Auto-renewal of Car/House-relate Premiums on Credit Cards

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(This is an extract from my forthcoming book on Credit Cards)

 

  • Many insurance companies will now auto-renew your annual car / house-related premiums. This is not necessarily a bad thing, but also not necessarily a good thing.

 

Unexpected or Inconvenient Time

Unless you keep close track of this it may cause you an “unexpected” problem or at minimum a surprise at an often inconvenient time.

My recent experience is that:

(a) it is difficult to get real bricks and mortar car/house-related insurance offices to visit in Australia

(b) the auto-renewal stunt is pulled after they have recorded your credit card number during the sales conversation, and normally also in a much more matter-of-fact oh-by-the-way remark-like way.

 

“The Way We Do Business”

I had that experience recently and even though I asked for the auto-renewal to be removed, I was told that it is the way the company does business.

Check in your country if there is an authority that can give you more advice on this. In Australia the Australian Securities and Investments Commission has taken up this matter and six of the insurers informed that it is part of their business model. Of course you do not have to abide by this and can call them before the policy renewal date or even afterwards to cancel and get a pro-rata return.

  • One way to stop auto-payments is to not give your credit card number and insist that you will pay the premium at the Post Office or through an internet transfer (such as BPAY).
  • Another option is to buy a pre-filled temporary credit card which you can dispose of afterwards. These cards are normally also available at Post Offices. And the insurer (or whomever they are) cannot get their hands on your real credit card number. The ball is, however, now in your court to remember your premium payment’s date to ensure you do not become uninsured.

 

Reversal of Premium

You should be able to get a cancelled premium reversed though and that is often another bone of contention: trying to get them to reverse the debit in time for you to use your card to pay for a better deal.

I just went through that process and though the money is normally taken off your card immediately, it takes 5 – 7 business days for the card company to reverse the money back into your credit card account.

 

Cancel Your Card

  • There is another way to stop insurance companies and it is to cancel your credit card and get your bank to issue a new card. This is however a real hassle and it may cause issues with other transactions such as pre-paid flight tickets where you often have to present the card you bought the tickets with months earlier. But it is one way to protect yourself from such companies.

I also think you should be able to cancel and if the insurer auto-renews without permission then you should be able to take them to court for at least theft, but the law is an ass at the moment.

 

Shop Around at Renewal Time

The benefit and argument that the insurance companies use is that it keeps you insured. However, the decision should still be yours because near the end of the period you may want to (in fact perhaps SHOULD) shop around for a better premium.

  • It is known that insurance companies increase your 2nd year policy sometimes out of proportion since they know that they have already taken the money off your card.
  • And it is also known that insurers entice new customers with cheaper initial rates. Loyal customers pay the price to lure new clients instead of being rewarded for their loyalty.

 

oooOOOooo

RIGHTS

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There are three types of Right.

  • Right and Left.
  • Right and Wrong.
  • Right and Privilege.

 

Right and Left

These are basically directions. If you turn Right and I turn Left, it is going to perhaps take a long time for us to meet – if ever we do.

 

Right and Wrong

Sometimes also Incorrectly referred to as Correct and Incorrect. This is a bit more troublesome. Especially when it comes to the courts (more on the courts when we get to Rights and Privileges) where countries and cultures enshrine their norms in Laws. These change over time and under circumstance. What was Wrong last year, or even last week, could all of a sudden be Right. When it comes to Maths, then things get a bit tougher. 1 + 1 = 2. But what happens around the concept of Zero. Is there such a thing as Zero? A more difficult question is “Is there such a thing as Nothing?” See most people have problems with concepts.

 

Rights and Privileges

These are even more troublesome. What are rights? And what jurisdiction do they have? Are they local, regional or universal? Who gives Rights or are they inherited from birth? Are they inalienable? Can you lose your Rights (if you ever had any) and who can take them away from you? Do you ever have to pay for Rights? And what if your Rights clash with my Rights?

Tough questions. To which we all think we may have the answer, but let me tell you “No we don’t have the answers” because if we try to enforce some of our answers under the pretext of a Right, we are going to land in more mess than we can handle, or would like to handle – as a person, a society, as a humanity.

 

What are Rights?

I tried to find a definition of Rights but gave up. There are too many words trying to describe this word. Here is a definition of Human Rights by The Free Dictionary by FARLEX: “The basic rights and freedoms to which all humans are considered to be entitled, often held to include the rights to life, liberty, equality, and a fair trial, freedom from slavery and torture, and freedom of thought and expression.”

Really?

Take note of the words “considered” and “often”. Who gives this consideration? What does “entitle” mean? Another big word to struggle with. A short and simple answer is that this may be “considered” fair in certain circumstances and places but:

  • Go take a walk in a jungle and see how many Rights you have. To any of the things mentioned here.

Who guarantees your “Rights” and under what circumstances? If a lion savages you in the jungle, who decides if the lion should be put to death? In fact, should the lion be put to death? Doesn’t the lion have a Right in its own backyard? So, Rights are not universal and they are arguable amongst species. Now what happens amongst humans who live in different countries? Interesting question, more so when country A decides that the people in country B has the same Rights as those in country A. This sort of thinking leads to war. And then we send in soldiers from country A – some of whom die – to “free” those in country B. And who decides that country A’s soldiers can have their lives (a basic Human Right) terminated? Is that Right?

You see, the concept (and it is just that – it is not a Right – that Rights are Rights may be misleading. In fact it may be Incorrect. Too many assumptions. So I give up trying to answer these questions. It is a waste of time.

And politician and lawyers make too much money out of them.

 

“Freedom”

I prefer the word “Freedom”. It imbues a choice. But even those are limited.

 

Privilege

Maybe the word “Privilege” make a bit more sense. But there are also questions about that. Who gives you a Privilege? Or is that an Incorrect question.

Maybe you don’t have to be given a Privilege.

Maybe you are born with Privileges. Maybe Life is a Privilege. Arms. Legs. Eyesight. So is fresh air. Running water. Food. An opportunity to learn. Study. Have a job. The Time we have with loved ones.

  • Privileges are things we should be thankful for.

Rights are things we claim. Rightly or Wrongly. But who “guarantees” them?

 

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How Do Credit Card Companies Make Their Money?

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Credit card companies make money and line their pockets via at least 10 ways (and I am sure there are more) to generate untold billions of dollars per year.

We all have bills to pay and we all shop on a regular basis. How we make payments makes a difference. Most people will use a payment card (credit or debit) or cash. Few of us will, or for that matter, can live a truly cash life. And banks / credit card companies know and like that, because we remain loyal revenue-generating customers.

Credit card companies add significantly to the cost of living and which is considered by some as an unnecessary social cost, especially to the poor and those who do not or are not in a position to use credit cards. This is due to the 2%-4% merchant fees that are imposed on companies who accept credit cards as a mode of payment, which they configure into the prices they charge – and other merchants who then synchronize their prices with those who accept cards.

 

  1. Transaction fees

You often get charged a transaction fee for credit card transactions. I was in a book shop recently and a client wanted to buy something using a credit card. She was told that a transaction fee of 5% would apply at which point she left without buying anything from the shop. This connects in tandem with my next point. Note the prospective client was going to be charged 5%.

 

  1. Merchant fees

Merchants are normally charged a transaction fee of between 2% and 4% for every credit card transaction. This leads to several outcomes, some of which are considered anti-social:

Merchants normally put their prices up to cover for this fee – but do not tell us about it, since they consider it (and calculate it) as part of their operational costs. This means that we actually pay 2% to 4% more for things that we buy at places that accept credit cards. This is a huge cost to bear. The USA’s center for Nutrition Policy and Promotion calculates the average expenditure for a low-cost meal plan for a family of 4 to be $786 worth of food a month.

Do the sums: $786 x 12 = $9,432 per annum. At 2% or 4% means you pay $188 or $377 per year more for food due to merchant fees.

Even if you do not use a credit card to buy your food, you still bear this cost.

  • There are those who say that they use their cards to buy everything, collect whatever benefits they can and then pay off the card in full every month.
  • There are others who say that we should be given a discount of 2-4% when we pay either cash or with our own debit cards (equivalent to cash).

I am in this latter corner, since my wife and I use our credit cards only for such things as flight tickets (or buying books on the internet – the only internet shopping we do).

Credit card companies also offer numerous benefits such as “points / airline miles / present” which are priced into high interest rates thus adding to the social impact of credit cards on society.

  • Nothing in life is free. Someone pays for it.

 

  1. Product branding / Co-branding.

You help with branding the credit card companies’ products to merchants and other people. They colour their cards blue, red, back, gold, platinum and all colours of the rainbow to show the elitist use of some of their products. And compete with each other in terms of benefits as part of their brand.

Further, co-branded cards i.e. cards that are offered by a credit card company which is jointly sponsored by both the bank and a retail merchant can normally be issued cheaper than a normal privately labelled card AND – here is the clincher – it is normally designed to give the issuing bank access to the retailer’s customer base – i.e. YOU.

 

  1. Your information.

Your information is used for advertisement purposes. Regardless of what organizations say about guarding your private information, it does get into the hands of advertisers. They have little boxes on their forms to tick if you do not want to receive advertisement information but how come I get advertisements from wine cellars etcetera? And by the way this is also a huge problem with utility providers. I still get calls not only throughout the day but almost on the bell at midnight – may I ask from where and how they got hold of my home telephone number?

 

  1. Annual fees.

I was recently charged $30 for annual card fees, which I protested and had reversed by letting the person know that I have been a loyal card carrying revenue generator for 28 years. The fee was waived.

  • You should do the same.

 

Credit card interest rates (generally 18-21%) are exorbitant, especially when compared to the interest you get paid when you save your money with a bank (2 – 3%).

The reason the banks give for this anomaly is that credit card debt is unsecured debt and they lose part or all of the debts that people owe when people declare bankruptcy or negotiate a settlement on outstanding debt or in fact become delinquent and the debt is written off.

Well, card companies are often to blame themselves for this predicament. I have been at the receiving end of cards that arrived at my doorstep without even applying for them (especially in some countries) and they often do very sparse vetting – in an attempt to grab market share / to satisfy KPI’s in order to get annual bonuses.

 

  1. Late fees.

This can be an expensive mistake of between $10 and $35 depending on the bank / card company you are dealing with. In a recent class action against a bank in Australia late fees were found to be illegal but the bank challenged the ruling in the Full Federal Court and the ruling was overturned, meaning that it is legal to charge someone $35 for paying late.

Is the cost of the outstanding amount to the bank $35? What would be fair?

  • I believe the late fee should be calculated as the product of the outstanding amount, the number of days outstanding and a certain % interest rate.

 

  1. Cash advance fees.

Cash advance fees are just one of the increasing fees by way of which card companies make money. Over the counter (OTC) this can range from $2.50 to 2% of the transaction amount (whichever is greater).

 

  1. Cash withdrawals at ATM’s

Fees for cash withdrawal from credit cards are comparable to cash over the counter fees and is again just one of the fees by way of which card companies make money. This can again range from $2.50 to 2% of the transaction amount (whichever is greater).

 

  1. Balance transfer fees.

Most credit card companies now offer credit cards (multiple) debts consolidation with them onto one ZERO % card, meaning that you will not pay any interest on the outstanding balance until (a) a specified time has elapsed – normally 1 to 2 years (b) the amount is paid off OR (c) you use the ZERO % card to make a purchase – at which time the normal high (in most cases 18% – 21%) rate kicks in.

  • Be very aware of this third condition. It can all of a sudden become expensive since the interest rate is then calculated on your outstanding balance plus the new purchase.

But in addition to that, the bank normally also charge you a balance transfer fee.

  • Please ask a pertinent question about this if ever you consider transferring your debt to a ZERO % card.

 

In summary

 

Tread carefully with credit cards. You can land in a lot of financial trouble with them – at any age.

Credit cards comes at a social cost to society – all of us indeed whether you have / use one or not since we all pay more for goods at merchants who accept cards. And even those who do not accept cards (are there any left?) synchronize their prices with those who accept cards. This adds a huge social cost to society.

Credit cards will not go away. So you will have to learn with them and their impact to society.

 

 

 

US – OR “THEM”

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It is often said that what we do and say defines us.

 

I beg to differ:

  • Is it not the other way around?
  • Is it not who and what we are that defines our actions and words?
  • Is it not our inner feelings, emotions, thoughts – and sometimes our logic – that drive us to do what we manifest?

 

The answer is “Yes”.

 

And I put logic last since it is more than often not the thing that drives us.

  • Think back in your own life. Are you where you are because of logic? Did you get involved with your partner because of logic? Do you have 3 kids because of logic? Do you work where you work and do what you do because of some flurry of logic?

 

The answer is “No”.

 

As much as we would like to think we are the pinnacle, the top of the tree – The Bee, never mind the bees knees – we are far from it.

 

It has been said that humans use less than 5% of their brain capacity.

 

I believe that it is far less than that. I don’t think we use even 0.5% of our brain capacity. And we are constructed that way. We do not have the physical, mental, psychological, emotional, intellectual and spiritual make-up to use even that tiny fraction of what we carry in our cranium.

 

And I am not going to buy into some genetic, biological or sociological gumpf here (done enough study in sociology, psychology and criminology in my time) that absolve us from our actions or non-actions. Such as “I had a terrible life as a child, Your Honour. And I was under the influence of drugs Your Honour. That is why I did this and that. So please humor me and give me a pass on this deed”.

 

We have been given this Life. For which we are responsible in all aspects. Our job is to develop it. Maintain it. Respect it. Use it for the good.

 

So let this then be the year in which our words and deeds be defined by who we are. Not the other way around.

 

Welcome to 2016.