The current credit-card business is another version of subprime lending

According to Lyle Beckwith, a senior vice president with the Alexandria, Virginia-based National Association of Convenience Stores, the credit-card business is run by the same banks which run mortgage in the exact same way. They’re not in the business of making loans based on the ability to repay, they’re sending out cards based on a business model of making money off the interchange fee.

Accordingly, the current credit-card business is another version of subprime lending. Usually a retailer’s bank pays the cardholder’s bank between 1 and 2 percent of the purchase price each time a customer swipes a credit card. The retailer’s bank then collects the fee from the merchant. Consumers don’t see the charge, which merchants say is built into their prices.

According to the Retailer’s spokesmen, Banks make so much money from the fees that they give credit cards to people who can’t pay their debts, just as they provided mortgages to homeowners who can’t afford them.

The Banking groups and the credit-card companies argue the interchange fees ensure that retailers get paid even if cardholders default. If the fees were onerous, merchants wouldn’t be so eager to take credit cards.

Mallory Duncan, chairman of the Merchants Payment Coalition representing trade groups for 2.7 million gas stations, drug stores, supermarkets and other retailers, Department and convenience stores and gas stations are asking to Congress for negotiating the interchange fees charge them in credit card processing.

Fitch Rating said in a Nov. 3 statement, U.S. credit-card lenders may report record high customer defaults in 2009. On November 5, Credit card bond sales at zero were due to lack of confidence of investors to hold credit card backed bonds.

ETFs/Stocks :

JPMorgan Chase (JPM)
Citigroup Inc. (C)
American Express (AXP)
Capital One (COF)
Discover (DFS)
HSBC Holdings Plc (HBC)
Providian (Wash. Mutual) (WAMUQ)
Wells Fargo (WFC)
U.S. Bancorp (USB)

Related Posts :

1. Now, there are no demands for credit card backed bonds
2. Rising credit card bill delinquencies vex card securities

Sources :

Bloomberg: Credit-Card Fees Targeted by Retailers Who Say Banks Overcharge, November 29, 2008 00:01 EST

Please Note!

This is generally never true. Before buying or selling any asset you should do your own research and reach your own conclusion. See my Disclaimer on the bottom for more information.

You are welcome to republish this article, or any portion thereof.
Please, cite the actual/original source. I would be grateful if you could link back.