ACH transfers take longer at some places than others. When I transfer money from Fidelity to my checking account, I see the money the next day. When I do the same from Vanguard, it takes two days. When I do it from E*Trade, it sometimes takes three days. Why is that?

ACH supports both credits and debits. You can ask one institution to move money to another institution (credit, or "push") or you can ask it to get money from another institution (debit, or "pull").

Whether it’s an ACH credit or an ACH debit, the institution at which you request the ACH transfer always takes the lead. It’s called the Originating Depository Financial Institution (ODFI). The institution on the other end is called the Receiving Depository Financial Institution (RDFI). Originating and receiving refer to the ACH transfer request, not where the money comes from or flows to. Whomever you ask to do the ACH is the ODFI.

The ODFI is responsible for making sure they have the authorization to credit or debit the other account. That’s why sometimes you are asked to fill out a form and send in a voided check. The RDFI is required to credit or debit the account on the date the ODFI specifies. Therefore if ACH takes longer at one place than another, the delay is almost always caused by the ODFI, not caused by "the system" or the receiving end.

If the ODFI cooperates, ACH should be a next-day process. You request the transfer today before a cutoff time. The ODFI sends the request to the ACH network in the evening. The RDFI shows it in your account the next morning. That’s how it works if you initiate an ACH transfer at Fidelity or WellsTrade. Everybody else should also be able to do it in one day if they really want to.

Why does it take two days, three days, or even longer at some places? It could be because they use a third party service provider. The third party does the debit first. It makes sure it gets paid the next day before it sends the credit. It takes at least two days in such scheme. Or it could be because the ODFI doesn’t send the request on the same day you request the transfer. They hold your request for extra days.

There are several reasons they hold your request. First, for risk management. If during that hold period you discover an unauthorized transfer request and you notify them, the money hasn’t really left yet. Second, for charging a premium on faster service. A bank may offer a slow ACH for free but charge extra for next-day ACH.

If you like faster transfers, use a more efficient bank or broker. Don’t let them get away with "2-4 days is the standard." The standard ACH service is next-day.

Reference: ACH 102: Who We Are and What We Do, a presentation by Nancy Grant, Senior Director of Research & Standards at NACHA.

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• Back From Vacation, Catching Up
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Both cards are issued by FIA Card Services, a subsidiary of Bank of America. The Schwab card pays 2% cash back to a Schwab brokerage account. The Fidelity Visa card pays 2% cash back only after you spend $15,000 in a year (1.5% cash back for the first $15,000). Fidelity also has a 2% cash back card — Fidelity Rewards American Express Card — which is also issued by FIA. More merchants accept Visa than American Express cards.

2% cash back is on everything. No tiers. No special categories. It can’t be any simpler. You also get ShopSafe, the one-time credit card number generator. ShopSafe is not available for the Fidelity American Express card.

FIA offers Bill Pay Choice. This card can be used to pay mortgage and bills from credit cards issued by other banks except Bank of America. You don’t earn cash back for Bill Pay Choice charges. You do get float and bill consolidation.

Automatic debit to a bank account for the full statement balance requires a phone call to customer service for a paper enrollment form. Once it’s set up, it works perfectly. No late fees, guaranteed.

Cash rebates are automatically deposited to a linked Schwab brokerage account every month. No manual request is required. There are no minimum balance or minimum activities requirements for the Schwab brokerage account. You can link a bank account to the Schwab brokerage account and transfer the rebate money to the linked bank account after the rebate is paid.

Schwab Invest First Visa credit card wins the TFB Award 2009 for Best General Purpose Credit Card. Fidelity Rewards American Express Card comes to a close second. Wider merchant acceptance, automatic rebate deposit, and one-time card numbers put the Schwab Visa card ahead.

There is speculation that Schwab may lower the cash back but they may grandfather existing cardholders. If that’s true and you’d like to get in before they change the program, act fast.

To apply for Schwab Visa, use online application or call 866-724-9223. Some applications require a phone interview. For Fidelity American Express, apply online or call 866-598-4971.

FIA, Schwab, or Fidelity don’t pay me in any way if you apply for a card.

Elsewhere on the Internet:

• FatWallet thread on Schwab card
• FatWallet thread on Fidelity AmEx card

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Double-Cycle Billing Persists, Legal or Not

It’s another "banks are out there to get you" article. It alleges that some banks are exploiting a loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009 ("CARD Act") for double-cycle billing.

I’m sorry to say that the journalist was misled by her sources. Whoever fed her the story either lack basic understanding of how loans and interest work or they understand it but choose to ignore it.

The basic rule for loans and interest is if you use someone else’s money, you pay interest. The amount of the interest depends on the amount borrowed, the time in possession, and the interest rate. The reverse works when you deposit money into a bank. If they use your money, they pay you interest. I think everybody would agree to this as the basic principle of lending and borrowing.

When there are exceptions to this basic rule, the exceptions are granted by the lender out of other business considerations. The basic rule still applies. A borrower pays interest to the lender, for the amount and time borrowed.

At issue in the SmartMoney article are Macy’s and Bloomingdale’s credit cards issued by Citibank. These cards don’t have a grace period. Interest accrues from day one. The bank gives one exception to this rule: interest paid will be credited back if the borrower pays the principal and interest in full by the payment due date.

Let me put this in a picture. For simplicity’s sake, let’s assume:

• A month is always 30 days.
• Payment due date is 21 days after the end of the month.
• The interest rate is 1.5% per month, or 0.05% per day.

Suppose a consumer charges $500 on Day 1 on a brand-new card. No additional charges are made during the month. On Day 30, when the bank issues the billing statement, the amount borrowed is $500. The payment due date is Day 51. By that time, the consumer will have borrowed $500 for 50 days. The interest will be $500 * 0.05% * 50 = $12.50. Therefore the payoff amount is $500 + $12.50 = $512.50.

If the consumer pays $512.50 on or before Day 51, the bank credits back $12.50. If the consumer pays any less, the bank does not credit anything back.

I fail to see how this arrangement is unfair to the consumer. The bank said up front the card will accrue interest for each day the money is borrowed, to which the bank is fully entitled. The bank also created an exception to give an incentive to the consumer for behavior the bank desires: pay the bill in full by the due date. The bank didn’t have to create that exception. It did because it wants its customers to pay it back in full.

The SmartMoney article says if the consumer makes a partial payment, this arrangement is equivalent to double-cycle billing, which will be illegal under the CARD Act. Let’s look at the picture again. Suppose the consumer pays $412.50 instead of $512.50 on Day 51:

From the $412.50 payment, $12.50 will be applied toward interest for $500 borrowed for 50 days. $400 will be applied toward principal balance. $100 is still outstanding, accruing interest from Day 51 onward. The bank does not credit anything back.

I still don’t see anything wrong in this scenario. The basic rule for loan and interest is satisfied: pay interest for amount and time borrowed. The consumer doesn’t get an extra credit back from the bank because the consumer didn’t take up the bank’s offer (pay in full).

To be honest I’m very annoyed by these consumer advocates. They complain about the consumer having to pay interest on the $400 but they ignore the fact that the consumer indeed borrowed that $400 for 50 days. I trust they have good intentions but it seems they don’t understand the basic rule for loans and interest.

These consumer advocates are looking at the bark through a magnifying glass. They miss the forest and they miss the tree. As a result, they are advocating for the wrong thing. The issue is moot if the consumer didn’t finance their purchase at Macy’s or Bloomingdale’s. If they pay for the purchase with their own money, they won’t pay interest. Everybody should understand this simple fact.

To take it one step further, not buying whatever they bought at Macy’s or Bloomingdale’s will save the consumer a lot more than the $10 interest the bank allegedly took through a legal loophole.

I don’t work for Macy’s, Bloomingdale’s, or Citibank.

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Alliant Credit Union is the 7th largest U.S. credit union based on asset size, with more than 250,000 members. It was originally United Airlines Employees’ Credit Union. Now anybody can join if they live or work near some northwest suburbs of Chicago or become a member of a PTA for a one-time fee as low as $3.

Credit unions are not for profit. They benefit the members in the form of higher interest rates on deposits and lower interest rates on loans. They don’t buy full-page ads in Wall Street Journal. They don’t sponsor NPR podcasts. They don’t pay bloggers referral money for new customers. That’s why you don’t hear as much about them.

I’m attracted to Alliant Credit Union because its accounts offer what I’m looking for. I considered a rewards checking account but I don’t want to bother tracking how many times I’ve used a debit card in a month. Alliant Credit Union’s accounts are hassle-free. Their checking account pays 1.75% if you opt-out of paper statement and have one electronic deposit (ACH or ATM) a month. Their savings account pays 2%. There’s no tier or cap on the amount that can earn at these rates. Nor is there a debit card usage requirement. I like them for their simplicity. They also offer a few freebies: free incoming wires, free credit score (updated quarterly), and free remote deposit capture.

Compare Alliant Credit Union with popular online bank ING Direct and a popular credit union Pentagon Federal Credit Union:

Near where I live, Allpoint ATMs are mostly in gas stations, grocery stores, drug stores, and Target stores. CO-OP ATMs are mostly in 7-Eleven stores, other credit unions, and on corporate campuses. MoneyPass ATMs are mostly in U.S. Bank branches. That’s very good coverage for me.

Alliant Credit Union uses Andera for online account opening. After I enter the personal information, there’s an identity verification step through answering questions obtained from the credit reports. It asked me about a car loan I didn’t have. I answered “none of the above” and I passed. Alliant gave me $5 seed money for the savings account. I was able to fund another $995 by a credit card.

Trying to activate online banking turned out to be more trouble than I expected. In order to register for online banking, I needed my account number, which I received by mail two business days after I opened my account online. Then it asked for the debit card number. I had to wait another three business days. Then it asked for the debit card PIN. I had to wait three more business days.

Here I was, almost two weeks after I opened the account, finally with everything I needed, I entered everything online banking registration asked for. I created a password, agreed to the online banking terms and conditions, and picked answers to four security questions, before I got this lovely message:

So I called the 24-hour customer service center. The rep first said it was because I hadn’t activated my debit card yet. After she helped me activate the debit card, she gave me a temporary password. But there was no place to put in that temporary password. After a few more tries, my account is locked. Even the customer service rep couldn’t unlock it. She said she would have to escalate it and someone else would call me back the next day.

A rep did call me the next day and I was able to enroll with a temporary access code she gave me.

Aside from not having a smooth experience as a new member, what else do I NOT get from Alliant Credit Union? Small things.

• The first box of checks is free but I don’t have a choice in the design.
• The debit card still has the old Visa logo although Visa introduced the new logo almost three years ago.
• There’s no direct download from Microsoft Money or Quicken. I will have to use the web interface to download.
• I couldn’t provide free-text answers to the security questions. The answers had to be selected from a finite set in a dropdown.
• There’s no way to create a login name for online banking. I must use my savings account number as the login.
• Alliant-initiated ACH transfers are limited to $10,000 per day ($1,000/day during the first 30 days).

All these small things require investment. A state-of-the-art online banking system costs a lot of money. Banks I used in the past made the necessary investment. ING Direct is well known for its website’s ease of use. I don’t think Alliant Credit Union invested as much. They bought the online banking system from another credit union in California called Wescom. If you look at Wescom Credit Union’s eBranch and Alliant Credit Union’s SkyBranch, they are practically the same:

Would I like to have a better online banking system? Yes. Am I willing to pay for it with getting a lower yield on my money? No. That’s why I joined a credit union. I’m willing to tolerate the inconvenience. It’s a tradeoff. I get what I pay for and I’m happy.

I’m giving Alliant Credit Union the TFB Award 2009 for Best Hassle-Free Checking, Savings and CDs. Good rates and good ATM coverage are the main reasons for this win.

Alliant Credit Union does not pay me in any way if you join.

Elsewhere on the Internet:

• FatWallet thread on Alliant Credit Union
• Bank Deals blog: review for Alliant Credit Union’s checking and savings accounts

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If it’s too expensive, don’t buy.

You must be saying “Duh!” but let me explain. No, I’m not referring to people buying homes they can’t afford, although that would apply too. I’m talking about the credit card interest rate hikes, late fees, bank overdraft fees, ATM surcharges and so on.

When we buy physical products, we consider all aspect of the product: brand, color, size, weight, what it does and doesn’t do, etc. Services are no exception.

The financial products come as a whole package. Interest rate, rewards, fees, availability of facilities, and quality of customer service are all part of the whole package. If I like what I’m getting, I use the product and I pay the price. If I don’t like it, I go somewhere else. It’s as simple as that. There’s no point of harping on what you don’t like. If it’s too expensive, don’t buy. Buy something you like. That’s my philosophy.

There are 8,000 banks in this country, plus another 8,000 credit unions. I’m sure there is a better bank or credit union if someone doesn’t like their current bank. If the bank dings you with excessive fees, don’t use them. There are so many other choices!

Sure there is a cost of switching. But that’s the point of making a choice. You weigh the financial and emotional cost of staying against the value of not having to set up everything again. If avoiding a switch is more valuable to you, then stay and be happy, because you’ve made the best choice for yourself. I just don’t understand why people would just complain and not do something about it when there are clearly better choices. Consumers are in the driver’s seat. Take the wheel. If it’s too expensive, don’t buy.

When I first started this blog three years ago, I issued a number of TFB Awards. I wanted to recognize the companies that provided good products to their customers. Since then, better products have emerged. Over the next few weeks I will re-visit these categories and issue the TFB Awards for 2009. Don’t worry, they won’t be veiled affiliate promotions. None of them pay me to say good things about them.

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Because Fidelity administers my solo 401(k) plan, I can buy only what’s available through Fidelity. I looked at new-issue brokered CDs. The yields are lower than the best rates available from other banks and credit unions.

Then I looked at secondary CDs. Secondary CDs are like "pre-owned" cars. They are being sold by bond dealers. The dealers bought the CDs from the previous owners, who for one reason or another decided not to hold the CDs to maturity.

The good thing is that these "pre-owned" CDs still carry the same FDIC insurance. The banks are still obligated to pay the originally stated interest rate on the CDs. They don’t care whom they pay the interest to.

I guess because of the "pre-owned" image, and because the previous owners took a hit when they sold before maturity, secondary CDs have a higher yield than new issue CDs. Who wants a used one when they can buy new for the same price? A secondary CD must be priced lower than a new CD. A lower price means a higher yield.

The previous owners’ loss is my gain. I was able to pick up some good secondary CDs: 2.3% for 2-year and 2.95% for 3-year. These yields are almost as high as the best rates available elsewhere.

I paid more than the face value for some of the secondary CDs. Because the stated interest rates on those CDs are higher than the current market yield, I had to pay as much as $1,050 for each $1,000 CD. As I mentioned in the previous post, the amount I pay above the face value ("par") is not FDIC insured. The premium CDs have a risk for the "FDIC call" if the bank fails. For these CDs, I only buy if the issuing bank is too big to fail. I bought premium CDs issued by:

• LaSalle Bank N.A. – owned by Bank of America
• Wachovia Bank FSB – owned by Wells Fargo
• World Saving Bank – owned by Wells Fargo

I don’t think FDIC will close Bank of America or Wells Fargo in the next few years.

I paid below the face value for two other CDs from banks I’ve never heard of:

• R-G Premier Bank of Puerto Rico (1-star on bankrate.com; 0-star on Bauer Financial)
• Carolina First Bank

Since the CDs are fully FDIC insured, I don’t worry about the banks. When I pay less than the face value, I’ll actually make more money if these banks fail. Let’s see how long R-G Premier of Puerto Rico lasts.

Good secondary CDs don’t show up every day. I use this bookmarklet to screen them. The bookmarklet opens three browser tabs. The first tab shows the new issue CDs. That’s the benchmark. Secondary CDs must beat new issue CDs to become worthwhile. The second tab shows secondary CDs selling below face value. I don’t have to worry about the banks for these CDs. The third tab shows secondary CDs from banks with a Moody’s rating of A3 or above and a yield of 2% or more. If I’m paying a premium, the bank had better be strong and the yield had better be good.

Good secondary CDs also don’t last long. One time I saw a good CD but I took about a minute to make up my mind. By the time I attempted to enter the order, it was gone. Someone else beat me to it.

Fidelity charges a small commission for secondary CDs: $1 per $1,000 CD and minimum $8 per order. Their quotes don’t include the commission in the yield calculation until you are in the middle of placing an order. I made a spreadsheet to calculate the after-commission yield:

CD Ladder Spreadsheet

The spreadsheet also calculates the weighted average yield and duration for a CD ladder. If you like managing a CD ladder, you may find the spreadsheet helpful.

Treasure hunting in secondary CDs takes a little time. So does chasing yields by opening accounts everywhere. If you think it’s too much trouble, you can just stick to a "good enough" place like Ally Bank or Alliant Credit Union.

[Ally Bank pays me $20 if you open an account from my affiliate link.]

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I had planned to sell them in January 2010 after they earn nothing for three months. Now it looks like I will hold them one more year until January 2011.

If I redeem them in January 2011 instead of January 2010, these April 2008 I Bonds will earn

• 0% for 3 months (1/2010 – 3/2010)
• 4.28% for 6 months (4/2010 – 9/2010)
• 0% for 3 months (10/2010 – 12/2010, last 3 months of interest forfeited)

Over the course of 12 months, they will earn 2.14%. Right now a good rate on a 1-year CD is slightly above 2% (Alliant Credit Union 2.15%, 2.30% if over $25k). The 1.2% I Bonds will earn about the same or slightly more because they are state income tax free.

I will revisit this decision in January. If there are better opportunities elsewhere, I still have a chance to change my mind.

Because of deflation in late 2008 early 2009, all I Bonds have to go through a period of earning 0%. If you are planning to sell your I Bonds before their 5-year anniversary, make sure you sell only after they earn 0% for 3 months. Because you forfeit the last 3 months of interest, you want to forfeit 0%, not your high positive rates. Here’s a table showing when the 3-month 0% period is over:

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In a nutshell, Blueprint is a fancy suggested payment calculator. For customers who carry a balance, Blueprint lets them set up some rules and helps them calculate how much they should pay based on those rules.

In an ideal world, nobody carries a balance on their credit cards and everybody always pays in full. Because we are not in an ideal world, Blueprint has its place.

There are four major features in Chase Blueprint:

Full Pay.  Customers can designate charges in any of 14 "everyday" categories as Full Pay. Blueprint will include all new charges in those categories in the suggested payment amount.

A benefit of declaring Full Pay is that these Full Pay charges receive a grace period. Normally when the customer carries a balance, there is no grace period: all new charges accrue interest right away. With Full Pay, the credit card works like a deferred debit card for the Full Pay charges. This grace period privilege will be removed if the customer fails to honor the full pay pledge in three out of any six months.

The 14 "everyday" categories are:

• Department Stores and Catalog
• Dining
• Drugstore
• Entertainment
• Gas and Convenience Stores
• Grocery Stores
• Health clubs and Membership
• Laundry and Dry Cleaning
• Office and School Supplies
• Salon and Beauty Supplies
• Transit
• Utilities
• Wholesale Clubs and Discount Stores
• All blink Purchases (blink is the swipeless RFID technology embeded in some cards)

Split. For larger purchases, customers can select the number of payments to pay it off or select a fixed monthly payment amount. Blueprint will include it in the suggested payment amount.

Finish It. For existing balance, customers can also select the number of payments to pay it off or select a fixed monthly payment amount. Blueprint will include it in the suggested payment amount.

Track It. This one has nothing to do with suggested payment calculation. It lets customers enter a spending target by category and see how they are doing against those targets.

The Blueprint suggested payment is just a suggestion. The cardholder is still only obligated to pay the minimum payment. The account statement shows both the minimum payment and the Blueprint Payment.

The account statement also marks the "full pay" charges with a special icon and includes separate sections for Full Pay, Split, Finish It, and Track It. See sample statement for more on those.

I can see Chase made substantial investment in creating these features. Full Pay encourages customers to pay for everyday purchases in full instead of adding to their debt. Split It and Finish It help customers set a target date for when the purchases will be paid off in full, instead of just letting the customers make the minimum payment. For customers who carry a balance, these are very helpful tools.

Blueprint does not apply to cardholders who always pay the card balance in full. For these cardholders, Chase offers automatic payment which debits a bank account for the full statement balance on the due date. I’ve been using it for a long time. No late fee, no finance charge, guaranteed.

The automatic payment feature from Chase is very easy to set up. You can set it up online (for my two other cards from American Express and FIA Card Services, I had to call the card company for a paper form). It’s also smart. If the statement balance is $500 and a $50 refund comes in before the due date, Chase will automatically adjust the bank debit from $500 to $450.

Chase has not added Blueprint Payment in its automatic payments options. It should.

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• no minimum balance
• no monthly fee
• high yield up to a point (4% up to $25,000 is about average these days)
• ATM fee refund up to a point ($15-20 a month)

In exchange, it requires

• direct deposit
• online statement only (no paper statement)
• online bill pay
• 10-12 signature debit transactions per month

The offer makes reward checking a very attractive option for a checking/savings combo account. The most difficult requirement is the monthly 10-12 signature debit transactions, which can be met by a change in usage pattern.

The reward checking products have been on the market for a couple of years now. They are being sold to community banks and credit unions by a company in Texas called BancVue. In this post I will just call the small banks and credit unions generically "banks." I speculate what’s in it for the banks and whether reward checking will last in the long run.

Whenever this question comes up — "Is it a teaser rate?" — the party line answer is that it’s not. They say the bank is able to offer high yield because it realizes savings from online statements and revenue from debit card purchases. BancVue includes these comparison tables in its rewards checking marketing brochure:

The comparison shows that a reward checking account is nearly three times as profitable to the bank than a free checking account. But if you do a calculation, because a reward checking account has a higher balance, you will see that the net revenue per $1,000 deposit is about 1/3 of that from a free checking account.

Dollar for dollar, reward checking is far less profitable, which shouldn’t be a surprise. Moreover, the savings from online statement ($2.15/month), the higher revenue from debit card interchange fees ($3.99/month), and the higher NSF fees ($1.03/month) are only small factors in this revenue model. Together, they add up to $7.17/month, which also has to be offset by the ATM fee refunds. The $1.05/month number looks low to me when foreign ATM fees are $3 a pop at major banks.

The biggest difference in profit is driven by the net interest income. The spread comes from the difference between the rate at which the bank is able to loan out the money and the rate at which the bank has to pay the depositors. For the reward checking account to remain profitable, the bank has to be able to loan out the money.

A depositor can increase the average account balance 10 fold by moving in money from another bank, but they can’t all of a sudden buy 10 cars and need 10 car loans from the bank. To the extent the bank has more loan demand than it receives in deposits, the balance in the reward checking accounts can earn the spread. When the loan demand is met but reward checking is still pulling in more deposits, the bank won’t be able to earn that spread. At that point, the bank will have to make the account less appealing.

This is already happening at some banks. When the bank first came out with reward checking, the yield was eye-opening. After a while, the yield dropped down to about the same level as other online savings accounts. For example, here’s the rate history of First Credit Union in Arizona:

02/03/08: 6.01% APY
03/05/08: 5.01% APY
05/04/08: 4.01% APY
12/19/08: 3.15% APY
01/21/09: 2.75% APY
03/31/09: 1.75% APY

Source: Bank Deals

The great deal lasted about a year.

Will reward checking last in the long run? I think reward checking as a concept will stay. There will always be small banks that want deposits for their loan demand. At any particular institution though, I doubt it.

Banks that offer reward checking to depositors nationwide are especially vulnerable, because out-of-area customers are more interested in the yield, with little interest in getting a loan from the bank. Banks that limit the offer to local customers have a better chance to stay competitive in their yield.

Even then I don’t see how a small bank can expand its loan sales as fast as it attracts deposits in the long run. When deposits catch up with loan sales, the deal has to deteriorate. When a super-hot deal stops being super-hot, be prepared to move your account or just accept the good, but no longer super-hot, deal. As long as there are ATM fee refunds, a reward checking account still beats a no-interest free checking account at a national bank.

If you are interested in a reward checking account, look for one in this reward checking directory maintained by Ken at Bank Deals. If you do use one, make sure you comply with the 10-12 signature debit card purchases requirement. Banks say only 70% of account holders actually meet the requirement and receive the high yield in any month. Don’t be one of that 30%. If you also lose the ATM fee refund, it can be costly.

Elsewhere in the blogosphere:

• Bank Deals: How is 5% Checking Possible? The Math Behind Reward Checking Accounts
• My Money Blog: Rewards Checking Accounts: Higher Interest Worth The Extra Trouble?

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I like Bob Sullivan. I reviewed and recommended his book. His blog posts are usually in depth, which I like. I linked to some of them in the past. But sometimes, his consumer advocacy also becomes much ado about nothing. A recent example is his post Chase dumping former WaMu card holders.

Chase took over Washington Mutual (WaMu) last year. Customers who had bank accounts and/or credit cards with WaMu became Chase customers. Chase had a review of the accounts they took over. They decided to close some of the credit card accounts they inherited from the WaMu portfolio. What’s wrong with that?

Customers complain that they shouldn’t have their credit card accounts closed, because they have always paid on time. Paying on time is a necessary condition for having a credit card. It’s not a sufficient condition. Having a credit card open is not a God given right.

It’s a two-way street. A consumer decides which cards they want and keep. A credit card company decides which customers they want and keep. For the closed accounts with a balance, Chase is not demanding full, immediate repayment. People can still take their sweet time to pay the minimum payment every month. They just can’t charge more on the cards.

A consumer can decide to apply for a credit card, use the card a few times, grab the signing bonus, never use it again, and cancel it when the annual fee kicks in the next year. A credit card customer can also decide to only use the card for the special categories with the highest rebate. 5% on gas. No amount of merchant fees will cover for that. If the customer does not carry a balance, it’s a guaranteed loss to the credit card companies on those transactions. It’s all fair game.

When a customer carries a balance, they can decide to pay it down at any point of time, or borrow more at any point of time. No advance notice or approval is required. Compare that to a traditional loan, which is one-way: you borrow up front; you can pay it down but you can’t borrow more unless you make a new application.

What if the customer had a job when they applied for the card but they don’t have a job when they borrow? The credit card company still has to let them borrow. Why shouldn’t a credit card company be able to decide whether they want to keep anybody as a customer?

There are laws against discrimination based on race, gender, religion, etc. Short of those, I honestly don’t see what’s wrong with a company not wanting to keep some customers. It doesn’t matter if the affected customers have good credit history or not. If they don’t want you, they don’t want you. Just like a consumer can decide they don’t want a particular card because they don’t like the color of the card, it doesn’t matter how great the card is otherwise.

It’s a two-way street. You take your picks. They take their picks. End of story. If one company doesn’t want you, there are other companies to choose from. Move on. If nobody wants you, well, that tells you something.

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Software picked, likely related articles at The Finance Buff:

• Intelligent Squared US Debate on Blaming Washington or Blaming Wall Street
• Book Review: Where Are The Customers’ Yachts
• Should the Fed Cut Interest Rates?