Dead Wrong About ‘Deadbeats’
Since when does someone who pays his or her bills, in full and on time, deserve to be called a deadbeat? Well, that’s the term in the current parlance of the credit card industry, which makes its bucks on cardholders who carry hefty unpaid balances. Now General Electric will make you pay for running on zero in your Rewards MasterCard account.
There will, in effect, be a penalty for using your card prudently as a convenience rather than as an easy substitute for a loan. Users of the GE Rewards MasterCard will have to pay a $25 annual fee if they pay off their bill each month or incur less than $25 in annual finance charges. The company says the fee on convenience users or “freeloaders,” as they are known in the trade, is required to offset operating and administrative costs of handling the card and its cash rebate program. About 20% of its 3.7 million accounts fall in this category.
So-called branded cards, which offer credits, miles or points based on card usage, usually charge annual fees regardless of whether balances are paid off monthly. All credit cards turn profits on finance charges, which are assessed at a stated interest rate. About 75% of industry revenues come from charges on unpaid balances, which annually average a staggering $3,000 per account. Other revenues flow in from fees paid by merchants and others who accept credit cards in lieu of cash.
Convenience users are not in fact the big profit drains for card companies. That dubious honor goes to cardholders who skip out on their bills. It is finance charges running at more than 15% that pay for the companies’ losses on the real deadbeats. Credit card delinquencies are at near-record levels, and overall card debt is up sharply. Fraud also raises company costs.
To encourage its convenience users to carry balances, and churn more finance charges, GE is cutting its interest rate to 11.9% from 17.15%.
In the monthly shock of our credit card world, we don’t need aggravations like the GE charges. Card companies should honor prompt payment, and we should give credit to those who do.
