Credit card debt in the US is getting out of hand

[Red Squirrel]

The state won't let me charge my customers the fee so when I started taking debit cards, I raised the interest rate by 2% on every loan.

I recall hearing something that they were going to change that rule where businesses can actually charge the fee, but not sure what came of it. I think no business wants to be the first one to do that so nobody is really doing it. As is we're basically paying 2% or so more for everything just to make up for those fees.

 

[repoman0]

Businesses don’t give cash discounts though so of course customers are going to use a credit card to gather points or 2% cash back or whatever.

 

[sdifox]

I recall hearing something that they were going to change that rule where businesses can actually charge the fee, but not sure what came of it. I think no business wants to be the first one to do that so nobody is really doing it. As is we're basically paying 2% or so more for everything just to make up for those fees.

They are allowed to charge service fee for using credit card

 

[Lost_in_the_HTTP]

Businesses don’t give cash discounts though so of course customers are going to use a credit card to gather points or 2% cash back or whatever.

That isn't true everywhere. I have several places I go that have one price for cash and another for cards. They pass on the 3% card fee if you use a card, but you pay less with cash or a check.

 

[Fenixgoon]

That isn't true everywhere. I have several places I go that have one price for cash and another for cards. They pass on the 3% card fee if you use a card, but you pay less with cash or a check.

I thought you couldn't charge a fee for a credit card, but you could give a cash discount.
Which is the same as charging a fee for a credit card.
I've mostly seen it at gas stations

 

[dullard]

I fucking hate transaction/processing fees. Whatever you want to call them they suck. Last year I paid over $60,000 in processing fees and this year it's looking like I will pay even more because my business is growing.

I'll take that as a successful business. Congrats.

 

[manly]

I'll take that as a successful business. Congrats.

Those costs are borne by the consumers in higher prices anyway; no business owner is eating 2% of gross margin just to be nice.

 

[dullard]

Those costs are borne by the consumers in higher prices anyway; no business owner is eating 2% of gross margin just to be nice.

That is a bit of an overly simplistic viewpoint.

There is a price point where the business makes maximum profit. Too low of a price and they don't profit as much as they could per sale. Too high of a price and they lose sales and thus profit less. It is every business's (very difficult) job to find that optimum price point for their products. There are formulas and experiments that help (run a sale properly and you should get enough data to determine the mathematical optimum price point), but even those are time consuming and somewhat inexact since it is hard to experiment on your customers. Those formulas are taught in Microeconomics 101.

That optimum price is unaffected by costs. Meaning if they pay 2% or 0% for transaction fees, the optimum price point for maximum profit is unchanged. Thus, if the business wants to have maximum profits, the business should not pass on the fee.

The only time the costs matter is if the optimum price point is lower than the costs*. At which point, the business should not be selling that item/service at all (unless as an intentional loss leader).

* Or, possibly just too little of profit to bother with.

 

[manly]

That is a bit of an overly simplistic viewpoint.

There is a price point where the business makes maximum profit. Too low of a price and they don't profit as much as they could per sale. Too high of a price and they lose sales and thus profit less. It is every business's (very difficult) job to find that optimum price point for their products. There are formulas and experiments that help (run a sale properly and you should get enough data to determine the mathematical optimum price point), but even those are time consuming and somewhat inexact since it is hard to experiment on your customers. Those formulas are taught in Microeconomics 101.

That optimum price is unaffected by costs. Meaning if they pay 2% or 0% for transaction fees, the optimum price point for maximum profit is unchanged. Thus, if the business wants to have maximum profits, the business should not pass on the fee.

The only time the costs matter is if the optimum price point is lower than the costs*. At which point, the business should not be selling that item/service at all (unless as an intentional loss leader).

* Or, possibly just too little of profit to bother with.

It's been a long time since I studied Econ 101, so I had to review a bit. I believe what you described is standard theory, and applicable for short term profit maximization. Input costs are certainly a factor for long term profit maximization and pricing strategy.

FWIW California recently raised the minimum wage for fast food workers to $20/hr. Prior to the change, a consensus view was that prices to the consumer would rise by about 5%. I don't buy a lot of fast food, but this appears to have happened within days of the wage increase at many places.

 

[MrSquished]

You know. Now that I've had Time to really think about this topic, I just feel bad for the credit card companies. They're just trying to make a living and this big bad Biden government is coming after them. Poor souls. The world is just horrible to them credit card corporations.

 

[AdamK47]

New highs.

https://www.cnbc.com/2024/08/06/new-york-fed-credit-card-debt-hits-record-1point14-trillion.html

 

[Exterous]

New highs.

https://www.cnbc.com/2024/08/06/new-york-fed-credit-card-debt-hits-record-1point14-trillion.html

View attachment 104588

FWIW $825M in 2018 numbers is $1.05T in 2024 dollars so it's about an 8.5% increase over 2018. Certainly still not great but inflation does play a role here

 

[highland145]

Culumative inflation since 2020 is 21.4%

FWIW $825M in 2018 numbers is $1.05T in 2024 dollars so it's about an 8.5% increase over 2018. Certainly still not great but inflation does play a role here

Start at Q1 2020, 880B, 21.4% cumulative inflation which puts it at about the current owed, 1.1T

Q1 2021, 770B, 15.9% cumulative inflation... should be about 892B. 1.1T is some serious +133B drunk sailor spending.

edit: Guess if you divide it among 200m credit cards, it's not so bad.

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[IronWing]

The "I just bought…" thread exists for a reason.

 

[Brainonska511]

FWIW $825M in 2018 numbers is $1.05T in 2024 dollars so it's about an 8.5% increase over 2018. Certainly still not great but inflation does play a role here

Love when people graph financial numbers in an extremely misleading way, like not adjusting for inflation and not using per capita amounts.