Wednesday, July 18, 2012

Capital One Fined $250 Million - Is This a Good Thing?

Capital One was recently fined $250 Million for trying to sell customers crappy services and add-ons.  I have mixed feelings about this.

Self-reliance and self-determination are the keys to getting ahead in this world.  Everyone wants to be rich, but they also want a smart phone or a new crappy economy car, with a string of payments extending out five years.  You can't have both.  You have to pick one.  You want wealth?  You have to spend less.  You want crappy things?  You can't have wealth.

This is the simple equation for 99% of Americans, from the very poor to the striving upper-middle-class.  And most choose crappy things, which is why 1% of Americans control most of the wealth in this country.  The rest of us had a choice, and we choose poorly - in both senses of the word.

Today, in the news, Capital One has agreed to pay a $250 million fine.  I think it was one of those "do you take a check?" deals, as Capital One seemed eager to pay the fine, as they obviously made more money than that, on these odious deals.

What sort of odious deals?  Well, the usual sack of dogshit that is sold to scared consumers - credit score monitoring and payment protector (insurance to make your payments, if you are disabled, etc.).  These are just the typical crappy deals that many companies - even your local credit union - will try to sell you.  Why?  Because they are wildly profitable.

OK, here's an embarrassing admission.  When I was a young man and bought a crappy econobox targeted to the young, I got a loan, not at a favorable interest rate, and then paid an extra fee for "loan insurance" so the car loan would be paid off if I was disabled or killed.

Think about it a minute.  What are the odds of a 22-year-old being disabled or killed?  And with a net worth of -$100, what would they do, sue me if I was disabled?  Not likely.  For far less than the cost of this "loan insurance" I could have bought a $50,000 term life policy that would have paid off in a big way.  But at that stage of my life, even a term life policy would have made no sense - I had no obligations or dependents.

But that is the sort of thing they are selling with these "payment protector" plans, and they are a crappy deal, and the poorer you are, the more likely you are to bite on them, as the few pieces of chattel you have managed to accumulate seem so hard-fought and hard-won than you hesitate to take even the tiniest risk with them.

So you throw more money away, and your net worth sinks further, all because you bought into the "monthly payment" mentality of life, instead of the "overall cost" or "net worth" solution.

OK, so Capital One sold some shitty deals to uneducated consumers.  Is that against the law in the United States?  Because if it is, well, a lot of people are breaking the law.

I mean, where do you start to add up the crappy deals that poor people bite on?  Payday loans?  Rent-to-own furniture?  Title Pawn Loans?  Pawn shops in general?  Check Cashing Stores?  Fast food?  Convenience Stores?  Lottery Tickets?  Buy-Here-Pay-Here used cars?  Leasing?

I mean, where does it end?

Part of me says, "Well Done!  You are protecting consumers!"

Part of me says, "OK, what about all these other crappy deals?  You've got a lot of work to do!"

And still another part of me says, "Where do we stop?  People make poor choices all the time.  How much do we have to do to protect people from themselves?"

I had an interesting conversation with a youngster the other day.  His take on life - as is the take on life of all young people, including me at that age - was that having cool shit was really, really important.  And of course, you have to do what your parents say is best.  Saving money is a good idea, but how can you afford it, when you are living "paycheck to paycheck?"

Stupid is as stupid does.  Do we need to "protect" young people from going out to bars every weekend and drinking Jager shots until they puke?  If so, where does this all end?

Can we force people to be fiscally responsible?

I think the answer is "NO" - as there will always be some new form of financial idiocy that people will engage in.   It is like playing whack-a-mole.  As soon as you knock one down, another will pop up.

I think the answer lies not in stopping people from offering bad deals, but in educating people to stop biting on them.  There will always be bad deals in the marketplace.  And people have free will to engage in poor financial thinking.

If we force people to face the consequences of their financial malfeasance, perhaps they will think twice about doing it again.

For example, many recent graduates want their student loans "forgiven" - which really pisses off people (like me) who paid theirs off.  What does a graduate "learn" from loan "forgiveness"?   They learn they can make horrific mistakes in life, and if enough people do them the government will bail them out.

Bad lesson to learn.

You see, the problem is, there are enough people in this world who don't bite on bad deals.  When I renewed my Capital One card (7.15% rate, thank you, no foreign transaction fee - actually a good card) I was offered those sort of pitches.  But of course, the person I was talking to realized I was financially astute, as I was looking at a cheap rate, not some doo-dad kickbacks, and he didn't try to sell me too hard.

And when he did, I said, "NO" in no uncertain terms, and told him I would hang up if he persisted.

So, I get the low interest rate, no rip-off kick-backs, credit protector, or payment insurance.  My reward? The chumps who buy all that crap subsidize my low rates and no annual fee and no foreign transaction fees.

And that is the beauty of our system.  Most people make poor choices in life, and then try to self-justify the poor choices they made (like the youngster who bought the econobox, the smart phone, and parental meddling,  - the complete "package").   This means that for a small  minority of us, who want to make smart choices in life we come out so far ahead.

It is a system that works well for folks who think and think hard.  I am not sure that forcing banks and merchants to offer good deals to just anyone would be such a good thing, at least for me.

You have choices in life.  And if you consistently choose poorly, life will suck in short order.

No one put a gun to anyone's head and said "buy credit protector OR ELSE!"  And I am not sure that "fining" Capital One is such a swell idea, in the long run.

You can't force people to make correct choices, as I have seen here in this blog.  They will fight you, every step of the way, and argue that their poor choices are in fact, smart ones.  And they will defend, to the death, their right to make foolish choices - and defend the people who are exploiting them, as well.

I think all we can do is tell them the raw truth.  And if they want to drive their car off a cliff, just make sure you are not in the back seat.

Because, if you are smart and astute, Capital One offers a decent credit card - just as Bank of America offers decent, no-fee services.

If you are dumb and poor (being redundant here) then you will get a shitty deal from Capital One and from Bank of America - or from any bank, merchant, or trader.

That is just the way it is - has been, and always will be.