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CC rewards seem like a indirect regressive tax. Wealthier consumers who can afford to pay on time and have better credit ratings are subsidized by poor consumers who actually use the "credit" part of "credit card".





And, you would be correct, in a sense. Wealthier consumers benefit disproportionately from CC rewards compared to less wealthy consumers:

Paper from 2010 showing this: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1652260

News article with a good summary: https://www.reuters.com/article/us-usa-fed-wealthtransfer/cr...


+1 for actually supplying sources!

tldr: >> ...the lowest-income household ($20,000 or less annually) pays $21 and the highest-income household ($150,000 or more annually) receives $750 every year.


If people didn't spend money they don't have the problem you describe dissolves. No one has to use credit cards and being financially literate is an individual responsibility.

If companies weren't allowed to offer predatory lending towards financially illiterate the problem you describe dissolves, this is actually much easier to implement than individual responsibility.

Ah yes, the old "let's block stupid (poor) people from accessing financial instruments for their own good" argument while at the same time having legal gambling.

predatory lending != lending.

Predatory lending generally refers to companies like payday loan companies and cash advance companies which feed off of forcing people to continuously borrow until they can't borrow any more.

Lending should absolutely be accessible to everyone in some way or another, especially in a world where a transmission failure can lead to a lost job if you can't afford to fix it right away.


It’s predatory the moment it feels too high to you.

Hey, if you want to argue that gambling should be more restricted, then go ahead.

It is highly restricted in many places.


The actually financially literate know how much more buyer protection you get with a CC than with any other form of payment.

And why is that? It's a beautiful example of regulatory capture that led to credit cards gaining advantage over other payment methods.

Such protections should either be scrapped or extended to cover all methods.


> Such protections should either be scrapped or extended to cover all methods.

You are free to invent a payment method and provide all these protections to your customers. Why would you want to remove protections that CC companies are providing to their users?


> financially literate is an individual responsibility.

Is being able to read and write an "individual responsibility?" How about the ability to communicate in a language at all? What about any other basic core skill that would make a person capable of learning more things to make them "productive?"

"Individual responsibility" as it pertains to these topics is at best a misnomer, if it even names an existent thing at all.

Surely you don't think it's ok for, say, a Company Town to exist? Can you extrapolate from there why it's not ok for credit card companies to bamboozle less educated Americans for money?


I would encourage you to frame your disagreement with statements and facts. Asking questions expecting the reader to draw the same conclusion as you isn't a useful discussion mechanism. Especially when the reader doesn't agree with you.

I'm not sure what the relevant facts would be around an extremely value based argument of who is responsible for educating a society.

I guess we could look at the general fact that education is one of the better investments to increase a nation's GDP, bit I'm more concerned with the ethics than the money.


Here are some facts: https://nces.ed.gov/naal/kf_demographics.asp#3 , about 14% of adults in the US in 2003 had little to no reading skills.

Yes, I realize you’re not being genuine, but those are all your responsibility to do/learn. Although everything you mentioned is what you should learn as a child, so we have a moral/social code for parents and the community along with some help from schools to teach these basic principles.

I could follow your argument if the card issuers weren’t transparent in their pricing and terms like payday loan companies. However, the interest rates are laid out very clearly several times as you apply and are approved as regulations demand. I’m all for education but at some point you have to let people do what they want with their money.


I am being genuine.

I'm not sure the country has taken the necessary step up in early education to even have the population have a baseline understanding of what interest rate is. I didn't learn that anywhere in elementary, middle, or high school. I had to figure it out on my own.

I don't think that's acceptable. I think that leaves our population vulnerable to predatory companies, who have a disproportionate ability to lobby the government to allow them to stay predatory.

I envision a capitalist hellscape where the population is kept purposefully reapable.


You mean to tell me all my woes in life aren't some form or another someone else's fault?

I'm ignorant to CC companies' financials. But I would have thought their revenues are driven by transaction fees, which end up ultimately getting passed down to the buyer through higher prices. Would be interested to learn more though about CC economics. It would indeed be sad if CC rewards operated like a regressive tax, as you say.

If you have poor credit, you get a crappy credit card: low limit, high interest rates, no rewards.

If you've got great credit, you get a high limit, slightly-less-astronomical rates, and all the rewards.

The cost of the rewards is (as I understand it) mainly carried by the transaction fees, spread out over all purchases everywhere. So you have pointless price increases for people who /don't/ use credit cards (like me) or have poor credit, and the benefits of that 'tax' going to users with good credit (ie, rich people). So, yeah, it's a wealth transfer to people with better credit.


I had poor credit at a point in time. I "bought" a credit card to build my credit by putting a deposit. After 1 year of on-time payments I was able to graduate to a credit card with cash back. The system didn't feel punitive to me, and honestly, I had poor credit in the first place because I was irresponsible while in college.

You just described a scenario in which you were systematically bilked for at least a year —- paying full retail prices, which presumably paid for full transaction fees, which in turn did not pay you any rewards —- so you could graduate to the privilege of being allowed to purchase a consumer line of credit that reduced the level of punishment to something merely appropriate.

There are relatively few businesses in the world that can rip someone off for a year, then allow them to pay a more reasonable fee in exchange for guaranteed business, and still have the consumer claim that the system “doesn’t feel punitive.” The whole thing is kind of brilliant.


It was a painful year that taught me a lesson. Looking at how fiscally responsible I have become, I really have no complains.

It's not financial responsibility or learning lessons, it's the fact that you consider earning cashback to be a reward for the ordeal you endured.

By participating in the cashback scheme you're putting more people through that ordeal by means of higher fees.

The only way to win is not to play.


I don't consider earning cash back to be a reward, but I see the credit card as a product that lends money based on a risk evaluation.

At that moment in my life, the risk on lending me money was high and therefore the product I could access was limited. There was little incentive for the bank to risk lending me money, so I needed to purchase my way into rebuilding my credit. As the risk in lending me money decreased, banks became incentivized to offer me lines of credit so the cash backs kicked in.

Rebuilding my credit has allowed me to access lower rates on my mortgage , investments loans and other financial tools that have greatly contributed to my quality of life. I would consider that to be the reward.


The problem is that the credit card "lending money" function is not what transaction fees pay for, and these fees are paid by all market participants -- including cash customers. People should be able to separate the payment function of a credit card (which is what merchants pay transaction fees for) from the "line of credit" function that banks make money on. However, this scenario would be less profitable for the industry, and so a small cartel of payment card networks and operators have worked hard to jam the two functions together. As a result, everyone (including cash customers) is heavily penalized for merely participating in the economy, unless they also purchase a profitable and risky line of credit.

It's frankly a brilliant scam, and the fact that people don't think it's a scam is its most brilliant aspect.


Discover has a secured card that earns cash back.

Of course, the system is designed to encourage you to be irresponsible in college.

It can get way worse than revenues being driven by interchange fees. Banks like Wells Fargo and Capital One operate like a classy pay-day loan company, targeting sub-prime customers who are more likely to not pay on time. I'd recommend reading this for more info: https://newrepublic.com/article/155212/worked-capital-one-fi...

Wealthier consumers also have more to gain on the luxury perks offered by cards. If you value 5 star hotel stays and airport first class tickets then you get more of the "value" back from the card fees. But actually with chase you can get a lot of those fees back on non-luxury redemptions too, but you'd still have to be rich enough to travel.

It's not government. The same incentive structure for businesses matches better to loyalty cards.

Are they?

Visa/Mastercard charge merchants 1-2% interchange fees for each transaction.

I'd guess that people putting $20k a month on their Visa (I know a few that do) are paying for themselves with the interchange fees.


The vast majority of that fee that merchants pay goes to the bank, not Visa or Mastercard. And a vast majority of what the bank gets in that fee goes back out to the card owner in the form of rewards. You see merchant fees of 1-2% because that is pretty close to typical rewards paid out on credit cards.

There's a bit of misunderstanding in your statement. Most of the money made by companies in payments systems comes from transaction fees, not from interest. When companies offer you better rewards, that's them competing to have you use their credit card rather than the competition's.

Sorry to tell you but that's not true. Literally the top Google result says the contrary:

> "Out of the various fees, interest charges are the primary source of revenue." [1]

Yes, credit cards charge a large transaction fee, but wind up refunding a large portion of that back to the consumer in the form of rewards, so these days that's not the main source of profit.

[1] https://www.valuepenguin.com/how-do-credit-card-companies-ma....


It's not though. No one is forcing you or anyone else to sign up for credit cards - it's a choice, unlike taxation.

It's not optional, though.

I still have to pay the higher transaction costs even without a credit card, because the credit card companies require that vendors have the same prices for card or cash, resulting in higher prices for everyone.


I've seen stores (e.g. electronic stores) offer reduced prices when paying in cash vs. credit card. Is this law only in the US?

Reduced prices for cash used to be against the Visa/MC merchant terms. They lost a lawsuit over it, but it's fairly ingrained by now.

You'll see cash discounts at some gas stations, and the occasional small coffee shop or takeout place will have a $10 minimum, but otherwise it's gonna be the same price most places.


Seems like an opportunity to raise awareness for this information then.

Will you go to jail or pay a fine if you don't use a credit card? No?

Then it's nothing like taxation and it is optional.


Think of sales tax. You have the option of paying it or not buying things; it's not optional.

[flagged]


We've warned you before about personal attacks, so I've banned this account. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future.

https://news.ycombinator.com/newsguidelines.html


Work on your reading comprehension...

The card companies charge merchants for transactions. The merchants raise their prices to cover those transaction costs: For a very long time (and still, in a few places) it was against the card company's terms of service to have a card usage surcharge. A very few places now have 'cash discounts' or don't accept cards at all, but these are by far the exception. As a result, /everyone/ ends up paying for credit card rewards, even those who don't use credit cards.


How would you pay for things online, many of which are not available in person? Or stores/airplanes/services that don't accept cash?

Debit cards? The other option is to use a Credit Card but pay off at the end of the month. Why is that so difficult? That’s literally like a Debit card except for the additional “buffer” of safety and security from your bank account.

Every debit card I've had has still involved a credit card company in some way - they've all had the visa logo on them.

That's true, I am not too familiar with the finance system, how come a debit card needs a middle man such as VISA? They help with the transaction between two banks?

The situation is that there is a network called Visa Debit that some banks use for their network for debit transactions. It may seem new, but it evidently dates back as far as 1982.

I'm in Canada. With one exception, no bank client card I have had (which were all usable for debit) had any Visa logo on it. That includes current ones.

The exception is one TD client card.

The situation is explained here:

https://en.wikipedia.org/wiki/Visa_Debit#Canada

TD is one of the banks that offer Visa Debit. This TD client card is also Interac-branded, so I'm guessing that the card will use the Interac network for domestic transactions, and in that case its Visa Debit personality does not come into play.

Those are not the only two networks for debit/ATM in Canada. There is also "The Exchange":

https://en.wikipedia.org/wiki/Accel_(interbank_network)#The_...

(used by a lot of smaller banks and credit unions).

The Canadian Credit Union Association also runs an ATM network called AccuLink.

It's important to know which network your card uses if you want "ding free" transactions. E.g a "The Exchange" card can be used at an "Interac" ATM, but there will be a fee.


[flagged]


That doesn't make it any less of a duopoly. The whole point of the article is that visa/mc have too much power and there is a lot of systemic risk by having only two competitors in this industry in particular.

Even if they aren't extending credit they're still facilitating the transaction - it's not like the visa sticker is on there for marketing purposes


Not what we're talking about in the OP comment.

That's what I was talking about - even if they aren't charging fees, they're involved.

There's plenty of cases in technology where "but we don't do anything with your data!" is not a good enough excuse. Many of us still argue for decentralization or federation or user controlled data, etc. Similar concerns I have for visa.


I get the impression you don't think much of me. That's ok, but why did you feel the need to tell me?

alt_f4 is a troll. I don't think they understand what we're arguing about lol

your mum is a troll

I can't think of a bank that doesn't use a card that works as a credit card when it comes to online transactions.

They're still visa or MasterCards though...

> Visa does not issue cards, extend credit or set rates and fees for consumers; rather, Visa provides financial institutions with Visa-branded payment products that they then use to offer credit, debit, prepaid and cash-access programs to their customers.

Everyone in Europe uses debit cards. You don't have debit cards in the US?

It's a plastic card, it is issued by your bank, it's still using the visa/mastercard network, but instead of credit, it is tied to actual funds in your bank account.


> "No one is forcing you or anyone else to sign up for credit cards - it's a choice, unlike taxation."

Tell that to the increasing number of shops that no longer accept cash.


Is this really a thing outside of SF? I haven't seen any cashless stores in my city yet. In fact, 3 of my favorite restaurants are still cash-only.

Strange, about 2y ago, on our visit, there were lots of places in SanFrancisco who didn't accept cards.

you can't rent a car without credit card, they won't accept debit card or even debit VISA/MASTERCARD, it has to be full on credit card

I don't know anyone personally that owns a "credit" card. Virtually nobody uses them here in France and I think in the rest of Europe, it's always debit card. Never had an issue with renting cars.

It is a common issue for French people renting cars outside of France - search on Google, there are hundreds of angry people who ended up with no car because agencies in other countries refuse debit cards (debit immediat)

Why would renting agencies refuse debit cards? You get your money, just like credit cards...

My guess would be single message (debit) vs dual message systems. They probably want to hold / authorize a large amount first as insurance.

What's strange is that you can authorise on debit cards (at least french ones)...

I should have been more specific, In the past few years I have rented cars in Europe, in the US, in South Africa and in Australia. Never had an issue. I generally use Avis or Budget, sometimes a local company.

That's not true at all. It's certainly not common to require credit cards for car rentals in Europe. Must be an American thing.

>Virtually nobody uses them here in France and I think in the rest of Europe,

Definitely not the case here in the UK, credit cards are very common.


Other than renting a car or a hotel room, it seems you can conduct most if not all of your affairs without a credit card. Credit cards can be relegated to those limited transactions.

Most of the large car rental companies in the US will let you rent with a deposit on a debit card.

The governments must step in and ban interest altogether. This is only fair, and will force banks and businesses to transact morally with customers.



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