Are the Poor Subsidizing Your Credit Card Rewards?

Florian Schalliol points me to a Brookings Institution piece arguing that the “poor subsidize wealthier consumers” in financial transactions from checking accounts to credit card rewards. I do not think this is quite right, but let me first lay out the argument.

  • Financial services are cheaper the richer you are, and free checking accounts are a thing of the past.

  • Credit card rewards are for the wealthy.

  • Customers pay the same for a product in cash as they do with a credit card, but merchants make more money on the cash transaction.

  • So the poorer customer without credit cards is subsidizing rewards for wealthier customers.

    As long as merchants do not vary the price based on payment, economics dictate that people who pay using cash or debit cards are subsidizing people who use credit cards. The fancier the credit card, the larger the subsidy. Payment methods are correlated with income: lower income people are more likely to use cash, pre-paid or debit, while higher income use credit cards.

The Decline of Free Checking Accounts is the Result of a Policy Mistake

Free checking accounts aren’t as ubiquitous as they once were – for very good reasons – but they still exist. NerdWallet has a list of several but it’s far from exhaustive.

Banks have added fees, or required minimum balances or direct deposit or other transactions, because it’s no longer profitable to just offer free checking. That’s because of the Durbin Amendment to Dodd Frank financial reform legislation, which effectively outlawed banks earning a profit off of their debit cards. This is also why you no longer earn debit card rewards, banks aren’t making money on the transactions so aren’t competing for your debit business.

Financial institutions used to want checking account business because it would get them consumers’ debit card transactions. Once they no longer made money off debit charges, the subsidy for free checking was gone.

The broader point though is that banks want wealthy customers with lots of different service needs because there are more opportunities for them to profit. Giving a free checking account to someone without much money means it’s hard to cover costs, and so banks turn to fees.

Cash Buyers Aren’t Subsidizing Credit Card Customers

We often use the word ‘subsidy’ too loosely. Credit card customers are profitable customers. Stores accept credit cards because they can sell more goods and services to more people, and it’s profitable to do so. Their transaction costs are effectively a marketing expense to bring in customers and allow them to pay in the manner most convenient. There’s no subsidy required here. Credit card customers also spend more on average than customers using other payment methods.

The notion that credit cards are costly and other payment methods costless is simply a mistake. Accepting cash is costly to a store because of the need to deposit funds and because of the risk of loss or theft (whether by an employee, or getting robbed, and this also gets factored into insurance rates). Similarly people write bad checks, which stores can… pay to insure against if they don’t want to lose the money.

Eliminating Credit Card Rewards Benefits Retailers Not Customers

Concerns about the effect of interchange (credit card swipe fees) for the poor are largely a fig leaf for retailers who want to drive down their costs. Where interchange has been regulated (Australia, Europe) it has not resulted in lower prices. That suggests poor and cash customers aren’t paying more to account for credit card benefits they do not receive.

In fact when Australia began permitting retailers to charge a fee for card acceptance regulators came back in to cap those fees because they weren’t just about recouping card processing costs.

Make Accessing the Financial System a Priority – Rather than Crippling It

Ultimately there’s a real problem where unbanked consumers are driven to costlier options such as check cashing stores)but that was the predictable (and predicted) outcome of legislation that could be fixed.

American Express took a shot at earning a profit while addressing the problem of unbanked consumers with Bluebird but somehow it didn’t catch on.

Credit card rewards do require a certain level of income and credit to benefit from. Not ‘everyone’ can use credit cards to fly in business or first class around the world. But that doesn’t imply doing so makes those not in a position to benefit less well off.

Unfortunately big retailers co-opt the language of inequality for their own benefit. A lot of the arguments against credit cards and interchange are designed to benefit Walmart, Amazon, and other merchants who want to accept credit cards, but want to use political influence to force companies like Visa, Mastercard, and American Express to lower cost.

The result of that isn’t lower prices, or benefits for the poor. It redistributes income from payment processing networks and from consumers who today earn rewards back to those retailers.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. The whole point of travel rewards cards is to make luxury travel experiences affordable to the middle class.

    As to the poor, the deck is stacked against them in so many ways that any incremental way in which credit card rewards may be harmful at the margin is not worthy of discussion.

  2. The Brookings Institution is left of Marx and I do not mean Groucho. No one should take them seriously.

    Easy access to credit is a trap, not a privilege. I have come back from trips and looked at my credit card bill and thought WTH. Then I paid them in full. The fees I pay just to maintain my access to my privilege, Amex Lounges, Sapphire Reserve, elite status with Hilton, are astronomical. I would be better off with one small credit card and no fees.

    Really, I think a continuous laugh track would be attached to this particular Brooking Institute fantasy piece.

  3. It’s the poor sods paying 20% interest who are subsidising us. Or 25% if they’ve missed a payment.

  4. By definition, poor people have no money so how can they be subsidizeing people with premium credit cards? The cards are not free. The Brookings Report looks like a pre-campaign article for Pocohontas Warren

  5. There are lots of places you can find free checking… they are called credit unions. Corporate banks are awful and soulless, so use them for your credit cards and get the rewards, but put your cash money (and mortgages and auto loans) with the local nonprofit credit union. Better rates, community focus, and no shareholder profits driving bad decisions for the consumer.

  6. Spot on, Gary. You’re preaching to the choir here, but your analysis makes sense.

    How does Brookings qualify for a .edu domain name, anyway? BoardingArea.edu would be just as appropriate.

  7. @Other Just Saying

    Yessir, you are correct. Give people with limited financial means easy access to money, and you suck them into a trap. I don’t know what favors that does anybody.

    Besides, income has to do with how much you can borrow; your *risk* determines the price you pay to borrow money (APR). You can be poor, have good credit (because um, you pay your bills) and have a low APR. You just won’t have a high limit. You can be rich and have a high interest rate if you don’t pay your bills.

  8. @Jason

    Yeah… the interchange fees are what, 2%? So a $100 bill comes with a $2 fee, before accounting for the very real costs of handling cash? So what.

  9. It’s not “the poor”, it is the stupid and irresponsible. Many low income people have excellent credit scores, but of course most poor people are poor for a reason. They are not “subsidizing” us either. Lending stupid irresponsible people money presents a higher risk, and higher risk demands a higher return. Stop spouting leftist nonsense.

  10. “Where interchange has been regulated (Australia, Europe) it has not resulted in lower prices.”

    If you wanted to use a credit card in Germany there was always a huge surcharge, now you pay the same price. Your example nonsense, it infuriates me that you use it over and over!
    I’m German, I remember when I was a kid there were those alluring credit card offers and I asked my father why he avoided using his card. He told me that the surcharge is always higher than the reward (for the German credit card) – and he was right. He only had this card for travel.

  11. Credit card rewards are marketing from credit card companies to encourage customers to use their cards. Credit card companies make money when customers use their cards, whether through transaction fees or interest paid on balances. They’re happy for either one.

    Businesses accept credit cards because, for a small percentage, it increases the number of available customers and increases the amount those customers can spend.

    By increasing the number of customers, businesses increase their revenue, providing larger profit margins, ultimately overcoming the cost from transaction fees.

    Therefore, while one might expect prices to be slightly inflated to offset the fees, it should ultimately be a wash. Therefore, in the end, the scenario with and without credit card awards, the final price to the consumer is the same.

    However, those who pay with cash, check, or debit card are missing out on a benefit that is only available to the holders of credit cards. They’re not subsidizing it, they’re just leaving money on the table. However, the impoverished may not be in a position to properly take advantage of travel awards, even with the significant discounts they provide, but at the very worst case, they can still go for cash back. It might only be 1-2%, but it’s better than nothing, provided they have the discipline to properly manage their spending. If they’re “poor”, then that’s probably not the case.

  12. I don’t want to turn this into a political debate but the Brookings folks and left wing of the Democratic party love to roll out stuff like this as part of an ongoing class warfare platform. Sad part of this theory is that Durbin, Frank, Dodd and Obama (who signed this into law) all ran with this when people complained about ATM fees and such as an anti capitalist issue (another left wing platform plank). Now the theory is that it hurts poor people and makes people richer. Actually what the act did was hurt poor people from getting stuff like airline miles on debit cards (RIP BofA US Air debit card).

  13. @Lance I avoided discussion of credit unions because they have membership criteria, while membership is often easy to generate at low cost it seemed to complicate the discussion from a low income consumer standpoint

  14. I’ll be a contrarian

    Although this might not be the poor subsidizing the rich, it is clearly a cash transfer from someone to someone.

    When I use my Sapphire, I get 3% back from Chase

    But that didn’t come from fairies.
    Chase got that from the merchants

    Where do the merchants get that?
    The consumers

    Merchants must raise prices (or decrease profits) to pay Chase
    But Visa forces all merchants to accept all Visas, and does not allow merchants to give a discount for cash

    Thus, prices are raised for all payment types (or the merchant eats the cost)

    Given this, it is clear that either the merchants or those paying by cash, check, or “non premium” cards are paying more so that I can get 3% back

    Those paying by cash, check, and non premium credit cards do have lower incomes than those with premium credit cards (this is a fact, look at Chases info on who has the Sapphire Reserve)

    This is why Amazon and Walmart don’t want to accept the Visa Signature card. It raises their cost which they have to eat OR transfer to customers.

    If Visa Signature was so good for merchants and consumers as a stand alone product, Visa would not need to force merchants to take it if they want Vanilla Visa, nor would they need to ban cash discounts

    On a side note, there is a class war, and has been for decades.
    But it’s no contest. The rich are decimating everyone else

    FWIW: I am “rich” and have no jealousy towards anyone.

  15. On a side note

    I agree fully that this debate is an AstroTurf war between banks and merchants, using “the poor”

    We saw the same thing with gambling laws
    Entrenched gambling interests fought internet gaming using arguments about addiction, etc

    They just wanted to keep their monopoly

  16. As Gary states, I would think Cash transactions would be unquestionably more expensive then the 2% credit companies impose. The combo of employee theft, additional time of accepting cash and giving change, needing to recount cash multiple times to tally at end of day, and then physically take to bank to deposit is way higher then 2%.

  17. https://www.usatoday.com/story/money/2018/11/28/holiday-shopping-more-retailers-just-saying-no-cash/2063747002/

    “All told, such hassles [of cash] cost retailers an average 9.1 percent of sales, ranging from 4.7 percent at grocery stores to 15.5 percent at restaurants and bars, IHL says. That compares to the 2 to 3 percent transaction fees credit-card companies charge merchants.”

    That’s why some states are looking at FORCING retailers to accept cash, though credit cards are cheaper.

  18. “Prices for those paying cash have not gone down” -That is because they were never inflated to account for the merchant fees, thus they did not have to go down! You are not comparing apples to apples! And that is my point.

  19. Account signup bonuses are there to entice people to open accounts. The goal of the company is to snag an interest paying customer and to keep them. The min spend for the bonus forces me to meet that spend; I DO NOT want to miss the bonus. I over spend my ability to repay the full amount each month. I carry a balance and pay interest. The company wins. The rich do not lack the ability to pay off the card so the rich win. The poor have trouble paying the full balance and thus subsidize the rich; the card benefits and bonuses would not be nearly as rich if this were not the case. The real problem is that the poorer think they’ll get something for nothing, free travel where they’d never afford it in many cases. But if I’m not able to pay the statement balance in full each month then I’m probably paying more for those bonus points than if I just bought a plane ticket outright.

    That is not a statement meaning to say Brookings got it completely right, but it’s misguided to not think that some of this is the case.

  20. yes, card (credit or debit) transactions are less expensive than cash, but that does not mean that people using cash aren’t also paying for the tasty rewards to those using cards. Both groups are simultaneously cross subsidising each other.

    If we assume right now that a shops sales are 50% paying in cash which costs the shop 5% to process, and 50% to credit cards that costs 2.5%, then the shop is paying out 3.75% of sales just to get the money in its bank account.

    If government caps interchange fees at 1%, but the proportion of cash/card sales remains 50/50, then the retailer now only has to lose 3% of its sales to get the money. Which, if we assume a competitive market which forces the shop to continually improve its products pricing then all else being equal the prices would drop 0.75% – for both cash and card customers. But the rewards back to credit card customers would be cut by substantially more (it depends how much of the interchange fee you think is used to run the card business vs interest etc) but rewards would drop by 1-1.5% of spend. The high rewards environment is making prices 0.75% higher for cash customers than if there were low rewards.

    Simultaneously though, the credit card customers are paying higher prices too because of the existence of cash customers. If all cash customers used card and the government didn’t cap interchange fees, then the cost to the shop would drop from 3.75 to 2.5% — lowering prices to card customers by 1.25%.

    If everyone moved to card, and interchanges is capped at 1% then in the long run the business’s costs would be 2.75% lower, and that would mean lower prices for all customers.

    @gary – nominal prices being sticky in the short run is why countries with caps didn’t see a price drop, but it will have slightly decreased inflation as shops could absorb more input price increases before their margins are squeezed to the point that they have to put up prices.

  21. The proof that this “study” is nonsense is the increasing number of restaurants and stores that are going cashless. Yes, they are only accepting credit cards. The reasons are just what you’d expect: the overall cost in terms of time, space and effort for accepting cash is more than 2.5%.

    People have argued over whether excluding cash payers is itself unfair to the poor, but whatever you think about that point, the fact that merchants are turning away cash sales definitively disproves the idea that somehow they make more off of cash sales than credit card sales after all costs are properly factored in.

  22. @JMRW’s analysis is the best — logically presented and belief-neutral rather than attempting to locate and interpret studies in the light of pre-existing opinion.

    It’s clear that rewards credit cards are a wealth transfer from one group to another. How you define the those groups probably depends somewhat on your political beliefs, but it’s clear that the “to” side of the transfer is generally more credit-worthy and better educated and those on the “from” side less able to get the “better” cards (and thus generally poorer) as well as less “savvy”.

    @JMRW credited the wealth transfer only to those people paying cash or lower-yielding credit cards but left out the role that interest from late-payers has in transferring wealth from the interest-payer to the rewards-receiver. Of course, how you feel about that is also probably determined by your political outlook. Cold-hearted conservatives would see interest payers as responsible for their own moral deficiencies while bleeding heart liberals might see them as victims of wily and greedy credit card companies or cruel fate.

  23. Haha… For the last few years I’ve only earned 20k a year yet have a six figure credit line. I’ve applied and been accepted for several rewards credit cards. I even have a CSR, plus have five free bank accounts for various debit cards that I can use internationally with ATM fee rebates. I’ve gotten over 40k in free travel from credit card sign up bonuses in the last five years. If I can do it…

  24. Exceptional economic illiteracy in this article.

    “The notion that credit cards are costly and other payment methods costless is simply a mistake. Accepting cash is costly to a store because of the need to deposit funds and because of the risk of loss or theft (whether by an employee, or getting robbed, and this also gets factored into insurance rates).”

    Discounts for cash are banned by law, precisely because they would be otherwise offered, reflecting the fact that the cost of using cash is less than the credit card merchant fee.

    Cash users are definitely paying more than in a free market situation. In the popular idiom, they are truly screwed. Since only higher income/wealth people qualify for credit cards, this is a very invidious, anti-poor law.

  25. In fact, with so many Democratic candidates running as “champions of the poor” in the primaries you would expect this to be a highly political issue. The fact that it is apparently not I take to confirm that these Democrats are, like Hillary Clinton, actually representative of a small, white, urban elite. That bodes well for President Trump in 2020. These democrats are so out-of-touch with the blue collar voter who was their base for over half a century that they don’t even know that they are out-of-touch!

  26. Look at all the gas stations that charge a lower price for cash. This has really spread from California .
    If their cost to accept cash were , say, 3%, wouldn’t they be equally well off taking credit at the same price?

    Perhaps they have raised prices for credit in this one case because walking into the store to pay is a hassle

  27. I am reading some of the comments above and the alternative reality is making my head hurt.

    (1) To be clear, when you do business with a bank, there is a wealth transfer from you to the bank. Moreover, the bank is constantly analyzing you as a customer to make sure that wealth transfer continues. The banks are not transferring wealth from rich to poor, they are transferring wealth form the rich to themselves.

    (2) Banks go out of business when they make too many low quality loans (ie give credit cards to people without the ability or inclination to repay them). And it happens quickly. It does not matter how much interest they charge. The credit standards exist for a reason. In other words, defaults are wealth transfers from the bank to the person defaulting. If banks could transfer wealth from the poor to themselves by offering banking services, they would. But they lose money (reverse transfer) offering bank services to the poor, so they have to be forced to do so by various fairness laws.

    People turning this into a class struggle are really out to lunch.

  28. Gary pointing out that there is a move away from cash. To me that is concerning. Why? Consider the following statements:

    (1) If you have gold in your pocket, the government cannot make it go away by printing more gold. It is also not tracked 24/7. Not so easy for a computer hacker to steal.
    (2) If you have cash in your pocket, every legal authority, city, county, state, federal, any judge, cannot make it go away, with the stroke of a pen. Also, it is not tracked 24/7. Not so easy for a computer hacker to steal.
    (3) If you have electronic money, it can disappear instantly, the bank could consider it suspicious and put a hold on it, legal authorities could decide to impound part of it for the good of the banking system (see Greece), any judge could take it with a stroke of the pen, hackers can steal it, it is tracked 24/7 with permanent records that can be used against you forever.

    Cash is king.

  29. @OtherJustSaying

    “Banks go out of business when they make too many low quality loans”
    Untrue. This is precisely what did *not* happen after the last financial crisis.
    A miniscule number of big dogs went bankrupt. The rest were bailed out
    They are “Too Big to Fail” and will be bailed out again. (Captured govt)

    Your point #1 is immaterial to this conversation
    Using me as an example:
    Chase is net giving money to me.
    I get 3% back on travel expenses. (I charged about $60k on card last year)
    That means I got a minimum of $2000 from Chase
    I pay $450/yr, but get $300 back for travel credit. (so I give them $150)
    $2k minus $150 = $1850
    I get far more perks with the card, but I’ll stop with the $1850 above.

    They get nothing else from me
    I have no other banking ties to Chase.

    So where did Chase get the money?
    I outlined where in my post
    If you disagree: please elucidate from where the money comes.

  30. My understanding, based on some interaction with setting up credit card merchant accounts and talking with folks in the card processing industry is that *everyone* subsidizes those who use cashback cards because the merchants are charges a higher processing rate for people who use those cards, just as they are for corporate cards and various other types of cards and transactions (for which there are literally 489 different rates despite however the card processors bundle them into one rate or several tiers of “qualified”, “mid-qualified” and “non-qualified”).

  31. @JRMW. Several answers.
    (1) I have a banking relationship with Chase because I live in New York City. So they most likely get the money from me.
    (2) However, the gain you are getting from the relationship is not as great as you think. Interchange fees for Reserve card is between 2.1% to 2.4% + $0.10 per transaction. Rounding down to 2.1%, that is $1,260 of the $1,850 of benefits you claimed, so we are left with $590. If you are traveling internationally, they are probably making additional money on the exchange rate they are charging you (I know there is no fee). So you can still feel wise for screwing Chase and brag to your friends about how clever you are, but you screwed them for far less than you think.
    (3) Banks think in statistics anyway, people who are credit worthy enough to get a Reserve Card, will tend to have other relationships with Chase and will tend to borrow from Chase, so if they get multiple people like JRMW, then they will make a profit on a portfolio basis.
    (4) Also you might not be aware of this, but if a bank decides they are not making money on a particular type of customer, they will get rid of them ruthlessly. I am not sure if you remember the Bank of Montreal Rewards Card. They cancelled the card a few months after initiating it because travel bloggers were earning too many points at Drug Stores. Apparently, BMO considered it akin to fraud. Everyone here will know when the Reserve card becomes a bad deal for Chase, because they will cancel them or alter the terms.
    (5) Further, if Chase decides you are in an unprofitable customer class, for whatever reason, they will cancel you. Didn’t Gary have a post recently about credit being approved by AI, which can survey Facebook, Twitter, and Google Information. If you are married and you kiss a girl on Facebook, not your wife, your chance of divorce and bankruptcy goes up, and boom, your Reserve card is gone. Well, theoretically anyway.
    (6) In fact, a couple of years ago, Banks were cancelling corporate lines of credit of large companies, unless the company did other business with them, because the interest rates were too low on those lines of credit to make a profit after considering the cost of capital. If Banks are willing to do that to their corporate customers, they will do that to individuals.

  32. @JRMW said: ‘Untrue. This is precisely what did *not* happen after the last financial crisis. A miniscule number of big dogs went bankrupt. The rest were bailed out They are “Too Big to Fail” and will be bailed out again.’ Obviously, you are smarter than me. However, one thing confuses me. How did the Federal Government bail out Bank of America, Merrill Lynch, and Countrywide Financial Corp during the financial crisis. Now, being bailed out, all the people at Bank of America, Merrill Lynch, and Countrywide kept their jobs. In other word, there was no bloodbath on Wall Street after the financial crisis. And, the owners of the firms, the stock holders were of course made whole, no losses. Get back to me when you find out because I am curious.

  33. Frankly the poorer you are the more expensive life is. Instead of going to Costco and being able to buy in bulk cheaply the poor go to the local mini mart and pay more for less selection because they live in a food desert and don’t have a car. If they get a car they will likely only be able to afford a poor, high maintenance car which they get with a high interest loan. If an unexpected situation happens their only option is to get a payday loan at absurdly high interest rates. They go to work for long hours at low paying jobs leading them to buy dollar menu junk food causing higher medical costs which are more serious because they don’t have the money for preventative healthcare. They pay a higher percentage of their salaries for housing, gas and utilities. They have lower education and are unable to take advantage of opportunity. Every shark scammer from pay day lenders to shady technical schools to crooked used car salesmen, to high interest credit card companies prey on the weak and poor. Frankly it is not news that the poor are prey.

  34. @JRMW. On second thought, I am sorry for the snark. The Federal Reserve stopped the immediate liquidity crisis by offering to purchase mortgage back securities at market price (even though at a loss to the seller) for Fed’s own balance sheet. This prevented a worldwide liquidity crisis. Bank of America was relatively well capitalized (as I remember), so they would have survived either way. So Treasury Secretary Henry Paulson ordered/forced them (no choice!) to purchase Merrill Lynch (biggest Investment Bank) and Countrywide (one of the biggest house lenders) so that Merrill Lynch and Countrywide would not collapse. There was a blood bath, where everyone associated with the mortgage crisis lost their jobs at Bank of America, Merrill Lynch, and Countrywide. The stock holders of Bank of America had their stock price drop from around $54/share to around $4/share, a massive loss. To conclude: the Bush Administration stopped a worldwide liquidity crisis, but everyone with a stake in the financial sector paid the price big time. Some bailout.

  35. @Other

    Thank you for your second response
    I understand how the Fed and federal government bailed out the banks
    I was simply showing that the vast amount of banks lent extremely poorly, yet only a few failed (making your claim false)

    There was far more than a liquidity crisis. There was also a solvency crisis.
    Much of this has been transferred to the Fed and government (cough, FHA, Fannie, Freddie)

    Far more people paid than Big Finance
    But notice who is raking in record profits from continued near zero interest rate policy and expansion of the Fed a Balance sheet

    Notice how markets follow not economic indicators, but instead minutes from the Fed.

    There’s a reason for that.

    I will only end by saying that it is possible that people can argue against your point and not be idiots, nor lefty commies, nor living in some crazy bubble

    American style Capitalism is not working for many people. This does not mean communism is better
    But it explains why Bernie and Trump are ascendant.
    People understand that something is wrong, even if they can’t articulate what, why, or how

    Ignoring this and pretending that all is well, puts us at risk

    People in my demographic are destroying everyone else. People above me are in a league of their own.

  36. @JRMW. “There was far more than a liquidity crisis. There was also a solvency crisis.” I think that is the same thing. In any case, in my opinion, if the Bush Administration had not acted, simple things like getting your money out of a cash machine would have been impossible for a while as banks were not willing to extend credits to banks.

    “I was simply showing that the vast amount of banks lent extremely poorly, yet only a few failed (making your claim false)”. I think you are missing my point, both Merrill Lynch and Countrywide failed, the Bush Administration just merged them into another bank, to hide that fact and to prevent a breakdown of the worldwide banking system. You would be surprised how many things would fail if Merrill Lynch went insolvent, after Lehman Brothers, and Bear Stearns. The failures were hidden by forced merger.

    Your equating Sanders with Trump is strange. Trump is a capitalist. Sanders is a socialist, former red communist.

    I agree with you about the Fed, it is nuts. That is what I do, when the Fed speaks, I listen looking at straws. If Chairman Powell comes out again and says the economy is overheated, I am going to sell my stock before he starts raising interest rates and reducing money supply.

    The point I am trying to make, is that when people talk about “bailing out” the big banks, they think of the banks like people. But actually banks are made up of different interests. People working there. The bank owners (ie the stock holders). The Federal Insurance. Various people with contracts with the banks. When the government bails out the bank, the stockowners and employee lose everything. The winners are the Federal Insurance fund, people that have contracts with the banks, and the banking system as a whole. In other words, like a neutron bomb, the owner and employees are gone, but the sign on the front door is the same and the buildings are unchanged.

  37. Economics 101: we would all be better off if credit card merchant charges were, let’s say, 0.5% instead of 2.5%. Businesses compete with each other and that 2% would go straight to consumers in the form of price cuts.

    The issue with the unbanked stem largely from immigration laws and (lack of) trust in the Government / system. Bank transactions can be tracked, the Government (and others) can put liens on them, and bank assets count for alimony etc. Cash allows for privacy. As a result, you can deploy a liberal policy (cross-subsidize products to offer free banking) and the number of unbanked only as younger generations have more trust than their parents (who may fear deportation).

  38. Regardless of intent, there is still selective data being used to justify arguments…as most people do.
    I think the credit union argument shouldn’t be dismissed as a foil against mega-banks, just because it may muddy the details of the pro/con p.o.v. I enjoy playing in the points game via megabank cards, yet do my personal banking and mortgage via my local CU, as well as my previous employer CU. (And CU rules for membership have been loosened significantly over the past 20 years, so the “limited access” canard is just that…
    Additionally, no one has pointed out that AmEx is still less accepted in the US and globally, due to their higher transaction fees compared to Visa/MC. And those fees aren’t double the jump from cash to cc transaction with Visa/MC…yet retailers/restauranteurs refuse to accept AmEx. There’s a point being made there, regardless of whether someone wants to see it or not.

  39. Free checking is a thing of the past?????? Uh no. Not where I bank, and it isn’t a credit union. I have 6 checking accounts with my bank – no fees, no minimum balances.

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