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'It's crazy': Chase Bank forgiving all debt owed by its Canadian credit card customers
August 8, 2019
5:40 pm
GICinvestor
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'It's crazy': Chase Bank forgiving all debt owed by its Canadian credit card customers
American-owned Chase Bank has decided to forgive all outstanding debt owed by customers of its two Canadian credit cards that the bank retired last year. Affected customers can’t believe their luck.

Read in CBC News: https://apple.news/A9HmsQI3iRkWpXUk8a2otOA

Shared from Apple News

August 8, 2019
6:03 pm
Vatox
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Lol, I just read the news online and was going to post it. Then saw the thread was already here! Insane, where is my free $6k too.

August 8, 2019
6:24 pm
Doug
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What's comical about this is over at RedFlagDeals.com, users are more up in arms that they didn't get this "free money" except what they're forgetting is they always pay their credit cards on time, probably in full, so as to avoid interest charges. The Chase customers who had their debt forgiven had likely been carrying a balance of at least a few thousand for several months time. At the upper end of the typical 19.99-21.99% per annum range on $2,500, that works out to nearly $50 per month in interest charges. Thus, even though they've had their debt "forgiven," net-net the amount written off by Chase could be seen as having already at least partially been paid. Effectively, what they got was a reduced write off and an interest free loan on the interest they paid each month if one re-allocates that "interest" to principal. sf-cool

Given that Amazon.ca Rewards Visa was primarily a charge card, I suspect the vast majority of customers paid it off in full each month and the amount written off was likely in the $1-25, perhaps 50 at most, million dollar range. For a bank the size of JP Morgan Chase, that's barely a rounding error (if it's even that). They may or may not have tried to sell the portfolio, but likely, given the small size, would've only been able to find a buyer like a collection agency that would've serviced the debt owed, pocketed the interest, and reported the repayment terms appropriately on clients' credit reports. They would've paid pennies on the dollar, so JP Morgan Chase likely thought, "why give these profits to a firm? Let's write it off so we can accelerate the dissolution of our Canadian subsidiaries and make a clean exit except for our investment banking activities."

Good on them.

Cheers,
Doug

August 8, 2019
7:26 pm
AltaRed
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Of course the sad part in the CBC story was these folk were carrying balances, probably from binge shopping at Amazon. Just couldn't keep the card in their wallets. I'd be embarrassed to brag about that $6k write off.

August 8, 2019
8:50 pm
Vatox
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AltaRed said
Of course the sad part in the CBC story was these folk were carrying balances, probably from binge shopping at Amazon. Just couldn't keep the card in their wallets. I'd be embarrassed to brag about that $6k write off.  

Right you are! And since he got off the hook, he’s probably thinking of spending another 6k right now.

August 8, 2019
9:55 pm
Kidd
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It goes to show, how badly chase bank want OUT of canada.

August 9, 2019
7:17 am
Bill
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Reward "bad" (carrying high interest debt) behaviour, punish "good" (those who paid off their debts) behaviour. And re embarrassed, AltaRed, not much embarrassment these days. As a buddy of mine once said, people are now proud of what they used to be ashamed.

In any event, the merchants got paid so some other humans end up sharing the cost of these bills on the debtors' behalf, i.e. other Chase customers, shareholders, somebody else.

August 9, 2019
12:35 pm
Loonie
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It was a business decision. Cost of recovery all things included, was greater than the reward to Chase. Shareholders should be glad of that. Chase has made megabucks on these accounts already with their usurious interest rates. No real loss, just lost opportunity to take even more in interest. And they can write it off anyway.
The credit card business is about the interest, which is worth far more to them over time than the principal. The credit card industry thrives because of people who regularly carry a manageable balance. Their ideal customer is the one who is in debt. I doubt they've lost a penny when you add up these accounts and the interest already paid.
The principle is not so different from that of investors who, over time, have covered their investment long ago with dividends so that everything they get going forward is gravy and is not a risk to their initial investment. The difference is that investors only get 3-5% annually in reliable dividends, whereas the credit card companies get about 20-25%. A minority of accounts will never get paid, but, then, some high dividend producers will crash. Seems about the same to me.
I think it was a smart business decision.

The people whose debt has been forgiven are not, as a group, deadbeats. They are Chase customers who have a balance on their account. They did not ask to have their debt forgiven. The fellow who brought this to media attention was actually trying to make a payment.
I hope these customers can use this freebie as an opportunity to get a leg up and stay out of such high cost debt. Some will be able to do that.

August 10, 2019
5:56 am
Bill
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"Usurious interest rates". Credit cards involve adults of their own free will and choice entering into a contract with a seller of debt at an agreed upon rate (i.e. no-one's forced to acquire/use a credit card), thus by definition the rates cannot be usurious, exorbitant. The rate is agreeable to the voluntary acquirer of the card, is my view.

August 10, 2019
6:13 am
Loonie
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The fact that people may agree to them has nothing to do with whether they are usurious, exorbitant.

August 10, 2019
6:52 am
Doug
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I have to admit, I chuckled a bit, mostly in agreement, with Loonie's mostly apt description of credit card interest rates being usurious. The fact, as Bill points out, that the credit card customer enters into a legal contract with the credit card company is, I think, a red herring and immaterial. People enter contracts, written or unwritten (sometimes the latter of which is more enforceable, as will be seen), for loans, lines of credit, credit cards, mortgages, and other forms of debt with chartered banks, credit unions, consumer finance companies (which can charge anywhere between 19.99-45.9% per annum), and even loan sharks (legal and authorized or illegal and unauthorized). In the case of the latter, the "contract" may take the form of a handshake, a fist bump, or a pat on the back, but is very much enforceable with consequences of serious physical injury or worse. In all cases, where the spread earned by the lender is greater than 10% on the loan, I think usurious is a fair characterization. sf-cool

Cheers,
Doug

August 10, 2019
7:17 am
AltaRed
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Usurious perhaps, but still entered into under free will. The rates appear to be generally justified to cover loan loss provisions plus, of course, profit for their shareholders. Visa and MC stock has done very well (haven't followed Cap One specifically) but for the pure credit card issuers, profit margins don't seem to be more of a windfall than a lot of other blue chip stocks.

Card holders just need to become better cash flow managers and keep their wallets in their pockets.

August 10, 2019
1:21 pm
Bill
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Doug, entering into a legal contract is never immaterial, I'm surprised you would think that in the case of credit cards. Plus a contract re interest on a credit card is not entered into with a fist bump, etc, and you're not really running the risk of "severe physical injury", talking about red herrings.

Also, your opinion ("I think") is that a spread over 10% is usurious. Not very helpful or workable as all the other adults would have their own opinion as to the meaning of usurious so then what do we do with all those opinions? My point was that if you freely enter into a contract to pay interest obviously you don't find the interest usurious. An equally valid assumption is that people find the high interest rates of credit cards to be worth the convenience of that form of debt. I'm guessing that's the case as the card rates have always been high and obviously lots of folks choose to pay it. Never a sign VISA or MasterCard is going under.

August 10, 2019
4:40 pm
Loonie
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Bill doesn't get it.
I would wager that pretty well everyone on this forum has at least one credit card. However, it is a complete non sequitur to assert that this means they all find the interest rates reasonable! I have credit cards, and I think their rates are all usurious. We agree to them because we like the product, not because we anticipate actually paying the exorbitant rates.

Quite right though that the definition of usurious is a matter of opinion. There are no standard criteria for defining it, although there have sometimes been legal criteria. My opinion, and I am by no means alone, is that the rates are usurious.

AltaRed's assumption that the usurious rates are justified by losses is just that, an opinion, nothing more. The fact that credit cards with lower rates albeit still much higher than a bank loan, do exist, demonstrates this.

You both want to turn this into a rant against people who are overextended, but the definition of usurious rates is unrelated.
Even in the case of those who are indeed overextended, the credit card companies are very willing participants in this overextension - and charge others usurious rates to make up for corporate poor judgment.

Anyway, this issue is not worth pursuing further in my opinion.

EDIT:
I am informed that the Criminal Code of Canada sets the standard for usury at 60%. So, there is one opinion, not a universal definition. The provincial standard in Ontario is even higher. In California, the definition of usury is anything over 10%, but credit cards are exempt. And so on.

August 10, 2019
4:55 pm
AltaRed
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I agree credit cards with lower rates do exist but they may also be limited to those applicants with better credit ratings. Can't prove it offhand but I'd suggest it is related to risk management.

Folks carrying balances makes holding the stock of Visa and MC profitable.

August 10, 2019
5:16 pm
Norman1
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Mastercard Incorporated and Visa Inc. run the networks for processing the credit card transactions. They both make their money from transaction fees and don't share in the interchange or in any of the interest from the balances.

It is the card issuer that receives the interchange and any interest from the balances.

The reason card issuers are not experiencing windfalls from their credit cards is that only about 45% of the cardholders in Canada carry a balance and pay any interest. The rest pay 0%.

So, if 45% of the cardholders pay 19% per annum and remaining 55% pay 0%, then the actual interest received from the credit card account pool is closer to 8.6% per annum than 19%.

August 10, 2019
5:21 pm
Doug
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AltaRed said
I agree credit cards with lower rates do exist but they may also be limited to those applicants with better credit ratings. Can't prove it offhand but I'd suggest it is related to risk management.

That's certainly the case with unsecured and secured personal lines of credit and, generally speaking, is true of credit cards; however, lower rates can be had by those with average credit ratings with the payment of an annual fee.

Folks carrying balances makes holding the stock of Visa and MC profitable.  

Actually, Visa International and MasterCard International are agnostic as to whether customers carry balances. They are just payment networks and card processing systems. What they care about is purchase volume--that is to say, the dollar value charged to all Visa- or MasterCard-issued cards in a given quarter. They are virtually identical to PayPal, Inc., and Square, Inc., in nearly every respect.

American Express Corporation is a hybrid of Visa or MasterCard and of the credit card divisions of chartered banks, though they have far lower delinquency rates and lower rates of clients carrying balances. Thus, it's generally thought that they are slightly elevated risk to consumer debt exposure globally relative to Visa and MasterCard, but lower than the major chartered banks (i.e., RBC, TDCT, Scotia, etc.).

Cheers,
Doug

August 10, 2019
7:55 pm
AltaRed
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Yes, asleep-at-the-wheel on my part. It is the issuer, not Visa nor MC. I knew better too.....

August 10, 2019
11:11 pm
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AltaRed said
Yes, asleep-at-the-wheel on my part. It is the issuer, not Visa nor MC. I knew better too.....

The subtle distinction may be intentional.

Visa Inc. and Mastercard Incorporated take the flaming and the heat. Meanwhile, the issuers are the ones scooting with most of the loot, from the interchange and interest on balances!

August 11, 2019
4:39 am
Loonie
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AltaRed said
I agree credit cards with lower rates do exist but they may also be limited to those applicants with better credit ratings. Can't prove it offhand but I'd suggest it is related to risk management.

  

When I googled "low interest low fee credit card", the first one that popped up was an MBNA card at $39 annual fee and 8.99% interest rate on balance carried on purchases. They only ding people with 19.99% if they are overdue on minimum payment twice in a row.
As I said earlier, the business is debt. TD-MBNA is so keen on acquiring our debt that they will give six months of interest-free on balances transferred to new cardholders.
https://apply.mbna.ca/applicationform/generateApplicationForm.htm?src=DABP63&locale=en_CA&cm_sp=:GOOGLE:ROC+-+Generic+-++EN+(19_S_CC_CTM_AO_ACQ_EN_GEN)-+RLSA:DIF:Generic+-+Low+Interest+-+EN+-+All-+True+Line&gclid=EAIaIQobChMIuqLO9tb64wIVi4rICh3y_Q-hEAAYASAAEgI33vD_BwE&gclsrc=aw.ds

I recall seeing TV programmes where Gail Van Oxlade helped show Canadian families how to get out of debt and manage their money better. One of her standard suggestions was to get them to transfer their CC debt to a lower-interest card, which did not seem to be a problem or require a higher credit rating than the card on which they were paying an exorbitant rate. The only difference I detected was fewer perqs with the lower-rate card.
Of course, the people selected to appear on this show were those who had the capacity to re-jig their finances and work longer and harder so that it was conceivable they could get out of debt and had often spent foolishly, giving extra fuel to the notion that most people who have such debt were foolish spenders.

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