Robert J. Bradbury wrote:
> Yes but its a pain-in-the-papoochka strategy. It ought to be easier
> for the cardholders to act collectively and send letters to the bank
> telling them if they raise the rates above X% they will lose their
> business. Logically, with reliable cardholders, the banks should
> be able to make money at something like 2-3% above mortgage rates
> (since these are "unsecured" loans). So that means a rate of 9-10%
> should be about right for both parties. The companies that offer you
> the 3-4% intro rates are probably losing money (or breaking even
> if you factor in the payback they get from the seller), but the
> probably expect to make it back in the long run if they can retain
> you as a customer.
> Maybe we need an ExtroBank that exists to serve the needs of the
> bank members or stockholders rather than the needs of the some
> bloated bureaucracy with "solid" buildings someplace. My
> impression was that credit unions were supposed to work
> along these lines. Does anyone know if credit unions have
> cards that have lower rates?
The explaination given to me by people in the credit industry is that the transactional cost of collecting all the small monthly payments is quite high, and that the default rate on credit card debt is quite high also.
However, good long term customers can individually get rates between 7.9% and 11.9% fixed. The lower rate usually comes with large credit lines which would fit with the transactional cost point made by my banker friend.
Another thing that plays a big part in credit interest rates is a persons net worth. If you have even a modest net worth,(most people have 0 or negative net worth) the interest rates fall because they know you are much less likely to default and file chapter 11 if you have something to loose.
When I was broke and in debt my credit card rate was 17.99% and my credit line of all cards combined was about 7000 dollars. Now that I'm no longer broke and don't use my credit for much I have 100's of thousands of dollars worth at 8 or 9 percent. I always thought it was a joke that once you didn't need credit that bank would give you all you wanted, but it seems to be true.
Another interesting thing I have found as my wealth has increased is that I no longer pay all the banking fees I used to have to. No loan app. fees, no checking fees, no fee for purchasing travelers checks, etc. It is strange that the people who can afford the fees don't have to pay them, and the person for who every dollar counts is expected to.
I think your idea for a bank is a good one, and much more possible than it would have been even a few short years ago. Regulations are tuff, but the rewards would be there for those involved.