I’ve been trying to decide whether to invest in Capital One for a long time and, you know, looking strictly at the financials, it would have been a nice investment:
They recruited heavily at Stanford, got some very good people, paid exquisitely well (I’m serious, a lot), and have a very analytical process for rolling out new products. Actually, I got my ass kicked in one of the interviews. The qualitative part was going well until the guy took out a notepad and said, “Ok, let’s do some numbers.” Have you ever seen two grown men in suits slaving over a math problem, with one of them saying to the other, “Um, I think that goes on the other side of the equals sign?”
Suffice it to say I didn’t go work there.
Anyway, I’ve thought about investing in Capital One for a long time.
But I don’t think I will. See, one of my friends is a professional speaker and he was invited to speak to a Very Large Credit Card Company (not Capital One) on a certain topic. Now my friend agreed to do the talk, only to have them send him some preparatory speaking materials a couple months later.
He told me what he found (paraphrased): “They make you feel empowered to spend, but beneath it all these guys basically want their customers to spend more, upgrade to the next plan, get a higher credit limit, and then spend more. And this is one of the credit companies that has a good public face. We all get fuzzy feelings when we think about them!”
I find that pretty distasteful from an ethical standpoint. You have the average American in thousands of dollars of credit card debt, and these companies simply want more.
Now, I hear Scott’s comment on my last post:
It’s ridiculous for creditors to recommend the minimum payment, but to offer it is just giving you an option to make a bad choice, which isn’t at all ridiculous. If you want to waste your money on interest payments in exchange for a little short-term benefit, it’s not Citibank’s job to stop you.
But frankly, when debt is so crushing to so many people, I think a little paternalism is in order. I know recently there was a government move to increase the minimum required payments for just this reason. Now, I’m not here to get into a political discussion, and I know that doing that has huge ramifications in so many ways. One of my friends, for example, could hardly pay her credit card bills before the mimimum was raised.
Anyway, what I’m saying is that I won’t be investing in credit-card companies for ethical reasons. Sure, they have to make money. And they’re doing a fine job of it. But when we don’t have financial literacy in this country, and people continue to make horribly bad financial decisions (like paying only the minimum because the credit-card company doesn’t explicitly show how much that will cost you), I’m not into that. Sorry for the soapbox post but I can’t help but feel turned off by this kind of stuff.
[Update]: Great comments on this post. For the people who said, “But Ramit, credit card companies are just trying to make money,” sorry but I don’t buy it. That’s a lame excuse to do lots of very bad things. And as we’ve seen in tons of businesses, you can do good while making lots of money.
And whenever people write, “Where do you draw the line?” I get confused. I told you, I draw the line right here!! Anyway, the comments did help me sharpen my thinking and there are some excellent points made. Check out the comments.