Comment by bilbo0s | Hacker News Reader

Comment by bilbo0s | Hacker News Reader

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There is actually something more fundamentally troubling about this new fee ...

it drives Americans to use more credit.

It was pointed out to me recently that this tendency towards credit that is really 'built-in' to the rules in our society, would probably end up doing us in one day. Sometimes you don't even think about it. I recall once, shortly after the onset of the financial unpleasantness that began in 2008, I was at an airport trying to rent a car. I thought, "Hey...I'd better start practicing what I preach!" So I whipped out a simple debit card, with more money behind it than the value of the car I was renting. "Nope...we don't accept debit...only credit". I thought, "That's a little strange...no wonder the financial system is taking a crap." I didn't have a lot of time, so I just did the credit card thing.

Point is, there are a large number of places out there that will not allow you to do business with them unless you are willing to go into debt, for however brief a period of time. When you consider the size of the US and the number of transactions being made every day...that's a little concerning.

>it drives Americans to use more credit.

Oh it does not. $5/mo is just a way for BoA to disincentive people from using their debit card.

It means more transactions get pushed through VISA network, more fees for visa, and probably a kickback for BoA.

My check card can also be processed as credit, and it usually is. This isn't because I'm buying things on credit, it's just that that's how it is being processed. The money still comes directly out of my checking account.

The bank likely won't care if you use your card with a PIN ("PIN debit") or with a signature ("Signature debit"), which you refer to as "processed as credit". Either way, they still know it's your debit card that was used even though PIN and Signature debit transactions arrive at the bank through separate networks, so you'll probably get hosed with the fee unless you're in one of their "premium" accounts.

Community banks and credit unions everywhere are licking their chops at the opportunity to siphon off disgruntled customers.

I disagree.

The fee structure for "credit" purchases is different than that for "debit" purchases. It's in the interest of VISA to have me run the transaction as "credit". Would it surprise you if there was cooperation between BoA and VISA (or any other CC provider) to encourage the use of this? The $5/mo charge just encourages it even further.

You're absolutely right, the structure is different for Signature and PIN debit. Pre-Durbin there was a large gap between Signature and PIN debit interchange income and banks wanted you to use Signature debit for that reason.

With Durbin rules implemented that gap has narrowed and now the bank wants you to use an actual Credit Card vs. a Signature Debit transaction because they will make more interchange income off of it.

>The bank likely won't care if you use your card with a PIN ("PIN debit") or with a signature ("Signature debit"), which you refer to as "processed as credit".

Mine does. They have a $1.50 charge whenever I use my PIN for non-ATM transactions. If I sign, there is no fee. It's been this way for the last 10 years I've had a debit/checking line with them.

I was speaking in terms of charging the $5/month fee. Pre-Durbin amendment there was a much wider gap between PIN and Signature debit revenue which is why the bank encouraged you to use Signature debit by surcharging you for using PIN debit.

One difference between debit and credit is when they do things like authorize payments, but then never actually capture them. When it comes to debit cards, some banks will pull that money out of your account, and not release it until may be 10 days after the authorize expires. On the other hand, these things can happen instantly (or within a day) on a credit card. Some people are rather annoyed when they do something like book a hotel room on a debit card, but then pay on their credit card when they checkout. The authorized amount disappears from their account for ~14 days and they think that they were charged twice (because their bank isn't necessarily transparent about this).

I know the standard when I've stayed at hotels that do accept cash (AKA Debit) they wan't $100 or more as collateral, I assume to avoid the whole problem you just described.

However, what I didn't know, which I soon realised was that the hotels pre-authorization hits like $500 on a room I pay $50 for a night. I found this out when I'd just moved country, had zero-credit, had a single $1000 visa card and was planning on putting a weekend away with my wife on credit so I'd have two pay checks in before I had to fork out the cash.

The worst was when we booked a campsite out of season. It cost us $14 a night and they required booking by credit card. They had $500 pre-authorized for over two weeks until we'd stayed, and I paid them cash. It's absolutely absurd.

Thankfully since the hotel incident we've always kept a burner credit card for things like this. I don't get the logic behind extending someone credit and then allowing it to be held-up in pre-authorization that will never get processed for the full amount when the credit could be spent at a restaurant or something.

Authorizing an amount, but never capturing it ('capture' is the industry term IIRC) is a hack on the system so far as I'm concerned.

1) I've gotten security calls from banks before just because some gas stations were authorizing the card for $100 prior to capturing for the actual amount of the gas. It even took the person on the phone a while to tease out that it was a $100 auth and not a $100 purchase.

2) The hotels a authorizing for a large amount because they want to make sure that you can pay for damage. They don't care if it goes on your credit. They get their money, then payment just becomes a matter between you and your credit card company. Note that not all hotels will authorize for $500.

  > I don't get the logic behind extending someone credit and
  > then allowing it to be held-up in pre-authorization that
  > will never get processed for the full amount

Technically, the full amount can be captured until the authorization expires or they capture for a smaller amount. That is why. They don't want you to max out the card, and then have a $500 capture that they weren't expecting. Oops! You're $1500 in debt now on a credit card with a limit of $1000!

Reminds me of something I tweeted a while ago:

"Something's wrong when its easier to earn credit card cash back than interest on savings..."

http://twitter.com/#!/suanyeo/status/106413797811568640

Maybe from the mile-high view, but the reason cash rewards work is because the credit card company is essentially sharing part of the fee they extracted from the vendor with the customer. Fundamentally different than interest on savings.

It is just interesting seeing it at work. I get 1% cash-back on all purchases, and 2% on some others. I've already save up quite a bit on my cash-back, more-so than I have earned in interest on my savings account with 10k+ in it.

I am not even spending an absurd amount, just what I need to survive, and bills.

I wish to god I had the link handy, but I saw the "Rewards" programs explained in painful detail before and actually shows that the card companies do no sharing of the profit margin, the 1% or 2% comes out of the retailers pocket on the backend when the transaction is processed.

In this particular article it talked about that being the reason why some retailers discouraged processing charges with certain cards that have typically higher rewards.

Sorry for the hand-waving, I know that is the worst way to make a point... "This guy I know told me that his friend said..." :(

Travel is very prone to this. Car rental, hotels, airfare tickets (sometimes). You also get car rental collision insurance with most credit cards too. Most car rental agencies will also allow you to put a deposit of several hundred dollars instead of a credit card.

It's any industry that is prone to customers doing massive damage easily, like crashing cars, trashing hotel rooms, etc.

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