Opinion

Felix Salmon

Suze Orman goes prepaid

Felix Salmon
Jan 9, 2012 17:20 UTC

I’m a big fan of Suze Orman, and I’m generally very mistrustful of prepaid debt cards. So what happens when Suze Orman launches her own prepaid card?

The answer, in a nutshell: it’s the best prepaid card out there. Its fees are clear, and refreshingly absent a lot of the time: no fees to buy anything, no fee to check your balance online or over the phone, no fee to transfer money to another card, no fee to make electronic bill payments, not even a fee to close your account and get a check for the balance. I also like the way that it will email or text you every time you use the card.

So if you have some other prepaid debit card, close it, and get this one instead. It’s clearly better.

Of course, there are questions associated with this product, too. Ron Lieber is worried about Orman’s journalistic integrity, on the grounds that she has a weekly show on CNBC: “if I tried to introduce my own card,” he writes, “the ethics editor would laugh me out of the New York Times building”. I’m not particularly bothered by this, although I am a little bit uncomfortable about her longstanding move into financial products more generally, which long predates the Approved Card. For instance, Suze Orman’s FICO® Kit Platinum will cost you $49.95 — a much worse deal than the Approved Card.

And Orman’s including something vaguely similar in the Approved Card: sign up for one of these cards, and you’ll get unlimited access to your TransUnion credit report, along with your TransUnion credit score. I don’t like the way that Orman sells this as an “opportunity to save yourself $143.40″ — this is a so-called “fako” score, rather than your FICO score, and you’d have to be an idiot to pay $11.95 to get it. Especially since exactly the same service can be found for free at CreditKarma. It seems that TransUnion is making a determined push into biz-dev deals which give consumers its scores for free; that’s fine, I guess, but I’m not going to get particularly excited about it.

There are two possible problems I see with the Approved Card, both of them surmountable. The first is that as far as I can tell, it isn’t actually sold anywhere; Orman desperately needs to get some retail presence for this thing, since that’s the way the overwhelming majority of prepaid cards are sold. And the second is the Achilles’ heel of most financial services, which is the quality of customer support. When people complain about their banks or their prepaid cards, the complaints nearly always come after a dreadful experience on hold with unsympathetic and unhelpful call-center operatives. If Orman can fix that, she’ll deserve an enormous amount of praise.

COMMENT

I’m skeptical of Suze’s consumer products after seeing the investment portfolios she promotes:
http://blog.covestor.com/2011/05/the-suz e-orman-retirement-hedge-fund

See also:
http://rp-pix.com/id

Posted by MickWeinstein | Report as abusive

Why low-interest payday loans could scale

Felix Salmon
Jan 8, 2012 07:04 UTC

Megan McArdle responds to my post about consumer lending in Missouri by expressing skepticism that it’s possible to lend to people with bad credit unless you do so at extremely high interest rates. She gives a number of reasons why this might be the case, all of which are entirely plausible.

For one thing, she says, the risk of default is high — and particularly invidious when you’re lending money out for short periods of time. Think of it this way: what happens when you lend 100 people $500 each, for one year, at 10% interest, with a 10% default rate? You start the year with $50,000. You end it with 90% of the loans paid back — that’s $45,000 — and another $4,500 in interest on those loans, for a total of $49,500. And you also have $5,000 of defaulted loans, which are worth say 25 cents on the dollar. Which means you make a total profit of $750.

On the other hand, what if the term of the loan is six months, but the 10% default rate stays the same? Then after six months you’ve got $45,000 back, plus $2,250 in interest, for a loss of $2,750. And if you run the same program again in the second half of the year, you’ll lose another $2,750. Instead of being down $500, you’re down $5,500. Yes, you’ve now got $10,000 in defaulted loans rather than $5,000. But even so, you end the year with a loss of $3,000.

The point here is that defaults aren’t evenly distributed: instead, they’re highly front-loaded. If you haven’t defaulted in the first six months of a one-year loan, you’ll probably pay it off: the probability of default is always highest at the very beginning. And so if you lend for shorter periods rather than longer periods, you have to increase the interest rate you charge, just to make up for the fact that the default rate is not going to fall. Which is the opposite way round to how yield curves normally behave.

On top of that, notes Megan, small loans are labor-intensive: the fixed costs of processing such things are high as a percentage of the principal amount, and the kind of people who take out such loans are, in the parlance of retail banking, “high touch”. These are not the sort of customers who apply on line and repay their loans through online-banking balance transfers.

And so Megan comes to her conclusion. “Credit unions lack expertise and skill in this sort of loan”, she writes, and payday lenders tend not to be particularly profitable, which means that

the reason that the credit unions aren’t putting them into cheaper loans is that they can’t. The cost of an unsecured loan to someone with terrible credit is high because those loans go bad very frequently, resulting not only in the loss of funds, but in considerable overhead expended on collection.

All of this is perfectly reasonable. But I’d point out three arguments pointing in the other direction.

Firstly, what payday lenders are really selling is convenience, at least as much as it is loans. Check cashers, payday lenders, and the like do not keep typical banking hours: they’re open late, they’re open at weekends, and they are generally found in small storefront locations which would not be suitable for a fully-fledged bank branch.

This is entirely rational — you want to be where your customers are, and you need to be able to reach your customers when they’re not working any of their jobs. But at the same time, it’s expensive. And in general, credit unions are already paying for the cost of their overheads, before they start offering any kind of payday loan. So while payday lenders have to cover a lot of overhead from the proceeds of just one product, credit unions have to cover just the marginal cost of the payday loans, which is a great deal smaller. After all, their staff and real estate is already being paid for. If you went up to a payday lender and said that you’d cover the cost of their real estate and their labor, you can be sure that either their rates would come down or their profits would go up.

Secondly, credit unions have a significantly lower cost of funds than payday lenders do. Most importantly, they can take deposits, which pay little or no interest. Payday lenders, by contrast, tend to be small organizations which are largely unregulated. When they borrow money, they have to pay up for doing so.

And thirdly, credit unions are non-profits. There’s only one reason to set up a payday lending shop: to make as much money as possible. Credit unions, by contrast, exist to serve their shareholder-members. If those members need payday loans, then it behooves the credit union to find some way of giving them those loans, even if they’re not particularly profitable.

There’s a pretty strong argument that credit unions should offer payday loans at zero marginal profit — the customers who ask for them are among the credit union’s neediest members, and pretty much by definition they’re also least able to afford expensive financial products. A case could even be made for extending payday loans at a small loss, just because the cross-subsidy is attractive to the membership as a whole. Think of it like an insurance policy: if you join the credit union, then you know that if you ever do fall on very hard times, it’ll be there to help you through them.

Which brings me to the Salary Advance Loan offered by the North Carolina State Emloyees’ Credit Union. Megan wonders whether it’s only possible because state employees’ paychecks are particularly reliable, but the structure of payday loans makes them all relatively safe: they’re fully collateralized by the money coming at the next payday. You can only get one of these loans if you’re employed, and you can demonstrate how much your next paycheck is going to be.

The NCSECU product is very well put together. It involves financial counseling; the creation of a savings account; and a modest interest rate of either 5% or 7%. It lacks the convenience of most payday loans: the credit union surely has shorter office hours than most payday lenders, and the product is more complicated. But the interest charged is so much lower that taking out one of these loans is always going to be a better idea than going to a payday lender who might charge upwards off 400% APR.

And I can’t help but think that with a bit of goodwill, other credit unions across the land could follow suit — even (especially!) those which aren’t specifically designed to cater to a low-income or underserved population. The non-profit business model is a very powerful one in financial services: just look at Vanguard. And I suspect that a lot more credit unions could push the envelope of what they offer, if only they had the will to do so.

Are low-interest payday loans from credit unions “a game changer that will revolutionize payday loans”, in Megan’s words? Probably not — but if they’re not, I think it’s more about credit unions’ willingness to provide these things than it is about their ability to do so. The product exists, and it works. The problem is making it scale.

COMMENT

If you’re thinking about applying for quick cash payday loans, you have to be at least eighteen, employed and a UK resident. If you fulfil those criteria and have an active bank account, you can apply. You then just need to include a few details about your home, work and banking account, and your application will likely be fast-tracked to a quick decision.

Posted by Piyushr | Report as abusive

Counterparties

Nick Rizzo
Jan 7, 2012 01:08 UTC

There’s very little good news forecast for the European economy — WSJ (paywall)

Just 3% of the 1.4 million net jobs added in the recovery went to women — NWLC

You know who the job recovery is bad news for? Mittens Romney — New Yorker

Why does the government consistently underestimate job creation? — Reuters

US manufacturing workers earn less than half as much as Canadians — WSJ (paywall)

The untold story of GE’s subprime debacle — I Watch News

Goolsbee: Washington isn’t spending too much now, but it will be later — WSJ (paywall)

And the political economy of wolf migration — Lawyers, Guns and Money

COMMENT

CDN, I’ve been able to get full access to paywalled articles occasionally. Perhaps a limit of one per day? Worth exploring.

Posted by TFF | Report as abusive

Golden ticket economics, part 2: Damien Hirst

Felix Salmon
Jan 7, 2012 00:46 UTC

Yes, the Damien Hirst Complete Spot Challenge is a thing:

Visit all eleven Gagosian Gallery locations during the exhibition The Complete Spot Paintings 1986–2011 and receive a signed spot print by Damien Hirst, dedicated personally to you.

Carol Vogel, who says that the price of spot prints is somewhere in the $3,500 to $50,000 range, managed to get Hirst to explain the thinking:

Asked how he came up with the idea, Mr. Hirst responded in an e-mail: “I figured it would be pretty difficult to visit all the galleries, and totally admirable if anyone managed it, so admirable in fact that I thought they would deserve a work of art, so we came up with the idea to do the challenge. I’d love it if people manage it. I remember the golden tickets in Willy Wonka, maybe it’s a bit like that.”

And Greg Allen comments, calling the whole thing “a Black Friday riot for billionaires”:

How awesome that he invokes the utterly deranged Willy Wonka for this thing, which goes beyond difficult; I think it’d be positively hellish. Which is really perfect.

But does it have to be hellish? Even if you don’t have access to a private jet? I decided, with the help of Nick Rizzo, to put together an itinerary for an imaginary plutocrat — let’s call him Pictor Vinchuk — who wanted to curry favor with Hirst and take this bonkers challenge. The rules: he had to fly commercial all the way (I guess his jet’s in the shop), but he would travel first class and stay in the best rooms at the grandest hotels. And, just to make it a bit more interesting, he had to wait until after Davos to start his trip.

Mr Vinchuk’s itinerary starts in Geneva — an easy hop from Davos. We’re trying to make this trip as un-hellish as possible, so we’ve booked him in to the Beau Rivage hotel, arriving on Sunday January 29, where two nights in a lake-facing historical suite will run $10,471. Then on Tuesday January 31, we’ve booked Mr Vinchuk and his companion onto the short flight to Rome. Still, a pair of first-class tickets is $2,682. Another two nights in Rome, at the Hassler Roma Classic Suite, will cost $6,717.

And then comes the low point of the whole journey: there aren’t any flights with first-class seats from Rome to Athens! Poor Mr Vinchuk has to make do with business-class seats, at a minuscule $439.10 apiece. And then slum it at the King George Palace hotel, where his junior suite is a mere $469. All very low-rent. Fortunately we’re only spending one night there, before we hold our nose and get on the final business-class leg of the trip, two tickets at $655 each to Paris.

From here on in, things get much more familiar. There’s the premier suite at the George V hotel, which is $11,450 for two nights. There’s the pleasant train journey to London on Eurostar, $948 for two tickets in first class. And then there’s the lovely Linley Suite at Claridge’s in London, where we spend three nights, which is more than enough time to visit both the Britannia Street and Davies Street Gagosians. That stay will run us $7,288.

Then on February 8 we hop over the pond to New York. Those tickets are a pretty impressive $9,276 each. And we need to spend some time in New York, too, to catch up on friends and make sure to visit the three different Gagosians — on 21st Street, 24th Street, and Madison Avenue. So we’ve booked Mr Vinchuk in to a grand suite at the Pierre, which runs $16,077 for four nights.
On February 12 we leave for Los Angeles: a first-class ticket for that leg is $3,108, and three nights in a deluxe bungalow at the Beverly Hills Hotel is another $8,341. And finally on February 15 we hop a plane to Hong Kong — that’s $15,682 for two first-class tickets — in order to catch the show there before it closes on the 18th. We’ll spend two nights in the presidential suite at the Landmark Mandarin Oriental: that’s $2,524, checking out on the 17th.

Add it all up, and the trip comes to $108,572 for a 19-day itinerary, or about $5,700 per day. And of course there are incidentals, too: meals, cars, helicopters to Geneva, tchotchkes at Harry Winston, that kind of thing. But the main thing, of course, is that you end up spending more money touring the eleven different Gagosians than the value of the print you get for doing so. Otherwise, Damien might think you were taking advantage. And I think we’ve safely managed to do that.

Update: OK, back to the drawing board here: the eagle-eyed Greg Allen notes that the LA show ends on Feb 10, which means that if we get there on Feb 12, we’ll be too late. He also says that “the Spot Challenge is really a challenge to fill the vast emptiness of someone’s life, to provide purpose [sic of the biggest kind] to someone’s leisure time. It’s literally the answer for someone who doesn’t know what to do–not just with their money, but at all.” I feel offended on behalf of Mr Vinchuk!

Meanwhile, Jennifer Bostic reckons she can do the whole trip, for two people, for $13,206, including some pretty grand hotels at some decidedly cheap prices. Of course, the real cost here, as Allen says, is time rather than money. But I would be tickled very pink if a pair of underemployed hipsters did the whole tour for less than the value of the prints, sold them, and made a profit. Listen all y’all, it’s an arbitrage!

COMMENT

for a second, i wished i was an underemployed hipster. i want an itinerary with hostels, lets get this dirt cheap.

Posted by marantz | Report as abusive

Golden ticket economics, part 1: Next restaurant

Felix Salmon
Jan 6, 2012 23:57 UTC

Economists Justin Wolfers and Betsey Stevenson have a problem with Grant Achatz’s pricing strategy at Next, where tickets are sold at a fixed price and are then free to be resold at an enormous markup on the secondary market. The restaurant is very clear why it won’t auction off tickets instead:

You should auction the tickets. Do a reverse, double blind, dutch auction and give the surplus profit to charity.

An auction would set pricing too high for our sense of value for the meal. One of the reasons that we have so many people trying to buy tickets is because we are trying to do something new, different, and delicious for a great price. We may institute more dynamic pricing in the future, but for now the system is fair precisely because it is blind to everyone – anyone who clicks to buy can buy.

But the Wharton economists aren’t convinced.

“It’s democratic in theory, but not in practice,” said Wolfers…

If a person can sell a ticket for $3,000, the true cost of going to the restaurant — what an economist would call the opportunity cost — is $3000, because that’s how much money the person is giving up for the meal.

Bloomberg’s Mark Whitehouse concludes that Next should “consider selling tickets to the highest bidder and giving the extra money to charity” — precisely the course of action which has been explicitly considered and rejected in the restaurant’s FAQ.

Is Next making a mistake here? Do Wolfers and Stevenson have a point?

My feeling is that the restaurant is the smart one, while the economists are being naive.

For one thing, real people don’t think in terms of opportunity cost — especially not when they’re the lucky winners of a restaurant-reservations lottery. Dan Ariely did research on this at Duke University: he found that once Duke students won the lottery giving them the opportunity to buy sought-after tickets to the university’s basketball game, they valued those tickets at ten times more than the students who lost the lottery.

What’s really going on here, I think, is that the vast majority of people who get tickets hold on to them, go to the restaurant, and eat a wonderful meal for which they paid a reasonable sum. And then there’s a tiny number of people who get tickets, and either discover they can’t use them for some reason, or decide that they’re going to try to flip them for profit.

Because that number is tiny, the supply of Next tickets in the secondary market is tiny — and because the secondary-market supply of Next tickets is tiny, the price of those tickets can become astronomically high. But I suspect that the high secondary-market prices for Next tickets are doing a very bad job of increasing supply — that there are people who can’t use their tickets, and there flippers who are always going to put their tickets up for auction if they win, but there are very few people indeed, and possibly zero, who put their tickets up for sale just because of how much money they might fetch.

As a result, the very few datapoints that we do have, with respect to the secondary-market price of Next tickets, tell us almost nothing about the amount of money that Next tickets would go for if they were auctioned. If Next decided to auction off all its tickets, the total supply of Next tickets in variable-price markets would skyrocket. Demand would probably rise too — but I very much doubt you’d ever see $3,000 tickets in a Dutch auction.

What you would see, on the other hand, would be a lot of semi-disgruntled diners worrying about whether they were suffering from the winner’s curse, and feeling much less chuffed about their meal than the current diners who are generally elated about having won the lottery.

The most important thing in being a restaurateur of a high-end establishment is exceeding expectations; if you auction off tickets, then the price of tickets will naturally gravitate to and possibly past the point at which you can’t do that any longer. That’s why Next is right to worry about “our sense of value for the meal” — because the chances are that their sense is going to be your sense too. If they think a meal isn’t worth more than say $200, and they start selling tickets to that meal at $400 apiece, then they’re setting their customers up for disappointment; I can’t imagine Achatz would ever want that.

Do the handful of people who currently buy tickets for $500 or $3,000 walk away disappointed? Maybe not: there’s a good chance those people aren’t particularly price-sensitive. But when you move away from those people and use the market to set prices for all your customers, big dangers lurk. As Alan Vanneman says, markets are largely foreign to the human imagination. And since restaurant-goers are human, we don’t want to upset them with market mechanisms if doing so is unnecessary.

In the past, I’ve advocated auctioning off restaurant meals in certain contexts, but never as the only way of selling tickets. Restaurant-reservation auctions should be rare things, applying to a minority of your total diners. Most of the time, prices should be fixed, and it’s always nice when demand outstrips supply. That’s how successful restaurants have always worked, and it’s hubristic to imagine that there’s an obviously better way.

Update: Next owner Nick Kokonas responds in the comments, happily demolishing a key part of the auction-happy crowd’s argument: it’s untrue that a $100 ticket ever sold for $3,000. In reality, he says,

a TABLE has sold for $ 3,000. That table was a kitchen table for 6 people that with wine pairings, service, and tax was nearly $ 2,500 face value. This was a case where one blogger got it wrong and EVERY news source since has reported it as if a $ 100 ticket sold for $ 3,000. Big difference.

What’s more, Kokonas confirms my suspicion that the overwhelming majority of tickets are not in fact resold: 99% of them are used by the people who manage to buy them, or their family and friends.

But he does add that there will be a Dutch auction for one two-top per night, with all proceeds going to the University of Chicago Cancer Center. I hope it raises lots of money!

COMMENT

1. Enterprising coders did set up scripts — but those have been effectively blocked by both passive (captcha) and active (ip filtering) means.

2. I don’t believe a ‘ticket’ has ever sold for $ 3,000 — a TABLE has sold for $ 3,000. That table was a kitchen table for 6 people that with wine pairings, service, and tax was nearly $ 2,500 face value. This was a case where one blogger got it wrong and EVERY news source since has reported it as if a $ 100 ticket sold for $ 3,000. Big difference.

3. The number of scalped tickets is very low… we can track transfers and to an extent which are scalped and it is less than 1 %. The majority of transfers that are not between family and friends are processed through our site — a few per day only.

4. Most economists I have spoken with on this (and yes, they do call / email me) fail to consider the fact that we have to tightly control the flow of people into the restaurant and that we are not making widgets… it is not a scalable operation. Those that realize this immediately think — raise prices and find price stability through an auction. I completely understand that from the point of view of maximizing utility (in the economic sense). But it would be a PR / customer service DISASTER. Right now we are offering an experience that is perceived as a great value and that ensures that we have a full house every night. As soon as we take that to ‘parity’ we run the risk of living a bright but short existence. We are planning for the long term — and that includes tangential businesses (our iBook series with Apple for example) that are not factored into their plans.

5. For our El Bulli menu we will be running a Dutch Auction for 1 table of 2 per night… with 100% of the proceeds benefiting the University of Chicago Cancer Center where chef Achatz was treated. We will indeed see where El Bulli pricing settles, albeit for charity and for a very limited supply.

6. I am in the process of building a software suite that will allow restaurants, galleries, barbers, theaters, etc. charge variable pricing in both direction… and indeed use systems to easily sell fixed, variable, and auction pricing in a mix based on both supply and demand — while linking through social media seamlessly… and without having to use third-party deal sites to interact with opt-in customers. Next is in the first iteration of that experiment — there is plenty more (and more interesting) models to come.

– nick

Posted by nickkokonas | Report as abusive

How to rent a bike without a credit card, DC edition

Felix Salmon
Jan 6, 2012 19:09 UTC

Good news over at the Capital Bikeshare website, which has now been updated to make it perfectly clear that you can, after all, use your debit card to pay for a Bikeshare membership. The FAQ,which used to say that memberships require a credit card, now says “credit or debit card”; the signup page, which used to ask for your credit card details, now says “credit/debit card” at the top of that section. All of which means that although it was always technically possible to sign up for a membership with a debit card, now many more people are likely to actually do so.

On top of that, Bikeshare manager Josh Moskowitz tells me that some kind of installment plan should be in place “in the early half” of this year. It’s unclear whether that option will be open only to Bank on DC members, or whether it will be open to everyone.*

I still think that, in terms of getting the unbanked on bikes, the best approaches are always going to be ones which just get the unbanked on bikes, rather than ones which try to get the unbanked to open bank accounts which in turn will allow them to get onto bikes. But this is a move in the right direction — and a move which is probably going to cost some small amount of money for Bikeshare.

Remember that there’s a $1,000 fee charged to your card if your bike is lost or stolen. Now, what’s more likely: that your credit card has $1,000 of spare capacity on it before it’s maxed out, or that your checking account contains $1,000 in cash? I’d say the former, by a substantial margin. So the chances of Bikeshare having to chase down an individual when the $1,000 charge doesn’t go through are surely higher if that person signed up with a debit card than they are if they used a credit card.

So well done to Bikeshare for fixing its site and taking the risk that it might have to do more work chasing down the money for lost and stolen bikes. My gut feeling is that the marginal difference here is small. But government organizations like Capital Bikeshare are always overcautious and risk-averse, and I genuinely thought when I wrote my initial post on this that Bikeshare wouldn’t allow debit cards to be used for memberships at all. Now, let’s keep our fingers crossed in the hope that they come up with some way of being able to serve unbanked people without debit cards at all.

*Update: Moskowitz confirms that the installment plan will be available to everyone.

COMMENT

Please tell me there’s an option to purchase insurance so I don’t get hit $1,000.

Or better yet, incorporate the insurance with the membership.

Posted by SomethingGre | Report as abusive

Unmitigated good news on jobs

Felix Salmon
Jan 6, 2012 14:09 UTC

File this one under “unmitigated good news”: America’s employment situation turns out to have been rosier, at the end of 2011, than anyone had dared hope. There were 200,000 more people in work last month than there were in November, and the unemployment rate — by far the single most politically-important macroeconomic statistic — fell to 8.5%, the lowest rate in three years. All data series are noisy, of course, and we’ll surely see volatility in this one over the course of 2012. But it really does seem that there’s a bit of fire in the American belly right now, and that things are going to continue to get better over the course of this year unless and until some new crisis comes along.

The cheer is spread all over this report. The broadest measure of underemployment, U-6, fell sharply to 15.2%, again a new three-year low, and down two full percentage points in two years. The unemployment figures more generally are now beginning to look as though they’re in a downward trend, rather than every good month being offset with a subsequent disappointment. I’m not worried about an economy falling below stall speed any more — there’s a world of difference between this report and the gruesome one we were initially presented with four months ago. Back then, it seemed like nothing could get Americans back to work: now, with political gridlock as far as the eye can see through 2012, it seems that America has got used to nothing and is has worked out how to grow anyway.

Of course, the long-term problems remain long-term problems, including the number of people unemployed for more than six months or a year, and the overall percentage of the population which actually has a job. None of those numbers moved significantly, and none are likely to any time soon. They’re not things which get changed by a monthlong bout of hiring: they’re deeply engrained in the economic structure of the country, now, and are likely to prove stubbornly resistant to change.

But for the majority of us who are working now or who have had a job in recent months, things are looking relatively rosy. Average weekly earnings rose to $799.46, continuing a steady upward rise. And there’s even hope that the painful public-sector layoffs might be coming to an end: while we now have 280,000 fewer government employees than we did a year ago, that number was pretty much unchanged in December. (Or maybe it’s just that even the government has a little heart, and doesn’t like laying people off right before the holidays.)

Is this a fantastic report? No: as Betsey Stevenson says, an economy on fire could and would add 400,000 jobs a month, rather than 200,000. But no one’s kidding themselves that this economy is on fire. The main thing is that it’s growing, that things are moving in the right direction, and that we’re well above stall speed. If we stall, remember, there’s no safety net: the chances of any kind of fiscal stimulus in 2012 are exactly zero. So we’re on our own, here. And, happily, we seem to be doing OK.

COMMENT

Would be much more interested in comparing December 2011 to past Decembers….there is always a lot of temporary hiring around the holidays.

Posted by mfw13 | Report as abusive

Counterparties

Nick Rizzo
Jan 6, 2012 01:25 UTC

Hot Wall Street analysts are once again bringing in IPO clients for banks — WSJ (paywall)

A great 2010 profile of Richard Cordray, the new consumer watchdog — NYT

One-third of first-time home buyers get help from their parents — Reuters

Apartment vacancies are at their lowest rate since 2001 — WSJ (paywall)

And here is a list of many terrible things Rick Santorum has said — TNR

COMMENT

Felix, I notice that you’re no longer a slice of lime in my soda, and your page template has gone corporate.

Posted by Curmudgeon | Report as abusive

Bank charge of the day, mortgage-payment edition

Felix Salmon
Jan 5, 2012 22:47 UTC

It makes sense, for lots of reasons, to make your mortgage payment on the day you get paid. Most salaried Americans, however, get paid every two weeks. Which means, to all intents and purposes, that you need to be able to make one mortgage payments out of every two paychecks. And that in turn raises an intriguing possibility: if you take half of your mortgage payment out of every paycheck, you’re going to end up making 13 mortgage payments a year. Which will pay down your mortgage faster, and could save you thousands of dollars.

Enter the ever-helpful Citibank, with a product which does just that. It’s called The BiWeekly Advantage Plan®, and it’s essentially an automated mortgage payment, of half your monthly mortgage payment, which comes out of your account every two weeks. Easy. There’s even a Savings Calculator to see how much less money you might be able to end up paying.

And then, of course, there’s this:

There is a one-time non-refundable enrollment fee of $375 and a transaction fee of $1.50 for each draft.

That’s an up-front fee of $375, plus another $39 a year, just for the privilege of making your mortgage payments every two weeks rather than every month.

I asked Citi about this, and got a statement back from spokesman Mark Rodgers:

The BiWeekly Advantage program is completely optional. Borrowers may make additional payments on their principal balance independently anytime they like. Some customers, however, prefer the convenience of a disciplined payment plan that is administered for them. The one-time enrollment fee is reasonable and competitive for a service that requires processing more than double the number of standard payments and can save the customer many thousands of dollars over the life of the loan. We find high customer satisfaction rates among those enrolled in the program, demonstrating that these borrowers appreciate the value proposition of the service.

And it turns out that simply setting up Citi’s own online banking to make the same payments would not do the same thing after all. The reason is that CitiMortgage has a rule that it will only accept a full payment once per month. If you want to pay every two weeks, well, you can’t.

Which helps to reveal another fact: it turns out that Citi is making significantly more than $375 plus $39 per year for this service. Here’s the FAQ:

Payments are remitted to your mortgage company monthly.

The payments are made in arrears, of course. You make your half-payment, and then wait two weeks, and you make your second half-payment, and then the two are bundled up and sent off to the mortgage company (which in nearly all cases is CitiMortgage itself) as a single monthly payment.

Which means that for roughly half the year, Citibank is sitting on an amount of money equal to half your mortgage payment. That money has left your account: it’s not yours any more, and Citi can do with it as it pleases. And Citi gets the float from all that money until it gets around to sending it off to pay off the mortgage.

Basically, Citi is getting a big advantage from you making half your mortgage payment two weeks early — and then it has the chutzpah to charge you hundreds of dollars for the privilege. They even charge you $1.50 per extra transaction, as though that costs them any money at all. (It doesn’t.)

I can still see why people might want to sign up for this service: Citi basically makes it impossible to replicate it on your own, without going through an enormous amount of hassle. But the price is eye-watering, especially given that the service would make Citi money even if it were free. Think for a minute about all the things you can buy with $375. Then ask yourself how Citibank can possibly justify charging that much for this very small, if handy, service. It defeats me.

COMMENT

This is really off topic, but Citi has a branch here in Bangkok. About ten or twelve years ago a friend of mine was working for a U.S. State Department program helping to resettle illegitimate children of American servicemen, so he worked alternate months in Bangkok and Hanoi. A Vietnamese asked him to help her with a transfer of money to a branch of CitiBank in Texas. My friend went to the Bangkok branch, and after several hours of trying to find someone who knew how to do this thought he had succeeded. A couple of months later the Vietnamese lady told him the money still had not arrived in Texas. My friend went back to CitiBank, and after about six hours of looking for the right person was told that the money had not been transferred because no one at the branch knew the ABA code for the branch in Texas. When he asked why they had not notified him of their failure, they said they did not know how to contact him. He pointed out that the request for transfer had included his telephone number. Eventually, I believe, while sitting with the manager in his office he took out his cell phone and called the branch in Texas and got their code. They did not, of course, offer to reimburse him for the extra expense.

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