'It's crazy': Chase Bank forgiving all debt owed by its Canadian credit card customers | General financial discussion | Discussion forum

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.

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

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.

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.

"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.

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.

Cheers,
Doug

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.

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.

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

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!