Lets bend over a little bit farther
Well by now I guess we should expect it. So lets all grab our ankles and bend over really far and take it from the fucking companies who think they don’t get enough money.
In case your missing my non descript point, I’m referring to the Visa and Mastercard settlement. For quickies, Greedy Walmart and a few of their floundering friends got together and said “Hey, we’re getting screwed by these banks who are making a lot of money, lets sue em.” (Okay, a little bit of colloquiums added in, but all in all a pretty accurate rendering.)
For those who didn’t know how the credit and debit cards we are love are paid for, a lesson is in store. In the olden days long, long ago stores used to offer their own credit, so if you defaulted on a loan the store was out of the money, plus they had all the extra hassle of keeping track of the moines they were owed, and arranging to have the appropriate legs broken when the time came. At some point the banks and the merchants got together and came up with an agreement. The banks would shoulder the debt and take care of lots of the processing, in exchange the merchants would give the banks a discount on the merchandise sold to account for processing costs and bad debts.
Here is a disjunct in the bearing of risk that in my belief became a huge problem. Merchants have no restraints on what goods they push, if someone has a large credit line a merchant can push an expensive good without any thought if the ultimate credit extended is going to be repaid. The merchant gets paid irregardless if the bank gets paid. (Lets ignore charge-backs at the moment.) It’s in merchant’s interest to get you to buy something overly expensive, because they got paid. (This probably more than anything else is to account for lots of the spend happy (and economically good) times we’ve had; the US has a negative savings rate, that means as a whole we Americans borrow more money than we save.)
Okay, next thing is the banks came along with the goal of increasing charge card usage. (a term encompassing credit and debit cards) But, they realized to do this they needed to secure extra income to account for increased losses from the idiotic credit happy masses. So they came up with this wonderful debit card, which they bore much less of the risk. (Because it got deducted from actual currency, instead of being promised to be paid by the consumer in the future.) Since the banks had already gotten the merchants to sign onto the honor-all-cards policy, which requires that any Visa or Mastercard card be treated the same, they were a shoe in for the banks. (There even is a bank that built their business on the extra income from debit cards, and they’re not happy with the settlement.)
Of course the merchants caught wind of this and the large greedy ones (namely Walmart, which people need to stop shopping at, because its destroying America.) decided to sue on the matter, claiming they were paying money for the banks to assume risks, for Credit Cards, that the banks weren’t assuming, because the purchases were made with currency on debit cards. The small merchants also jumped on board, not realizing that they’ll need to rent more equipment to process the “cheaper” debit network transatctions.
So who’s to blame here? The banks are greedy, overall they want more money in interest from more credit cards. The merchants are greedy they want to make more money by breaking up the bank’s scheme that they benefited from in the form of higher consumer debt and higher spending.
So the conundrum comes down to this:
Here we’ve gotten back to the all important disjunct. Who assumes the risk? Everyone is supposed to pay a little bit of it, the merchants in the discount rate, the consumer in interest fees, the bank in lost profits. (okay, the last one is flimsy, but go with it.)
The merchants don’t have any incentive to make sure that the consumers they’re targeting can pay, the banks just have to take statistical guesses on things.
So now for a proposal:
The bank takes a straight processing fee of 20-40 cents for each transaction. If somewhere down the line the consumer defaulted on the loan, the bank would eat 25% of the default and then charge say 75% of that back to the merchant, as a penalty for selling to customers who in actuality couldn’t pay. The banks would shoulder part of the responsibility because they extended credit to someone who shouldn’t’ve had it.
This would likely do two things, rein in crazy merchants who push overly expensive shit on consumers who cannot afford it. It would also move the whole thing from spreading out risk for all the transactions out all over the place, and place them back in actual risk. Yeah, the logistics would be a little tricky, and would probably take a good five years to really get ironed out, but with computer technology today it could be done.
Hopefully, it would also get the banks out of offering way too much credit and causing people to get themselves into problems.
I know this is a pie in the sky dream, and I skipped over my chance to comment on this case. (I was contacted by Visa and Mastercard’s lawyers.) But I’m getting fucking sick of bending over and holding my ankles — and I’m a bottom…