Rant about AF

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Whatamuji
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Re: Rant about AF

Postby Whatamuji » Sun Aug 30, 2015 7:36 pm

I think he's referring to the people get a card or cards with an AF and then don't have the money to pay the AF when it comes around due to poor money managing skills. Thus they close the account rather than pay the AF.
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whit
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Re: Rant about AF

Postby whit » Sun Aug 30, 2015 11:11 pm

the really smart folks are the ones who open checking accounts and than close it once they get the bonus and past the phase of clawback.

i have an analyst friend who will go to the chase down the street 2x a year..once for the checking and savings, and another for savings since they allowed it 2x a year but now its scaled back to 1 a year.

companies know, and anticipate those cheapskates. its nothing new or surprising..much like how retailers fit into their bottom line the % of loss anticipated from five finger butterfingers.

i don't think the abuse of bonuses really ruin it for anyone else anymore than those who burn creditors by running shiet up and than leaving them high and dry, ok with waiting a couple of years for it to drop off..

yfan
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Re: Rant about AF

Postby yfan » Mon Aug 31, 2015 10:13 am

Your frustration is completely warranted, OP. Bonus chasing and churning are ultimately detrimental to the rewards cards products, forcing lenders to cut down on benefits to make up for lost revenue.

But the thing is, as long as it's relatively easy, consideration for fellow card users alone is unlikely to stop people who do this. Thankfully though, banks are wising up on this. They are implementing stricter policies on bonuses and smarter algorithms to detect the likely bonus chasers and churners before they have a chance to get the next product. Even non-bank providers of rewards (like hotels and airlines) are starting to crack down by altering their rewards programs. Discover has presented an attractive alternative to lump sum bonuses by doubling rewards for a year instead.

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Re: Rant about AF

Postby JonE » Mon Aug 31, 2015 1:24 pm

This is why I'm okay with Chase cracking down with their 5 cards over two years rule. I use my cards regularly, not just for bonus purposes. Even after my other cards get acquired, and I achieve bonus spending, I still get those cards for specific purposes. An AF or already-used bonus isn't going to stop me from using it. If I don't use it, I don't keep it.
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Kevin86475391
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Re: Rant about AF

Postby Kevin86475391 » Mon Aug 31, 2015 1:43 pm

Fascinating topic!

The heart and soul of most economic and especially capitalist theories is the so called "Rational choice theory" that assumes that consumers and on a larger scale companies behave in a rational way that is best for them. Now personally, I think it's pretty clear that they DON'T. People behave irrationally all the time and in turn also lead the corporations they're running to behave irrationally. However, I think it's still a completely valid starting point and a sort of ideal to be sought. I also happen to personally think it's GENERALLY completely ethical for people and corporations to behave rationally and maximize benefit/profit. Of course it must be tempered against wild abuses of exploitation, but generally I would never fault an individual or a company for behaving in a way that most benefits them.

So that said, I have zero problem with people 'chasing' benefits and bonuses, signing up, getting them, and then hitting the road before the annual fee comes due. Likewise, I don't have a problem with credit card companies legally looking for opportunities to raise rates and charge people "hidden" or unexpected fees (as long as they really were disclosed in the agreement and the consumer could have found out had they done due diligence). Credit card companies want to make money; consumers want to save (or even make) money. Both those things are fine IMO and obviously the reality is that credit card companies make money on some people and lose money on others. By and large they CLEARLY make a lot more than they lose.

Personally I don't pay any interest or fees on my credit cards and apart from a couple of unexpected foreign transaction fees about 3 years ago (two $1.50 charges) for a company I didn't realize was based overseas (my fault), I haven't paid any fees or interest to any credit card company in years, including annual fees. I DON'T play the bonus chasing game and signup and drop credit cards before the AF hits, but it's not because I would personally find that unethical, it's because of a combination of other factors including:
-I don't want the extra inquiries and account age hits to my credit score.
-I could easily imagine losing track of time and being 'burned' and wouldn't want to take the extra effort to be sure that didn't happen.
-I'm not interested in miles/hotels or other such rewards anyway, only cashback, which would significantly lower the pool of options.
-I don't want my profile to look bad upon manual review or risk alienating the creditors I do business with.

If I did need to pay an annual fee I certainly could without any financial hardship, and I would consider it extremely reckless and imprudent for someone who couldn't comfortably pay the fee to signup for the card with the expectation of cancelling. I would strongly discourage someone from doing that because they would be exposing themself to too much risk. On the other hand if they have money to easily pay the fee if something goes wrong and they're aware of and okay with the effects their choice might have on their credit score/history, then I say, "Great, go for it! Good luck."

If everyone successfully did that then of course it would make rewards cards unsustainable. But the same would be true if everyone paid in full each month, signed up for no AF cards, and otherwise avoided paying interest and fees like so many of us do. The reality is there are always going to be lots of people the card companies can make money off of and combined with merchant fees that's basically subsidizing everyone who plays the credit card game well and sees more rewards and benefits than cost - including people who have AF cards they happily keep and pay.

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Re: Rant about AF

Postby CarefulBuilder14 » Mon Aug 31, 2015 2:37 pm

I suppose I'm okay with Chase's 5-in-2 rule, but probably because it hasn't affected me. :ppp If that rule had been in place in early 2015, I'd have been declined for CSP. I am surprised that Chase hasn't extended it (or a less severe version) to their cobranded cards, though. I got instant approval on IHG with 9 new accounts in the last 2 years - and most of them within the last year.

The case against Chase's policy is that it punishes people who are getting a lot of cards, but do plan to use and keep them all. The policy is probably more fair than looking at how many cards a person has closed recently, since people close accounts for any number of reasons - not just to dodge AFs.

Also, some AF travel cards have no intro 0% APR. Someone who can't manage money well may carry a balance and pay a lot in interest.
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yfan
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Re: Rant about AF

Postby yfan » Mon Aug 31, 2015 5:10 pm

Kevin86475391 wrote:The heart and soul of most economic and especially capitalist theories is the so called "Rational choice theory" that assumes that consumers and on a larger scale companies behave in a rational way that is best for them. Now personally, I think it's pretty clear that they DON'T. People behave irrationally all the time and in turn also lead the corporations they're running to behave irrationally. However, I think it's still a completely valid starting point and a sort of ideal to be sought. I also happen to personally think it's GENERALLY completely ethical for people and corporations to behave rationally and maximize benefit/profit. Of course it must be tempered against wild abuses of exploitation, but generally I would never fault an individual or a company for behaving in a way that most benefits them.

So that said, I have zero problem with people 'chasing' benefits and bonuses, signing up, getting them, and then hitting the road before the annual fee comes due. Likewise, I don't have a problem with credit card companies legally looking for opportunities to raise rates and charge people "hidden" or unexpected fees (as long as they really were disclosed in the agreement and the consumer could have found out had they done due diligence). Credit card companies want to make money; consumers want to save (or even make) money. Both those things are fine IMO and obviously the reality is that credit card companies make money on some people and lose money on others. By and large they CLEARLY make a lot more than they lose.

Let's extend the rational choice theory for a second. Certainly, a consumer has rational interest in the benefits and rewards structure of a card being maintained long term and not being chipped away or even crippled from churning and bonus chasing. At the minimum, those who are doing this are undermining their own long term rational interests by going after short term gains. Not that much different from euphoria in the market around quarterly earnings reports that often miss long term financial health of companies.

It is also in a non-bonus chaser's rational self interest to keep bonus chasers at bay as much as possible, by discouraging the practice, including by the use of sound ethical arguments.

But more broadly, just as you said, banks have rational interest in limiting this type of behavior in order to make their products (more) profitable.

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CarefulBuilder14
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Re: Rant about AF

Postby CarefulBuilder14 » Mon Aug 31, 2015 5:23 pm

yfan wrote:Let's extend the rational choice theory for a second. Certainly, a consumer has rational interest in the benefits and rewards structure of a card being maintained long term and not being chipped away or even crippled from churning and bonus chasing. At the minimum, those who are doing this are undermining their own long term rational interests by going after short term gains. Not that much different from euphoria in the market around quarterly earnings reports that often miss long term financial health of companies.

It is also in a non-bonus chaser's rational self interest to keep bonus chasers at bay as much as possible, by discouraging the practice, including by the use of sound ethical arguments.

But more broadly, just as you said, banks have rational interest in limiting this type of behavior in order to make their products (more) profitable.

Some people go through so many cards and chase so many bonuses that they end up getting an inferior rate on a mortgage or large car loan. That is irrational and against their own long-term interests.

But for people who already have or will have no trouble getting great terms on major credit (when they need it), bonus chasing can be very lucrative.

Consumers don't feel gains and losses as they affect a group, outside of maybe some credit unions. Consumers just care about the gains and losses they personally experience. While we're talking economic theory, there the "stag hunt" within economic game theory. Someone can depart from a group effort because:
1. He thinks he can do better than the group, working on his own.
2. He thinks the group will fail because others will be departing out of their own self-interest.
Warranties and sketchy merchants: Schwab Platinum
Price rewind: Costco
Travel insurance: Prestige, CSP
Perks: IHG, Hyatt
Rewards/Offers: Discover, Freedom, ED, BCE
Taxes/Misc: SPG

Limited value, might close: Arrival

Might add: First Tech, proper business card

Kevin86475391
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Re: Rant about AF

Postby Kevin86475391 » Mon Aug 31, 2015 6:47 pm

CarefulBuilder14 wrote:Consumers don't feel gains and losses as they affect a group, outside of maybe some credit unions. Consumers just care about the gains and losses they personally experience. While we're talking economic theory, there the "stag hunt" within economic game theory. Someone can depart from a group effort because:
1. He thinks he can do better than the group, working on his own.
2. He thinks the group will fail because others will be departing out of their own self-interest.

Yes, exactly. If we can assume that consumers are making rational choices at all, it's almost certainly on an individual level and not on a group level.

Also, I'd point out that we don't actually know enough data to even assume that bonus chasers necessarily pose a significant risk to the rewards system. Hypothetically, it could be that for every 5 people who sign up for a reward card, 1 is a bonus chaser, 1 doesn't spend anything extra, but 3 spend moderately to significantly more than they would have on a regular credit card because they're enticed to seek the rewards. If that's the case then it might be perfectly lucrative to take a relatively substantial loss on the bonus chaser and a moderate loss on the careful spender just to attract and keep the 3 over-spenders.

However, we don't even necessarily know that the bonus chasers are a total loss, just that they're dodging the AF and getting bonuses. It could be that the average bonus chaser still ends up using the card enough and carrying a balance to the point that they're still profitable.

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Re: Rant about AF

Postby yfan » Mon Aug 31, 2015 8:50 pm

CarefulBuilder14 wrote:Some people go through so many cards and chase so many bonuses that they end up getting an inferior rate on a mortgage or large car loan. That is irrational and against their own long-term interests.

That's not what I was referring to. I was saying that the product itself may be nerfed, resulting in inferior rewards and/or benefits over the long term, and more broadly that a range of products may be so downgraded and make long term rewards-earning less lucrative. That's against the consumer's self interest. Loss of benefits can also be. If a card drops extended manufacturer warranty, for example, one could potentially lose out much more money than would be gained by gaming the bonus.

Consumers don't feel gains and losses as they affect a group, outside of maybe some credit unions. Consumers just care about the gains and losses they personally experience. While we're talking economic theory, there the "stag hunt" within economic game theory.

The theory is that consumers make rational choices. It is entirely rational to believe that a benefit to the group long term is also a benefit to the individual. I am trying to make the case that rational self interest does not have to necessarily mean indiscriminate selfishness. People form consumer groups, build review sites, create consumer forums and even sue (class action) - and in democratic societies regulate business as a group (in which they act as voters) - precisely because there IS a sense and a reality of gains and losses as a group. This doesn't extend to everything, but to say that it is non-existent is simply not the case.

When it comes to rewards, these very forums are examples of consumers acting - or at least interacting - as a community. It doesn't mean someone still cannot act in their selfish interest alone, but others do have a right to be consumers not just as individuals but as a group (or groups).



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