Get my 5-day email funnel that generated $400,000 from a single launch

Want an email sales funnel that's already proven to work? Get the entire word-for-word email funnel that generated $400,000 from a single launch and apply it to your own business.

Yes! Send me the funnel now
15 Little Life Hacks

An interesting story about credit card companies

33 Comments- Get free updates of new posts here

0

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:

cof.png

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.

0

Related Articles

401k

401(k): The single best way to grow your money

How would you like free money? That's not a trick question. For millions of people, free money is up for ...

Read More
How to cold email VIPs and get a response

How to cold email a VIP (and actually get a response)

I used to be terrible at getting busy VIPs to respond to my emails. Years ago, I kept emailing Seth ...

Read More

33 Comments

0
 

Leave a Reply

33 Comments on "An interesting story about credit card companies"

Notify of
avatar

Sort by:   newest | oldest
Jennifer
Jennifer
10 years 4 months ago

Wow. If you are a quant freak in the social sciences, this is a beautiful post in so many ways. Nicely said.

Rachel
10 years 4 months ago
From a noble, chest-swelling, power-to-the-people point of view, this is an inspiring sentiment. Until you realize that it implies that the population at large is unable to realize, independently, that paying the minimum is bad for their finances. Not only is this obvious if you do the math, you don’t even have to do the math. Countless articles, news shows, and pundits have done it for you and repeated this sentiment over and over again. I don’t disagree that credit card companies have some slimy tactics – including deluging college students (newly independent and delirious drunk on their freedom to… Read more »
Ramit Sethi
10 years 4 months ago
I don’t know if it’s that inspiring. I agree, most people don’t behave rationally (or intelligently) when it comes to money matters. After all, it makes sense to feel a little pain now than a LOT of pain later, rationally speaking–so why not pay it off in full? I hear what you’re saying about personal responsibility. I’m trying to find the balance between that and the lack of financial education we have. I see your point about people shouting it at us everywhere…at a certain point, shouldn’t we listen? But then you get idiots on TV/radio who tell people “BUY… Read more »
J.D.
10 years 4 months ago
personal responsibility is at an all time low in this country. If credit card companies are responsible for people’s debt, is Absolut Vodka responsible for alchoholism? Is McDonalds responsible for obesity? Actually, yes these organizations are partially responsible. Or, to be more accurate, advertising by these organizations is responsible. Nobody can deny that ultimately all choices come down to personal responsibility. But what many people fail to realize is that advertising is a highly refined psychological science designed to circumvent personal responsibility. Advertising agencies are damn good at what they do. Don’t believe me? Look at the problems we face… Read more »
Rachel
10 years 4 months ago

Ah, the irrational exuberance of the masses. Good point. We do have a lot of dumb experts eager to lead people astray.

Gomek
Gomek
10 years 4 months ago

Ramit, you hit the nail on the head.

“Vote with your feet.”

Jennifer
Jennifer
10 years 4 months ago
The research on game theory and decision making blows the whole idea of personal (financial) responsibility out of the water. A lot of times, it is pretty easy to lead people to a seemingly rational decision where the statistics work against them and the house gains a huge advantage. Money magazine recently featured a some sort of math-slanted “reflective intelligence” test that sort of gets at a person’s ability to see past seemingly rational leads. The makers of the test wanted to use it to screen out potential financial advisors out of a pool of students. However, the pass rates… Read more »
Howie
Howie
10 years 4 months ago
First time poster, long time reader here. First off, I agree with Rachel – noble thought, but ultimately the consumer is (and should be) responsible for his/her own spending habits. If a consumer needs to use a credit card to buy groceries (not restaurant) or gas to get to work (not to the beach), sympathy abounds. That said, one should take a cold hard look in the mirror if they use credit cards to survive and are approaching the average consumer debt carried in this country. I read a study last year that looked at credit card debt and attempted… Read more »
penty
penty
10 years 4 months ago
I don’t know if you’ve heard this but Capital One, and the less ethical card companies, can actually ruin your credit for you. Here’s what they do: You card limit is, say, $1000 for simplicity. The largest balance you’ve ever had on the card is $250. Your current balance is $200. Most cards companies would place your % of card balance at 20% ($200/$1000). Capital ones calculates your % of card balance at 80% ($200/$250) because it’s the “most you have allowed yourself”. The ONLY way to “fix” this is to at sometime have actually maxed out your card. Why… Read more »
Gary Markhov
Gary Markhov
10 years 4 months ago

Jennifer, do you know the title or have the link to that Money Magazine quiz? I’d like to give it a try.

mila
mila
10 years 4 months ago

when you start to add McD’s, the Absolut Vodka makers, and presumably their advertising companies (and the media co’s that carry them?) to your list of companies you won’t invest in, you start to get a fairly short list

Sahil
Sahil
10 years 4 months ago

I couldn’t disagree more. While I empathize with your argument, the credit card companies are not doing anything wrong. It’s not as if they suddenly pop the fees on their clients; such things are CLEARLY documented. Caveat emptor is a famous phrase for a very good reason. If consumers are incompetent, they need to be educated. You cannot unfairly lay blame — or, as you seem to imply, responsibility for education — on the credit card company.

Hawk
Hawk
10 years 4 months ago
I have a Capital One credit card, but I don’t use it. I have a very high rate on it, as it was a student card back from before I even graduated high school. I could close it, but that’s going to ding my credit rating for now. I could negotiate a better rate, but I don’t *want* incentives to use it. I think in some ways, money is like food. Humans aren’t really designed to cope with readily available food, and as a result quickly begin to overeat. Expecting people to be purely responsible is negating the fact that… Read more »
Carlin
Carlin
10 years 4 months ago
I used to work in collections for one of the current top 5 banks by size. I worked mostly with car loans and home loans and the tactics used by the bank to collect, and the things it turned a blind eye to, were ridiculous. If you received a complaint about a dealer’s loan tactics (such as straight out lying on the paperwork or about the interest rate) the bank had no system to log these complaints and investigate them. Wouldn’t you want to know if you were doing business with a shady dealer? I would. The bank didn’t because… Read more »
JLP at AllThingsFinancial
10 years 4 months ago
Rammit, I see what you are saying. However, where do you draw the line? Banks have been doing the same thing with mortgages. They entice people to buy more home than they can afford. Then they send our refinance letters over and over again, so that people will borrow more. The fact of the matter is that a credit card company’s goal is to make money. Just like it is a car salesman’s goal to make money, or a real estate agesnt’s goal to make money. It is up to the CUSTOMER to decide whether or not they should borrow… Read more »
Mateja
Mateja
10 years 4 months ago
Where do you draw the line on what you’ll invest in for ethical reasons? I recently invested in Vanguard’s 500 Index Fund because I am hoping that it will bring a good return for my retirement. However, when researching the holdings of the fund, I realized that the largest holding is in ExxonMobil, a company which has in the recent past gouged us mercilessly with astronomical gas prices — prices which have turned into multi-billion dollar profits. Now where do I stand? Am I part of the problem or the solution? The ethical dilemma is real, but my retirement is… Read more »
derek_
10 years 4 months ago
Very nice Ramit. I thought ‘making money’ was done in DC. Credit card companies certainly aren’t making money. They’re taking money. And the money they take represents all of these people craving things they do not need and don’t have the money to pay for. Money is just a concept. It is nothing without people. Shopping for some people is a very real addiction. They literally get a high from doing it. I think a drug dealer could easily think ‘hey, everyone has to ‘make money right? If they want to give me theirs because of their own self-destructive behavior,… Read more »
Freelove
Freelove
10 years 4 months ago

Perhaps rather than legislating minimum payments, another good idea would be to force credit card companies to attach two simple figures to the bill: 1) The # of days it would take to pay the full balance if only the minimum due was paid and 2) the total amount of interest that would be paid by doing so.

Anonymous
Anonymous
10 years 4 months ago

The company that gives you a 150.00 credit line and then charge 79.00 to use it ought to be put in jail

Pronell
Pronell
10 years 4 months ago
I used to be a postal worker, back in the days where Capital One was advertising _very_ heavily on TV that it did not telemarket, and so I got to see all the scummy little tricks they’d use to make sure people were opening up _their_ credit card offers while tossing the others away. I’ve seen ones that look like checks, serious legal paperwork, and handwritten letters. I’ve seen ones proclaiming “We’re the company that celebrates your black heritage!” going to everyone in that neighborhood.. and they weren’t donating 1% to the NAACP, they just stamped on a cheap picture… Read more »
abileneblues
abileneblues
10 years 4 months ago

Ramit,

Great post. I’ve also struggled with this question. I view it this way. Since I finally became free from being a slave to debt, it seems a little slimy to make money off of the slavery of others.

Alex Givant
Alex Givant
10 years 4 months ago

Ramit,

You probably need to short them and put more time to teach other people how to behave with money and credit cards. This way you’ll win twice!

Derek
10 years 4 months ago
This is an honest (non-rhetorical) question: How does this jibe with the adage of the “we’re going to teach you about money” intelligencia in that you should divorce emotion from maters of money? By saying you’re not going invest in particular corporation for ethical reasons, are you not limiting your own financial growth by bring emotion into the equation? I guess there is value in being able to sleep at night. Plus I suppose this isn’t a cut or dry situation (i.e. not investing in the Soylent Corporation after finding out Soylent Green was made from people is an easy… Read more »
Howie
Howie
10 years 4 months ago
I’ve been thinking about my post on this thread last week, and wanted to elaborate on my (and other) points. I do not think it is wise to inject ethics into investments. Yet I am an ethical person who is very philanthropic and hopes to become even more philanthropic as my career grows. I used to try to invest in companies that I found ethically responsible, but stopped after I realized two things: First, the returns on my investments were really suffering. More importantly, though, I realized that even if I were a millionaire, the amount of money I would… Read more »
Hawk
Hawk
10 years 4 months ago
Here’s an even more interesting credit card company thing. My partner just received a letter, forwarded from his old address, from Capital One. This letter was really a book of purchase checks, those infuriating things that credit card companies shower their cardholders with, and which must be destroyed faithfully lest someone else get ahold of them in the garbage. One problem: he doesn’t have a Capital One credit card. Or a Capital One account of any kind. Or any kind of credit. So, is it some sort of new trick to get people to sign up? Are they real checks… Read more »
DC Grrl
10 years 4 months ago

Where to draw the line, indeed. I think each investor has their own lines and their own ethical concerns. Personally, I would never invest in McDs, but Absolut sounds like a grand idea if the numbers are right. (I work in advertising, I’m used to getting beat up, but I won’t even start the defensive soap box!) I think Ramit has brought up another good cause.

But just like politics and religion, everyone will have their own views and make their own decisions. Otherwise, the stock market would never function, would it?

Jennifer
Jennifer
10 years 4 months ago

The test was actually featured in Smart Money. It’s called the Cognitive Reflection Test. I believe the researcher’s name was Fredrick or Fredrickson at the MIT Sloan School. If psycho-finance is your thing, I’d just google the guy and read his scholarly paper. I believe Thaler at the University of Chicago is a big name in game theory and decision making biases. You should have no problem finding his scholarly work as he has his own investment firm.

Adam
Adam
10 years 4 months ago
I used to work for Capital One. Very solid company, with extremely robust decision-making processes. I work for a competitor now, but still believe that they’ll always be one of the best performers, and would invest in them over any other card companies. The talk of printing “it would take you 267 bajillion years to pay off your debt if you only paid the minimum every month” on statements is silly. If you actually saw the data on how many people pay just the minimum every month, you’d see that almost no one is in that situation. People pay the… Read more »
Debt Hater
10 years 4 months ago

I’m glad you decided not to invest because of your own ethics. Money makes the world go ’round, so think of how different things would be if people used their ethics to decide what to buy, not decide their ethics based on what they buy.

JBA
JBA
10 years 4 months ago
I’m the only one among my group of friends and acquaintances in college who graduated with no credit card debt. Everybody else I knew maxed out and paid the minimum. One friend reasoned with me that credit card companies don’t like it if you stay paid up and don’t carry a balance, so you should always have several recurring charges that you don’t pay off. Whiskey Tango Foxtrot? This stupidity earned him my famous lecture: They exist to serve me, I do not exist to serve them! I have better things to do with my money than enrich credit card… Read more »
thrillhouse
thrillhouse
10 years 4 months ago

Excellent post.
for Adam from Capital one:
you are either lying or blind to what these companies do. Debt is evil, read the bible.

for everyone else who hates debt, and wants to know the truth about slimeball companies like Capital One::
http://www.daveramsey.com

Dylan
Dylan
10 years 2 months ago
Think about this hypothetical situation: You can either get paid four dollars to help a blind lady cross a street, or you can get paid five dollars to try to trip the lady when she attempts to cross on her own. I would hope most people of even temperament would agree that the extra dollar of return isn’t worth the moral cost. The same applies here, although the color may be more gray to some. Choosing not to invest in Capital One (or any company one has a moral issue with) does not mean you cannot make money. It simply… Read more »
Andrew
Andrew
9 years 8 months ago

I’ve got a Capital One card and I’ve noticed that they offer a relatively low credit limit. I ordered it at http://www.credit-land.com/1030/1030_page_4248_4637.php They are also not in the habit of constantly increasing your limit as a number of others do.

wpDiscuz