Free money. No strings attached.

October 28, 2011 10 Comments

These scammers operate in 190 countries.

There’s this amazing scam going on in our society, perpetrated by private industry, no less. And get this – it’s backfiring. The people behind the scam are the ones getting taken advantage of.  If you’ve ever cheered for an underdog against a Goliath, this is the ultimate comeuppance story. You’re not going to believe how this works:

The scammers act as an intermediary between you as a consumer, and whichever merchant you’re buying from. They take your money – well, even that’s not accurate. It’s not like they put it in an escrow account or anything. They actually front you the money to buy whatever it is you want, and then you pay them anytime you want in the next month. Given the time value of money, that means the scammers are losing on the deal. As for the merchants, they love this arrangement because as part of the front, the scammers pay out of their own pockets immediately. You could skip the country, die, or ring up debts all around town and the merchants wouldn’t care. They still get paid. And you can do this over and over again. As fast as you can shop, the scammers will be there, ready to front you whatever you want. Some of them will front you $6,000 out of the gate, others $15,000 or so, and still others don’t even set a maximum.

Okay, that technically isn’t a scam yet, just an indirect way of conducting business involving a willing and masochistic patsy. At this point, the scammers are merely Good Samaritans. You’d figure they’d have to have some sort of hidden agenda, but they don’t have any that we could find.

Here’s where it gets weird: not content with facilitating your transactions for no charge, the scammers will give you stuff, over and above fronting you the money. Stuff including, but not limited to:

-flights, including first-class
-priority seating for concerts and other events
-roadside assistance, assuming you don’t have AAA and never learned how to change a tire
-discounts.

When all that fails, they’ll tempt you with straight-up cash instead. Literal money for nothing. They’re like a neighborhood child molester who couldn’t decide between Skittles and Twix bars for bait and decided to just give away dollar bills instead. Except there’s no pederasty involved. They don’t lure you anywhere. Pay them the money they front you, and then next month they’ll let you do it again.

They don’t typically give away the flights and priority tickets all at once. The scammers aren’t that generous. An airline seat still costs a few hundred bucks, so the scammers are going to make you wait maybe 3 months, maybe longer, before giving it to you. It depends on how much they front you. But give it to you they will. By the way, you decide how much they front you. It’s not as if they give you a suitcase full of unmarked bills and order you not to lose it under punishment of death or dismemberment.

The cash, on the other hand, they’ll give to you almost immediately. Again, you don’t have to do anything to earn this cash. They just give it to you. The amount they give you is a fraction of how much they front you, but once more, you’re the one who decides how much they front you. To the penny. You don’t even have to keep records of how much they owe you. The scammers do the bookkeeping, too.

It doesn’t even seem fair to call them scammers. “Facilitators” is more accurate and less insulting. They don’t insist on anything in return for this extreme generosity. You can keep on taking advantage of them for your entire life, exploiting their naïvete until you get bored. But unlike a puppy who falls victim to the hidden-ball trick over and over again, the facilitators of this odd enterprise love to give away money and prizes. If you do decide to work towards earning one of their big-ticket rewards, like a cruise, there’s usually no set period in which you have to act. You can take years to earn whatever reward they’re offering: it’s not like you start again at zero if you don’t earn it quickly enough.

It gets better. (Better for you, worse for them.) Because there’s a competitive market for these scammers, the major ones and even the minor ones have to undercut each other to get your attention. If you buy a defective product, or need a big refund on something a crooked merchant sold to you (it happens), the scammers will take the hit. We’re not kidding. They will give you your money back and chase down the dishonest merchants themselves. And if some criminal gets between you and the scammers, buying stuff in your name, the scammers will take the hit for that, too. You don’t even have to call the police and get them involved. There’s no downside for you whatsoever. Free money, free stuff, and protection. It’s the most amazing deal of all time, and it’s available to just about anyone with an address and a full-time job.

The big players in this bizarre industry are hiding in plain sight. You won’t find them in obscured storefront windows in bad parts of town. They operate out of gigantic shiny office buildings in New York City, San Francisco, suburban New York and suburban Chicago. They’ve even incorporated, and all trade on the New York Stock Exchange. What’s really strange is that they have a purported combined market value of $176 billion. Which must be a mistake, because we’ve been taking advantage of these companies for years and can’t imagine why anyone would ever give them a nickel.

 **This article is featured in the Baby Boomers Blog Carnival One Hundred-sixteenth Edition**

**This article is featured in the Carnival of Financial Camaraderie #6**

**This article is featured as one of the Top Personal Finance Posts for the Week of November 11, 2011**

Filed Under: Credit Cards Tagged With:

A Big Hand For The Idiots

October 19, 2011 3 Comments

Instead of 22.9%, he's now paying 19.9%. Who's winning? <This guy>

In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act, the latest in a series of clever acronyms to become law. (Which, at 4 letters, is brief as these acronyms go. It’s all but inconceivable that anything will ever beat the 10-letter Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.)

Congress passed the Credit CARD Act because, in short, consumers who vote (or more to the point, voters who consume) are moronic and would rather complain than rein in their spending. The Credit CARD Act required issuers to:

-mail statements out 3 weeks in advance instead of 2, because with so many good things on TV that it’s impossible to devote one day out of a mere 14 to scratching a check that you know you’re going to have to scratch anyway (“Mail”, if you’re wondering, is this laughably archaic method by which people used to send documents);

-reduce rates for anyone whose rates they’d raised and who’d then paid on time for 6 consecutive months. Yes, a government-sanctioned rewards program;
-offer cardholders fixed limits;
-cap the fees they charge to cardholders who exceed their credit limits, i.e. cardholders who couldn’t be bothered to remember their credit limits in the first place;
-provide a toll-free number on their statements that people who shouldn’t hold cards in the first place can call to get free credit counseling;
-perform several other requirements, which we won’t get into because we try to keep these posts around 1000 words.

The bill also ordered the Federal Trade Commission to spend your money determining whether it’d be feasible to create a technology that lets an ATM user who’s “under duress” enter a PIN that would call the cops. Seriously. Section 508(a).

No one disputes that as a result of these requirements, banks’ credit card revenues would fall. Banks, like every other business in the history of the universe, seek to maximize profits. When our elected representatives reduced the banks’ ability to profit off their core customers, those same representatives forced the banks to find other customers to gouge. Which they did. You and me, the responsible ones.

Bank of America recently announced that it’s going to start charging its debit card holders $5 a month. You may remember that 2 short years ago, consecutive Secretaries of the Treasury took $135 from each of us (or if you prefer, 27 months’ worth of future debit card fees) and awarded it to Bank of America for its inability to assess risk before lending money.

Bank of America might be effectually a Soviet state-controlled enterprise whose losses the citizens cover – a modern-day GUM department store or Aeroflot – but it’s still going to seek revenue within whatever legal bounds it’s been afforded. Among all the Credit CARD Act’s byzantine stipulations, there isn’t a word in there about how much banks can charge customers for using debit cards. Therefore, banks chose to, because they can.

The good news is that you won’t pay the $5 fee if you manage to go the entire month without using your debit card. Instead, you can either go Montana Freeman and print your own money, or you can make as many (free) ATM visits as you want and pay cash; the same outdated activity that debit cards were supposed to make obsolete.

There’s a secondary reason for banks charging debit card fees. People respond to incentives. A debit card fee gives a consumer a compelling reason to use a different method of payment. You know, like a credit card. If banks can’t profit by charging high-revenue customers as much as possible, they’ll make do (and abide by a federal mandate) by charging less, but to more customers. At least a few of the people who wouldn’t otherwise have used credit cards will start incurring balances. As for those of us who’d never consider carrying credit card balances, well, we’re welcome to pay that $5 fee.

To recap: the government gives banks incentive not to mine their profligate customers for profit, so those banks are forced to hit up the responsible customers. Which gives those same responsible customers incentive not to spend. Because economic activity is the last thing you want to encourage during a recession.

What recourse do we have as responsible consumers? Well, there remain other banks to do business with. Petitioning Congress to rescind the law would be a colossal waste of time and effort. Resorting to the ridiculous practice of writing checks is a possibility, too. As is carrying big fat wads of cash. In the meantime, find yourself a debt-laden consumer who thought the Credit CARD Act was a necessary protection against a banking industry run amok, and kick that person in the shins. The cosmos will thus regain balance.

Filed Under: Bad Examples, Consumer Debt, Credit Cards, Making Smart Choices Tagged With: , , , ,

The Only Credit Card(s) You’ll Ever Need

October 7, 2011 3 Comments

The worst credit card ever. Why? $7500 fee.

If you missed Wednesday’s post, today’s is Part II of the final (for now), definitive discussion on which credit card you should get. You need one that’ll protect you fully against fraud (discussed Wednesday), and one that gives you the best smorgasbord of rewards.

The problem with the latter criterion is that most rewards are retarded. Examples:

-Jahvid Best’s chicken scratch on a practice jersey
-white sidewalls
-yoga pants

You don’t need any of these things. Well, you need tires, and maybe yoga pants. Maybe even NFL memorabilia, if you’re 12 years old, but that means you’re too young to have a credit card anyway.

The problem is that having these particular pieces of cheese at the end of the maze gives you incentive to change your buying behavior. Should you spend your last $50 on that tchotchke? Well, if it gets you that much closer to a “free” bouquet from ProFlowers, why not? Besides, this Friday is payday.

Most any credit card reward in the form of a discrete item is going to be something you build toward, rather than something you earn instantly. If a furniture store-branded card gives you 5% of your bill back in the form of armoire credits, you’re going to have to spend a few thousand dollars before you can redeem anything.

You want CASH. A flat percentage returned to you for every purchase you make. Discover was the first to do this, and it worked beautifully. Get 1% back, in $20 increments, and you don’t have to change your behavior.

Think about how much it costs the branded cards to provide you with their rewards. Macy’s sells its clothing for a 100% markup or thereabouts. That generous 3% reward rate they’re offering you dwindles to 1½% when you look at it from their perspective. Also, you can only wear so many clothes. And let’s not even get into gimmicks like the “monthly cardholder savings event”, in which the store keeps the lights on an hour longer for the idiots it wooed with such “generosity”, does so to make the gullible feel privileged, then gets all its money back and then some.

This bears repeating: get the card with the highest cash rewards. There’s more to it than simply looking at percentages. A card that offers 1½% should be better than one that offers 1¼%, but if the former pays you only in $150 increments (i.e., you have to buy $10,000 worth of stuff) while the latter pays in $20 increments, then you might want the latter unless you spend an awful lot.

So what card to get? It’s easy. First, only look at cards that don’t charge a fee. If this isn’t obvious, God help you. And that means cards that never charge a fee: not “no fee for the first 2 years, then $95.”  It’s a competitive market. Free cards are there for the asking.

Read the agreement.
Then read it again. 84% of the problems in the world could be solved if everyone did that.

Then figure out what cash rewards card fits you best. Looking at the above example, we’ve got:

Card A, which gives you a $150 credit every time you buy $10,000 worth of stuff. If you buy $9999 worth of stuff, you don’t see a dime until you spend another dollar.
Card B, which gives you a $20 credit every time you buy $1600 worth of stuff.

If you ring up $10,000 in purchases every month (some people do), get Card A. In a typical month, you’ll be $30 ahead of where you’d be if you got Card B.

If you’re not quite at the level of the big spender in the first example, and charge, say, $800 a month, you might want to (but don’t necessarily want to) get Card B. You’ll receive a $20 credit every couple of months, as opposed to waiting well over a year to receive $150 with Card A.

“Points” are for idiots. With every purchase, you want pennies, not points. Well, there’s one exception. Slight hypocrisy alert:

If you know you’re going to patronize a certain business anyway, then it might make sense to go with the rewards. Hear us out. We probably mentioned it someplace on the blog (can’t be bothered to look), definitely in the book, but we use a particular hotelier’s American Express rewards card. Only because we know we’re going to stay in this chain’s hotels a few times a month anyway.

Does that tie us to this chain? Maybe a little, but if we can redeem a free night while their closest competitor is holding a fire sale, we’ll stay with the competitor and save the free night for a later date. Plus, it’s American Express (see universality, above.) If we never left the United States we’d probably go with a Discover straight 1% cash back card.

Assuming there’s no particular retailer you’re already spending significant money with, i.e. you wouldn’t be changing your behavior to patronize that retailer, get a Discover card. Or if you travel out of the country, an American Express Blue Cash Everyday card (not the Blue Cash Preferred, which costs $75 a year. Which we trust you’d notice when you read the agreement, instead of taking our word for it.)

Glad we could help. Tell us where we’re wrong:

**This article is featured in the Yakezie Carnival October 24, 2011: Just do it Edition**

Filed Under: Consumer Debt, Credit Cards, Making Smart Choices, Travel
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