Credit Card Questions

Do you ever wonder who makes money if you pay off your no-annual-fee credit card balance in full each month? Do you ever worry that your credit card company (the card issuer) will close your account because you don't pay any finance charges since you never carry a balance from one month to the next? And how can the card issuer afford to give you points for your charges, redeemable for cash? A couple times a year, I go online and either apply my points to help pay the next month's bill or to send me a check.

"Be quick about it," says Virginia.

"All right," say I. "Usually 4 parties besides you are involved in each transaction and each is well-motivated. The network (party 1) charges a fee (interchange fee) that gets paid to the card issuer (party 2) by the retail merchant's bank (party 3), which collects it and a little more from the merchant (party 4) by paying him less than your purchase amount. The network charges fees for its services to the card issuer and the retail merchant's bank. Of course, the merchant charges you more than it paid for whatever you bought."

"You didn't answer the second question," says Virginia.

"Oh yeah," I say. "Don't worry too much. The Credit Card Accountability Responsibility and Disclosure Act of 2009 included a provision that prohibits a card issuer from terminating your account prior to its expiration date solely because you don't incur a finance charge. Your card issuer might be able to come up with another reason."

"Wow, that's exciting," says Virginia, "and here I was, fretting that I was cheating someone out of something."

"I bet you were. Have a great weekend."

"No cash for me," she says. "I'm using my cards wherever I can."