"Never give a sucker an even break."
W. C. Fields was a highly quotable actor and comedian. He would have been a strong advocate of modern day consumer finance and "rewards" credit card programs!
Know you probably have grown tired of the "rewards" card discussion and want to move on. If as a consumer, you fully understand how rewards cards work then take the week off! If you don't understand, what you don't know can hurt you. Stick with it a while longer.
❋ Commenter from yesterday [link]: "You need to continue to try and understand that rewards card transactors are not the same as traditional revolvers."
Very true statement and very important! First try to overlook how credit union member-owners are profiled as "transactors" or "revolvers". Just another set of "tiers", not real people. A simplified translation is "transactors" use their credit card to accumulate "rewards", but pay in full each month; "traditional revolvers" also receive "rewards", but carry a balance over from month-to-month and pay interest.
The Credit Union and other credit card issuers make money in two big ways from credit card users. The Credit Union is paid a "transaction fee" of @2% on each purchase you make with your card . The second major source of income is from the interest "revolvers" pay on balances carried over. Got It?
But lets just focus on the "revolvers" today. If you opt for the SECU Cash Back card, then you will receive according to SECU: "1.5% cash rewards on all qualifying purchases: up to 2.0% total cash rewards." Good deal for "revolvers"? Sure sounds like it!
😎 Here's the "what's really going on" question for you: If SECU is earning @2% in transaction fees and paying the "revolvers" @2% in "rewards" how is this program cost justified?
After all, there are numerous operational costs that have to be paid: application and card issuance costs, statements/postage, fraud losses, inquiries/charge-backs, collection and default losses. At least give it some thought, even if you are a "revolver"!
😎"New/new" economics or is something else up?
Well, of course, you make it up on volume stupid!
With the introduction of the rewards card, members now have choices at their Credit Union. They can go with the classic lower rate card, cash back, or points card.
ReplyDelete9 44 apparently choices are bad. The Rewards card is not a choice. It's a scheme cooked up by the SECU Board to defraud our members and make a bunch of net income that will somehow get into their personal wallets, even they have volunteer positions.
DeleteCan members find better rewards if they play the ever changing rewards game where this month, you can get 6% for gas, or groceries, or air fare, or bonus for a new card if you spend X in your first 90 days, yes.
ReplyDelete9:45am Thankful that you acknowledge 2 things:
Delete1) "Yes" ...its pretty easy to find a better "rewards" card than SECU's - definitely no argument there;
2) It is an ever-changing "game"... do members know they are signing up to "play" a "game"?, do they understand the rules? who are the members playing against?
11: 39 So let's say everyone got the A rate, and that rate was a competitive market rate. In order for it to be a competitive A rate, it has to be set based on the loss expectation for A borrowers. Our default rate is not zero, even for A tier. So, if we did this, we would undercharge all B-D members that ultimately default. Explain why that is safe and sound and good for the cooperative.
Delete12:32pm Sorry, can't help you; have no ability to explain bad logic.
DeleteYour logic is called a "syllogism". Which generally go something like this: 1) All cows eat grass, 2) Grass is green, therefore 3) All cows are green.
Unless of course you truly do believe that all cows are green...?
DeleteMembers get overcharged during flat rate lending, with the A tier bearing the brunt of the lower tiers poor decisions. Tier based lending rates each members risk against the same standard, credit scores.
You are dodging the question, which is simple. SECU, like any other lender, cannot determine at the point of origination, which of the loans are going to default. So you either 1) have one best rate for all, and not price for the losses you will ultimately get or 2) have TBP and charge higher rates for classes of higher risk borrowers, even though though most of them won't ultimately default.
Delete8:36 am As President Reagan said: "There you go again!"
DeleteYou make one absolutely true statement about risk-based lending (RBL):
1) "SECU, like any other lender, cannot determine at the point of origination, which of the loans are going to default."
Your solution to that true statement is to adopt RBL which as you say, quote: "..charge higher rates for classes of higher risk borrowers, even though though most of them won't ultimately default."
"...charge higher rates... even though most (over 90%+++!) won't ultimately default."
And despite the fact you know those overcharges fall hardest on members who are young, female, or of color.
Purposefully overcharging members who don't default? Have you no conscience? Shame on you!
Hurting real, vulnerable, people who trusted the CU.... just because you can... shame on you!
It's an imperfect system either way. Hear you say for years TBP is unfair, but not once have I heard how the negative consequences of one rate for all - which wasn't the best rate for all, are acceptable. Negative consequences of your one rate model.
Delete1) penalize members with good credit
2) provide above market rate for A tiers and lose those loans to other lenders.
3) Violate the trust of members who didn't bother to shop rates, but believe their coop offers a fair market deal on rates and ends up over-paying.
4) have higher incremental portfolio losses based on the lack of A-E balance
5) make A tier borrowers and depositors subsidize losses for C-E borrowers.
Explain why those 5 things are better than charging higher risk tiers a rate
9:56am Know some folks don't like the "weasel" word but calling RBL "an imperfect system" meets the test. Since you've admitted it overcharges 90++ % of non-A tier members who repay faithfully... isn't unjust, unfair, unconscionable more accurate?
DeleteHere are the answers to the 5 questions on one fair rate for all:
1) " penalize members with good credit". Absolutely not. Set the A-rate as low as possible so you are competitive with other lenders. That's LA's job, "Just Do It"! Be accountable. Ok? No problem with that, right? No penalty there.
2) "provide above market rate for A tiers" - No, see #1) above. You've set the lowest competitive rate possible for "A-type" members. If you know what you're doing you should have one of the best "A rates" around. No penalty, problem there, is there?
3) "Violation of trust" Sorry don't see it. "A-folks' ought to be happy if you have priced competitively. No member is overpaying, every member is receiving a highly favorable rate.
4) "Higher losses".Nah, not really. In fact, your losses and delinquency are soaring under the "new/new" RBL. No argument there.
One fair rate lending produced better results. (But you will have to stop making as many bad loans as you do now - one way or the other. (Not to mention those weak centralized collection practices!)
5) No "subsidy": "Every member gets the same best "A rate", Know that you agree that if you give the best A-rate to everyone then every member in "B,C,D,E,F,G,X,Y,Z"... will be greatly pleased, beat a path to your door, and tell their friends and families!!! Won't need any Super Bowl ads!
Everyone wins.!
If you're still hung up on loan losses, then again STOP making bad loans! Got it?
.
Do you acknowledge that under one rate for all, every single borrower will pay a rate that contains a cost for credit losses? That means 100% of borrowers will pay a default costs, and only 95% of them default. Will you acknowledge that?
Delete10:47am Yes every single borrower shares the cost of defaults under either system... and it is equally true to say all members share every cost at the credit union.
DeleteThink you have a typo on that 95% default ratio.
We chose not to play games with our members and offer a great and simple everyday value.
ReplyDeleteTransactors and revolvers are not pejorative terms. It's not profiling. It's a description of a consumer based on the behavior they already exhibit - not an assumption of behavior they will exhibit based on some characteristic, like how they look for example. And, in a rewards vs. non-rewards context, it's a very valuable term and distinction that gets right what is a good topic - who the winners and losers are in a rewards program. Do you have an issue with the terms depositor and borrower?
ReplyDelete10:21am Regret to disagree. Having grown up in the South, have much experience at hearing a "dog whistle" and a dog whistler.
DeleteAnd you self-admit your confirmed bias with your own words (ref. - "transactors/revolvers"): "...a very valuable term and distinction that gets right what is a good topic - who the winners and losers are in a rewards program."
"winners and losers" among the members in the SECU rewards program? Think we can all hear you whistling.
Should we discontinue auto loans because a member might be harmed by late fees if they fall behind in payments?
ReplyDelete11:30 am Definitely not. Has SECU started charging late fees in advance!!?? Making loans that you know will create late fee income for the credit union? Hope not!?
DeleteYou know that some of us still object to race-based lending (RBL) where members are overcharged (in advance) because you "think" they "might" default . Most don't but you don't "reward" them by refunding the overcharge.
Hey there's an idea for a real rewards program!
Who says SECU is only collecting a 2% transaction fee? My understanding of rewards cards is that merchants pay a higher transaction fee for rewards card users.
ReplyDelete9:13 am Interchange fees variy by type of transaction merchant, size, volume, etc but @2% is a generally accepted average estimate for Visa which is the card brand SECU issues. MC, Discover rates are similar. Amex is generally higher.
Delete9:13am Here's where you can find Visa interchange rates of all types https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf
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