Delinquent by Elena Botella

Author:Elena Botella
Language: eng
Format: epub
ISBN: 9780520380356
Publisher: University of California Press

THE DANGER OF GOOD THINGS

We’ve talked about hidden fees, and the techniques banks use to extract more of them. But it’s not only the fees and the interest that make credit cards dangerous.

Consider the case of Tide Pods, a form of detergent packaging that is uniquely lethal to children and some disabled adults. Tide Pods, however, don’t contain any uniquely toxic ingredients. Accidental detergent poisoning skyrocketed when Tide Pods hit the market, because Tide Pods are uniquely appealing: they are squishy, and colorful, a delight to hold.29 The lessons of Tide Pods are that consumers need to be wary of appealing features: clever packaging can induce accidental poisoning.

The proportion of all direct mail credit card offers that included rewards tripled between 2002 and 2015, from roughly one in four to three in four.30 About 60 percent of all interest-bearing balances are now carried on credit cards with rewards, and it is commonplace for even subprime cards and secured cards to offer cash back or miles.31 Capital One offers the Quicksilver One credit card, with a $39 fee, 1.5 percent cash back rewards, and a 25.99 percent APR. The Amazon Secured Card, issued by Synchrony Bank, was initially offered in 2019 with a 28.24 percent APR and 5 percent cash back on Amazon, although by 2021, this interest rate had been lowered to a more reasonable 10 percent.32 The Discover It Secured Card comes with 2 percent cashback at gas stations and restaurants, 1 percent everywhere else, and a 22.99 percent APR. The Credit One Platinum Rewards Visa has a 23.99 percent APR, and 2 percent cash back on gas and groceries. But rewards are only particularly valuable to consumers who pay their credit card bills in full every month—if a consumer isn’t paying off their balance monthly, it is hard for them to have enough available credit to make most of their daily purchases on the card, and few rewards will ever accrue while interest piles up.

But because the dollar cost of interest is so hard for consumers to estimate, when they don’t have a clear idea what their credit limit will be, or what they’ll spend each month, simple binary questions like “Does this credit card have an annual fee?” and “Does it have rewards?” become the dominant decision-making factors, even though credit card interest and late fees are the main money makers for banks.33

It should be noted that there are also a range of tactics that credit card issuers can use to prevent customers from using or redeeming their rewards. Consider what Jud Linville, the CEO of Citi Cards, told investors in 2014, “Historically, let me tell you, our rewards programs were based on breakage. We basically discouraged people from redeeming; capping the rewards you could earn in a given year and having points expire.” Linville went on to say that Citi had cleaned up their act.34 He neglected to mention that a change in accounting rules had forced the hands of Citi and every other credit card

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