Andrew Kahr: The Man Responsible For High Credit Card Fees, Interest Rates, And Corrupt Business Practices
There is a BP gas station by where I live that uses a deceptive business practice to cajole people into patronizing it. The gas station owner posts a price that is $0.20 below the Shell Oil station across the street, and it is not apparent until you physically arrive at the gas station that you don’t get that price unless you get a car wash, too. By that point, most people will have already “settled” on that gas station and pay that price anyway.
When I talk about building long-term wealth, this is not what I mean. It’s not about extracting goods from others by lying, cheating, or stealing. If the records filed with the Secretary of State are accurate, this guy is a member of the local community. He has daughters he sends to the local private high schools. Yet, he has no problem using a bait-and-switch tactic to take advantage of his neighbors in our community.
The good news is that this behavior is self-correcting. When I’m in the area, I make a point to patronize the Shell station exclusively, because I don’t want to do my part to reward bad business practices. Given that humans don’t like to blatantly get ripped off, I imagine there are other people that do the same thing. As enough people catch on and start to go to Shell, his business practices will have a neutralizing or effect in which the customers that he loses from his bad business practices will be offset by the customers that he gains that are driving by and eye-balling the difference between the price at the two gas stations.
The shame of it all is that you can easily gain business without being dishonest. That gas station owner could buy one of those Coca-Cola freeform machines that allow you to select from 100+ different soda options to stimulate traffic, he could sell hot dogs for $0.49 so long as someone purchases a soda item or candy bar, or he could create a card that allows people to get a free soda for every $100 in gas purchased. There are so many ways you can create loyal customers without lying, cheating, stealing, or deceiving (which is just an indirect form of lying).
This all brings me to today’s item of discussion: Andrew Kahr. A 1957 graduate of Harvard, Kahr has spent his life proving to the world that he is a brilliant man. Unfortunately, though, he turned his efforts towards coming up with ways to modify the credit card industry so that financially illiterate people spending in excess of their annual income would get trapped in a form of indentured servitude to the credit card industry for the duration of their lives.
Here’s what Kahr has done for humanity: he got credit cards companies to change interest rates from annual to monthly terms. It was his brainchild to get credit card companies to advertise 18% annual rates as “1.5% monthly rates.” He came up with the notion of 0% interest rates that are advertised, and then abruptly changed to something well above 10% once a payment is not made in full by the due date. He changed the standard 5% monthly minimum to 2%, realizing that that three percentage downward shift could keep people indebted for years and years longer. Before Kahr, credit card companies used to have bills due on the first business day following a major holiday or Sunday. Kahr changed the industry so that due dates would deliberately fall on a Sunday or holiday, which would increase the number of late payments received, allowing card companies to raise rates and charge more in fees. And to top it all off, Kahr came up with fees to process payments slower. This is not a man you would want to see entering your grandmother’s abode saying, “M’am, have I got a deal for you.”
Some of Kahr’s business practices have been curbed by American legislation after the financial crisis. He is not entirely responsible for all of the bad developments in the credit card industry (after all, he had to convince bank and credit card executives to follow through on his suggestions), but still, he is the type of man that would inspire Charlie Munger to remark, “I’d rather stick a rattlesnake down my shirt than do business with you, because at least with the rattlesnake, there’s no pretense of what I’m getting into.”
For the other side of the story in which Kahr defends his practices, see here: http://www.pbs.org/wgbh/pages/frontline/shows/credit/interviews/kahr.html