstatesc.png


Notice that after inflation adjustment and before the insanity of the 2000's, the trend is still upwards. Average housing in the USA went up 2% *after* inflation adjustment on average for over forty years, you can't find a single industry as stable.

That being said, you borrow money on the nominal value of the house- you don't pay interest on inflation. Notice that before 2000 (where the APR bubble went nuts) the nominal value of a house went up nearly 12% per year on average for forty years. Any loan you could get over that course of time would net you a profit in equity, even if you only paid off the interest!

[Tammarion]

Which would be fine and dandy if we could jump in a time machine and go back to before 2000. What your graph is telling me is that anyone who bought in 2006 isn't going to recover for another 10 years.

The point is you can't just blindly buy real estate and expect that everything will take care of itself anymore.

[Noleader]

That and it ignores the fact that the housing market has not found its bottom yet. The feds (both bank and government) have kept it from finding its bottom and I suspect we still have a ways to go.

[MickeyFinn]

Again, what happened in the 2000's was not the fault of people on a fixed mortgage. Those people are just fine. APR is an evil thing imo, and is directly responsible for that awesome growth and even more awesome plummet in the last decade.

You'll still not find a more stable market than real estate. No industry has the track record they do- this is just a hiccup. When everything levels back out, it'll go back to being the way it was.

Remember that the law writers of this country are landowners ;)

[Tammarion]

Its not their fault, but it is their problem. Suppose you bought a house on a fixed mortgage at the height of the bubble, and planned on renting it out to pay the mortgage. The value of the property drops because of ARM defaulting neighbours, tenant demands a reduction in rent, and you find the house is no longer paying for itself.

Stable markets are like the sun rising. Something you can count on happening, until one day it doesn't. Even if its the fault of Monty Burn's sun-blocker and not the sun, Springfield residents will never take sunshine foregranted again. :)

I'd also point out that another reason ARMs got so nasty was political pressure on Fannie Mae/Freddy Mac to increase lending to sub-pars so that the "law writers" could boast about increased housing ownership statistics.

[Coplann]

LoL[Harm;172383']...I just wish they were more like a directly linked charge card to your bank account instead ...

Or better yet, the card would be linked to a secondary account your "Card" account and you could transfer money from your savings into that "Card" account, basically turning your debit card into a card you "charge" as you go (like the cellphones you buy minutes for).


Thats how most CC work in Germany btw (linked to your account). :)
The secondary account type is also available, especially for pupils and students.