A couple of weeks ago we had to spend an unexpectedly large amount on repairs to one of our vehicles. Not a problem, financially speaking: we had a reserve fund adequate to meet the need. However, I dislike carrying around large sums of cash, so when I went to collect the car, I paid by credit card. So far, so good: I've done that before any number of times. However, things have changed. When I pulled out the card, the nice lady at the counter informed me that there would be a 3% surcharge if I used a credit card. When I protested that there had never been such a charge before, she pointed me to a small, unobtrusive sign on the door stating that the dealership was using a new credit card processing firm, and that they, not the dealership, would charge the 3% fee. Since I had no alternative if I wanted to drive myself home, I paid, grumbling loudly.
Of course, it was the dealership that was the problem, because they had chosen to stop absorbing such charges (previously a normal cost of doing business) by switching to the new processing company. They didn't do so for any reason other than that credit card surcharges have become onerous, and they wanted to remove that burden from their bottom line. They simply chose to do so in such a way that they could blame someone else. I've protested to their general manager, pointing this out, and I'm waiting to see what happens - but I don't hold out much hope of getting a refund. I'll keep pushing, and we'll see what happens.
I've noticed more and more small businesses also trying to avoid credit card surcharges. I'm informed that the big processors have increased their charges recently, so much so that it's become a real burden. When the corner coffee shop offers free product if you pay cash for ten coffees over time (using a clip card to track your purchases), it's an interesting twist. They're not offering the free coffee for purchases, but for using cash instead of a credit card. That says a lot about what credit card fees must be costing them.
Why are the fees going up so much?
Macy’s sounds the alarm on credit card delinquencies
Macy’s is warning of a spike in customers who are failing to make credit card payments, adding to the evidence of mounting financial stress on consumers.
The iconic department store had anticipated delinquencies would climb following a post-Covid lull. But Macy’s management has been caught off guard by the magnitude of the uptick.
“The speed at which the increase occurred for us and the broader credit card industry…was faster than planned,” Adrian Mitchell, Macy’s chief operating officer and chief financial officer, told analysts during an earnings call on Tuesday, adding that this problem “accelerated” in June and July.
. . .
More concerningly, new credit card and auto loan delinquencies have now surpassed pre-Covid levels, according to Moody’s Investors Service.
This is especially a problem for smaller banks.
Why the "financial stress on consumers"?
Household debt is at an all-time high
In the second quarter of 2023, total credit card debt surpassed $1 trillion for the first time ever, which helped bring total household debt to $17.06 trillion, also a fresh record, according to the New York Federal Reserve.
. . .
The average credit card rate is now more than 20% on average, another all-time high.
At nearly 20%, if you made minimum payments toward this average credit card balance, it would take you more than 17 years to pay off the debt and cost you more than $8,366 in interest, Bankrate calculated.
“Consumers are not financing purchases at 20% interest because they’re flush,” McBride said. “The rising balances and increasing number of households carrying balances are signs of the financial strain millions of households are feeling.”
That's why credit card processing fees are increasing: because more and more consumers can't afford to pay the monthly minimum amount owed. They're effectively broke. A manager at a local bank told me that the old desperation measure of using one credit card to pay another card's bill each month is becoming more widespread again. Credit card issuers and processors are the ones most at risk from this, so they're trying to anticipate losses by increasing their fees to cover them.
And what effect is this having on the US economy as a whole? Here's one.
Home Purchase Applications Plummet To 28 Year Low As Nobody Can Afford To Buy A Home Anymore
"Applications for home purchase mortgages dropped to their lowest level since April 1995, as homebuyers withdrew from the market due to the elevated rate environment and the erosion of purchasing power," said Joel Kan, MBA's vice president and deputy chief economist. "Low housing supply is also keeping home prices high in many markets, adding to the affordability hurdles buyers are facing."
The MBA’s overall gauge of mortgage applications, which also includes refinancing, fell to 184.8, near the lowest level since 1996.
The reason for the collapse is simple: with housing affordability at or near the lowest on record, the average monthly mortgage payment - based on a median home price and average 30Y fixed-rate mortgage, assuming a 20% down payment - has exploded to a record $2,322m more than double from pre-covid levels.
. . .
And it's about to get even worse: according to Mortgage News Daily, borrowing costs have continued to rise so far this week and on Tuesday the 30-year fixed rate hit almost 7.5%.
Don't let anyone tell you the economy is in good shape. If you're the recipient of government largesse in stimulus money or any other program, you're probably doing fine. For the rest of us . . . not so much. This is a time to batten down the hatches, watch spending like a hawk, and figure out how best to survive economic stormy weather.
Peter
28 comments:
And to add to the financial stress, I've read that the head of the Fed thinks the economy is still "too hot" and is therefore planning on yet another rate increase. How close are we to the 'Death Spiral' of a collapsing economy, where interest rates are raised to get buyers for Gov't debt, and buyers won't buy because inflation is overtaking the rate of return on the debt or the buyers see a debt default. Of course when that happens, the domino effect across the financial institutions will take them out as well. And then we're in a depression to rival or exceed the Great Depression.
As Peter has been repeatedly saying, "You need to be prepared."
I ran into this over the weekend when I had to get a hotel after my flat tire. I was checking in, and when he asked how I was paying, he cautioned me that using my debit card would incur a 3% processing fee. I had the cash on me, so I paid that way instead.
We have a local plant nursery that no longer accepts cards at all. The owner and I chatted about it, and he didn't want to absorb the fees, or raise his pricing to do it that way. I understand why businesses are sick of eating the increasing fees.
I work part time at a big box store, people keep commenting on high prices (not food). Theft is a significant issue. People don't see theft as a big issue, but if your profit margin is 10% you have to sell $10 of stuff to break even on $1 stolen. Another source of strain. The whole system is under strain.
I live in an area where many vendors for years have given a discount for cash payments.
I have a relative who used to work for a credit card processing company, they were making crazy money with the executives raking in 7 figures minimum, the rank and file not so much. Credit cards are just another way for scammers to rake off some of your money. Rejoice when you have the option to cut them out of the transaction. Just another reason to prefer and use cash.
I'm sorry for the people who get caught up in the usurious system. But we hold the bank and all its depositors accountable when an individual can not live up to their obligations (foolish obligation they took on are usurious interest rates). This ultimately punishes the savers (I think 30% of population max) and brings the whole system down, or causes the government to do a bailout by printing more money driving inflation yet again making the poor need credit as their pay doesn't keep up with inflation. The whole system removes money from the savers while making it easy to blame those who default on credit card debt. No one is pointing out the shell game.
About a year ago I stopped by the grocery store on the way home to pickup a few items and handed the checkout clerk cash; she was absentlindedly staring at the computer screen, not looking at me, until I said "excuse me"to get her attention. She apologized and took the cash. I said "I guess not many people pay cash?" She said "you're the third or fourth today." She was waiting for the computer to tell her "card accepted" which is why she was transfixed on the screen because that's the default for transactions.
Places like Gunbroker and Ebay have many sellers who state in their listing "3% credit card fee" and while I dislike paying it, I do so because I consider it a "buyer's protection insurance fee;" if I do not receive the goods, or they are not as described, I have recourse through the credit card company by placing that charge in dispute; if I pay with cash, check, debit card or money order, I'm on my own to get the problem rectified or a refund.
I doubt places like grocery stores will ever go to adding a highly visible credit card fee because all they sell are commodity items with which they're all in tight competition with each other; their added credit card costs will be gently added to non-commodity items to hide it. When you see credit card fees being added at places like Home Depot, Lowe's or the "pay at pump" gas stations you'll know the bottom is ready to drop out, fall very, very far and hit very, very hard.
Bought a new bike recently. Asked if I could pay cash and the bike shop would only accept credit card or check, so I went with a certified check.
The economy IS great....for a small portion of society that is politically and financially connected and situated to make huge profits off the misery of everyone else. Currently one can bypass such surcharges by using cash or perhaps writing a check. But with the imminent imposition of CBDC and the end of cash such options will soon be gone. Then EVERYONE (who isn't important) will be forced to pay a transaction fee for every transaction. That is just ONE of the many goals behind the coming end of cash and the forced imposition of an all digital currency.
Norman:
I've seen lots of gas stations in multiple Western states, charge around $0.10 less per gallon when paying in cash. When gas was around $3/gal, that's about a 3% discount for cash.
Given the economic climate, many places are less willing to eat the 3% transaction cost (Nor should they be willing. That is more profit to their bottom line).
Big Box stores and major retailers will not, I suspect, directly bill the 3% charge in. They will just wrap it into the overall cost.
I beg to differ on a point. Businesses are not 'Shifting the charge from their bottom line'. What they are doing is making the charge transparent. Credit card processors have always charged large fees to do their tricks. When I ran a business we were quite happy when we got the fees *down* to 4%. Believe me when I say that customers certainly paid that fee on our behalf when their bills were reckoned.
Way back then, I would grant a customer a discount on a large bill if paid in cash, making no bones about passing on the savings. These days, customers decide for themselves if they want that discount.
“Gold is the money of kings, silver is the money of gentlemen, barter is the money of peasants – but debt is the money of slaves.”
― Norm Franz, Money & Wealth in the New Millennium: A Prophetic Guide to the New World Economic Order
Barter as I understand it in this context is use of fiat money your paid for your efforts to buy the efforts of others. Not always a calf for a season's farm help level barter.
At least a peasant is a freeman.
A lot here worth the read:
https://nationalinterest.org/blog/buzz/how-debt-becoming-new-form-modern-slavery-70186
Nothing new under the sun, debt is an often not so subtle enslavement:
Proverbs 22 7 The rich rule over the poor, and the borrower is slave to the lender.
James 2:6
But you have dishonored the poor. Is it not the rich who oppress you and drag you into court?
Proverbs 18:23
The poor man pleads for mercy, but the rich man answers harshly.
James 2:6
But you have dishonored the poor. Is it not the rich who oppress you and drag you into court?
Proverbs 18:23
The poor man pleads for mercy, but the rich man answers harshly.
It's interesting that some point out (cough Feds) that rising credit card use is GOOD as it shows the consumer "Confidence is high". While other more sober folks see debt required just to buy gasoline to GO TO WORK is Bad.
"Be not a borrower, nor a lender be, do not forget, stay out of debt".
And the big time businesses keep getting richer off the backs of the middle class. Why is that?
Yeah, yeah, I know but let me scree for a bit.
Businesses in America won't go out of business. They are going to raise their rates/prices and they are going to get their pound of flesh from the po' workin' class folks. Until the middle class wakes up and starts to realize that they are just hamsters on the wheel.
I just read an article about homeowners forgoing home insurance. Overpriced, burnt coffee from that fish symbol place, should be the first to feel the decline in participation. Not a safety thing like insurance.
Priorities. Folks have to relearn that lesson every generation.
I think if the repair shop characterized the transaction as a 3% discount for cash, you or I would have brought the cash from the safe, along with your 1911 for the ride.
Either way we pay for the convenience of the card.
Even back in the 80s there were businesses that charged the extra percentage for using a card. I did business with a music store that did so...
And remember too that widespread use of credit cards is a relatively new thing. I was reminiscing with a friend about the old days in the concert industry, and he pointed out that no one had credit cards, everyone paid cash. He would carry grocery bags full of bills to his car after the show, and take them to the bank later. Getting people to accept and use cards took time but was a masterstroke.
Not only does it encumber a person, and tie them more firmly to a place and a paycheck, it allows an unprecedented look at their life (which can then be monetized- initially by sending "offers" from "partners" to cardholders, but now by targeted marketing, and selling personal details to everyone.)
Card spending, direct deposit, and employee withholding have the further benefit of de-coupling the act of spending from the awareness of earning... For the same reasons casinos use tokens instead of cash, it makes it easier to spend if you don't count your pay packet into your wallet, then see the ever dwindling supply of cash as you spend before your next payday.
I have been advocating for years that anyone who thinks things are going to get bad economically needs to start moving in the cash economy. You need the practice. I went from carrying practically no cash, and putting everything on cards, to carrying and using cash wherever it makes sense.
Do your business in person, locally, and ask "discount for cash?" or do your buying where cash is king, like swapmeets, yard sales, local small stores, and other places.
Get the practice now, while it's still optional.
nick
FWIW, watching recent immigrants at the grocery, they are counting out exact change, from little change purses, and paying cash.
Haven't seen any businesses around here going that way, but I'm sure it's coming. I use my CC mostly because it's more convenient than getting $300 out the bank when it's time to fill my truck with gas and go to the grocery store, and because my CC gives me cash back on my purchases. Not a ton but enough. A little more than 1%. OTOH I also keep it mostly paid off other than for big purchases that don't fit within a single monthly budget. If I do start to see the signs, maybe I'll have to rethink and start taking cash on my errands, it just requires a bit more planning.
Just bought a new to me pick-em-up truck. I didn't want to deplete my cash too far so I borrowed $15K from the credit union- at 8%. Since march I’ve paid over $440 in interest.
I usually put a lot of things on my credit card and get 2-3% back. I pay the full amount owed every month. When there is a discount for cash or surcharge for credit I pay cash. The other day at the pawn shop I saw a nice used S&W 686+ that asked to come home with me, when I pulled out my credit card the owner told me she’d have to charge me 4% and said she’d hold the gun while I got some cash.
Kroger added a fee for cash back with a debit card several years ago and has stuck with it.
They claim their fees are lower than everybody else, but they ignore the banks that cover ATM fees and the stores that don't charge them.
Would you have been charged the 3% if you had used your bank's debit card. I don't carry credit cards any long and if I don't have cash on me I use one of theirs. I'm sure we are all aware of how the theft are causing our bottom line to rise as companies have to make it up somewhere.
I'm surprised that I've yet to hear someone talk about this aspect of a "cashless" society. There would effectively be a 3% (or so) tax on every transaction. Somebody's got to pay that and nobody wants to. Most of my clients will gladly pay with a check to save the 3% mark-up for a card.
The government, in their largesse, will, in all likelihood, save us from this onerous fee by taking over processing of all transactions. Then even the thin veil of confidentiality we now have will be gone.
You'll know the move is starting on the processing companies when you start hearing about the large sums of money they skim off each year. Of course, we're not far enough down the road yet for the "news" people to get those particular orders. No independent curiosity allowed.
I saved money at the veterinarian's office by not using a card.
Funny thing. After hubby passed I've been working on paying off debt. And credit card debt especially. Doing so has raised and lowered my credit score as some cards were "closed" when I cancelled my husband's cards and closed things like his eBay account.
And as my debt has become less, the credit bureaus now want me to get new cards (which I have no intention of doing) to increase the credit I have available to me.
They are not our friends.
I have one of those credit cards that has reward points. When the points get up there, I use them to buy a silver coin rather than most of the carp that the reward companies sell. I know it is grossly overpriced.
Credit card debt is paid off in full each month, so it never charges any interest.
Other than that, paying cash is the way to go for me. It is easier and does not take all that extra time to settle the transaction.
Just my two cents.
J
Dollar Tree has a $1 fee for cash back from a debit card also. Ironically in the face of rising fees, banks are restricting cash withdrawals, All of the places I bank, in the current climate it is stupid to have everything in one institution,have a cash withdrawal limit
On the other topic here, Peter, look up "credit card delinquencies" using FRED (at the St Louis Fed Reserve.)
Overall US CC delinquency rate is BELOW the US average over the last 10 years or so, by a couple of percentage points or so. That's actually a large delta.
It may get worse, quickly, over the next several months.
The repair place I go to had charged that 3% fee for using credit cards for years... unless you use their own store-branded credit card.
Presumably because they then get the fees and interest.
I usually pay with a check or cash, or sometimes both if the bill is large enough.
I take credit cards in my business. The people who use credit cards with me typically use reward cards. So my average cost to take a credit card is about 4.5%.
The nice thing about credit cards is that my foreign customers outside the USA can use a credit card and escape the capital controls that many countries have now. Plus, they do not have to go to their local bank and purchase US Dollars to transmit to me. The SWIFT system is very expensive and moribund. All of the credit card companies have worked ways to get around SWIFT.
BTW, if the business is only charging you a 3% processing fee for your credit card, they are probably eating 1 to 2% of their actual fee. All of the reward cards are 4% or more to the business.
Cards with "reward points" carry a higher interest rate than those without. Those "rewards" have to be paid for somehow. I switched from a rewards card to a non-rewards at my credit union, and got an interest rate 8 points lower.
Speaking of credit unions, I am a big believer in them. You will get better customer service and lower credit card and consumer loan rates from them.
Last year I had two credit cards that were eating me alive; one was from a big box home center, the other one was specifically for health care costs. Both had interest rates in the mid 20% range. I went to my other credit union and told them I wanted to consolidate those balances into a card from them.
My credit score was only in the fair range, but they told me it was easier to get approval if I was using it to replace other debt. They even cut the checks to pay off the other accounts. My interest rate went from mid 20s to 10%, freeing up $150 per month in interest charges.
My monthly payment on the new card is about the same as the combined payments on the 2 old cards, but with the lower interest, I have been able to retire over one third of the balance in just 1 year, and my credit score has increased almost a hundred points. Of course, I stopped using the old high interest cards, but I didn't close them, because, ironically, closing unused accounts negatively impacts your credit score.
this is what happens when the credit card debt for americans has gone over a trillion dollars for the first time ever...
"Cards with "reward points" carry a higher interest rate than those without."
I was not aware of this. Just looked at Navy Federal's website and sure enough.
I opened my CC with them in 1989 when I got commissioned. Had 7% interest for most of the last thirty four years when they must have noticed that it hadn't changed. Then it went up. Sitting at 12.9 right now. Wonder what interest they would give me on the other card. Might have to ask. Looks like I've paid about $300 in interest so far this year but I think I've gotten about $700 back in rewards, so maybe not worth switching.
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