It’s called “double cycle billing” and it’s scummy.
I suspect that Quebec prohibits this, but your current place of residence does not.
It’s one of the things that will be prevented when the new US law takes effect, though of course that doesn’t benefit you in Canada.
I’d argue this, though. A “deadbeat” customer may not be as profitable as one who carries a balance. HOWEVER - said deadbeat is also a low-risk customer. There is zero chance the bank will get stuck with a bad debt from that customer. They’re getting the same current profits (their cut of the purchase transaction fees) as with a revolver, but they’ve got the tradeoff of low risk / low return (deadbeats) vs. higher risk / higher return (revolvers).
I would argue that the ideal customer, and someone they want to keep, is someone who falls in the middle. Carries a balance but generally pays on time. A customer who’s been penalty-jacked to a 29% interest rate just might be very profitable… until they quit paying. Someone paying 5-15% is probably less likely to be overwhelmed by the interest, and more likely to keep up with it, but possibly less able to jump ship and move their money elsewhere… and is therefore the most desirable customer.
A true “deadbeat” is likely someone in a good enough position, credit-wise, to jump ship to another lender. Slapping a “you aren’t profitable enough” fee on them might seem to make sense up front, but will cause the card issuer to lose even that small, safe profit. I suspect this is why we’ve heard little solid evidence of the banks adding such a fee.
Just got a note from Citibank informing me that they were upping their rate to 29%. They graciously gave me leave to opt out by Nov 29th – in which case, nothing changes, but they’ll cancel my card at its expiration next year and never talk to me again.
I’m struggling to think what downside there is on this… Citibank is about my only card I don’t get points or money or something back on, it’s now the highest rate, and I’ve only kept it because it was my first card and it’s nice having a 27+ year card on my credit report.
Fortunately I get about a billion credit card offers a week. I’m sure I’ll find one that looks good.
I’m assuming this isn’t related to any delinquencies… in which case I have to think they’re really making bad decisions. Killing the goose that lays the golden egg, and all that.
If you don’t carry a balance, it affects you not at all except that you’ll think “huh, I won’t use THAT card”.
If you carry a moderate balance, it pushes you one step closer to not being able to keep up with things and simply refusing to pay. Which lets them jack up late fees etc… but costs them money in lost repayments, collections fees etc.
Another issue, nobody has griped about yet: raising the minimum payments due. I keep reading news stories about people who were managing their payments OK when the minimum was 2% (or whatever), the banks deciding to jack it up to 5%, and people not being able to manage that doubled amount. Yeah, it’s a bad idea to have that much debt. And yeah, the banks would really like to get some stuff repaid. And yeah, they probably took into account (or not, given bad decisions in the past few years) the fact that this would push some people into default and therefore lose money for the banks… but this sort of thing is why the law that says “can’t change the rules for existing balances!” got passed.
Unreasonably low minimum payments were just another way the companies kept people hooked with the maximum balance supposedly affordable. Raising them reduces the risk of default in the long run. I don’t know how they would do it gradually. If raising the minimum payment this much pushes someone in default, so would a big medical or car repair bill. I agree that they shouldn’t be allowed to change the rules for existing balances, but at least this change is in the direction of fiscal responsibility, and probably means less money to the banks in the long run.
Actually, I agree with you 100%. It’s the practice of doing so suddenly on existing balances that is the problem. Especially more than doubling (as in literally, from 2% to 5%). The news stories I read talked about people getting such notices, and the bank basically refusing to budge and suggesting to the cardholder that they just try to move to a different card or whatever. The people who were stuck by this practice and couldn’t dig up the extra 3% were exactly the ones who couldn’t easily find another way of paying it off.
Sure, they shouldn’t have gotten into that fix, but the banks let them - nay, encouraged them - and now the banks are trying to change the rules retroactively.
Oh, no. I pay off each month. So, I’m a “deadbeat” too.
… Actually, 29% interest really won’t affect me. It’s just a dick move on their part so, yeah, won’t be using THAT card.