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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsUsurious Returns on Phantom Money: The Credit Card Gravy Train
http://www.commondreams.org/view/2014/02/15-0You pay off your credit card balance every month, thinking you are taking advantage of the interest-free grace period and getting free credit. You may even use your credit card when you could have used cash, just to get the free frequent flier or cash-back rewards. But those popular features are misleading. Even when the balance is paid on time every month, credit card use imposes a huge hidden cost on usershidden because the cost is deducted from what the merchant receives, then passed on to you in the form of higher prices.
Visa and MasterCard charge merchants about 2% of the value of every credit card transaction, and American Express charges even more. That may not sound like much. But consider that for balances that are paid off monthly (meaning most of them), the banks make 2% or more on a loan averaging only about 25 days (depending on when in the month the charge was made and when in the grace period it was paid). Two percent interest for 25 days works out to a 33.5% return annually (1.02^(365/25) 1), and that figure may be conservative.
Merchant fees were originally designed as a way to avoid usury and Truth-in-Lending laws. Visa and MasterCard are independent entities, but they were set up by big Wall Street banks, and the card-issuing banks get about 80% of the fees. The annual returns not only fall in the usurious category, but they are returns on other peoples money usually the borrowers own money! Here is how it works . . . .
The Ultimate Shell Game
Economist Hyman Minsky observed that anyone can create money; the trick is to get it accepted. The function of the credit card company is to turn your IOU, or promise to pay, into a negotiable instrument acceptable in the payment of debt. A negotiable instrument is anything that is signed and convertible into money or that can be used as money.
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Usurious Returns on Phantom Money: The Credit Card Gravy Train (Original Post)
xchrom
Feb 2014
OP
PowerToThePeople
(9,610 posts)1. Even though I pay cash
I still am giving money to the credit card companies through higher prices.
Scam
bvar22
(39,909 posts)2. Some merchants give a 3% discount for CASH.
They get our business.
We pulled our money from the Big Banks in 2005.
We keep an account with a small, locally owned bank so that we have a Debit card.
Wall Street and the Big Banks can live or die without our money or concern.