I have managed to keep a decent credit score and yet my interest rates are still at 29%!
Interest rates should be lowered all together; at the very least rates should reflect individual credit scores.
I believe in this administration and everything that it is doing, but feel we the American people deserve to have relief and a great start to this relief would be implementing a policy that reduces credit card interest rates.
Ever ask your bank/card issuer for a better rate? Initial rates are usually set based on the program, not the individual. Call and ask! It doesnât cost anything and might lower your rate substantially. They manage millions of accounts. You only manage one. Ask!
I agree. Itâs meant to enslave people to the system!! Calling and asking them to reduce is useless. Its all about the money!
Normally I want the government to stay out of as much as possible, but one role they have is to protect the average person from predatory people. Putting a cap of say 10% would be acceptable to me.
Hopefully long term this would help get the American people back to being savers instead of spenders, and the worlds largest creditors instead of the largest debtors.
I had done this during covid and got lower rates. Unfortunately as rates rose, I found that even though having A+++ credit that the companies yet again ratcheted up my rates. This is something one has to stay on top of. As long as the prime lending rate is low, one can potentially request lower rates.
Unfortunately for the âfeel goodâ crowd that wants to drop credit card rates to 10% or less the ârealityâ of the credit card business is that credit losses are high as are operational costs.
Without going into a masters degree course in banking, the most immediate result of mandating a cap of 10% interest is that most people would not qualify under prudent lending standards for an account.
The reason for that constriction is that credit cards are open-ended commitments for credit by the bank with NO collateral for the bank from the customer, other than through expensive debt collection and potential customer bankruptcy. All VERY expensive collection processes. The result is that banks become very reluctant to lend money at rates attractive to customers with no collateral and high collection costs.
Follow the cascading effect. With far fewer customers to absorb the overhead costs, lenders exit the market. Costs to merchants go up and as they rise merchants drop out. Eventually the volume drops to a point where the whole payment system dries up and âcredit cardsâ eventually disappear or become prohibitively expensive for most consumers.
On the flip side of this equation is the cost of funds for the lenders. Customer deposits form a relatively small portion of funds lent through credit cards. One problem is that credit card lending is very volatile. It is totally up to the consumer when credit is used. The banks have to keep assets available to lend âon demandâ. Matching funds needed with funds available becomes a full time job. And an expensive one. Borrow more than your customers need and the bank eats the expense. Donât borrow enough and they cannot meet customer demand. Bad business. And little margin for profit. Many bankers figure there are easier ways to make a buck.
The point of all this is that banking in general and credit cards in particular are complicated businesses where it is easy to fail and tough to make a profit. Imposing an arbitrary rate cap is a surefire way to dry up the whole business and go back to âthe good old daysâ when the only way to buy ANYTHING on credit was to borrow on a specific item (a car, a house, a horse, whatever) with an application, credit check, lots of paperwork, monthly payments, insurance, etc.
Youâll save a lot of money, if you can borrow at all. Youâll also put a LOT of people out of work! But a few will get nice rates. Go for it!
I get what you are saying regarding the volatility for banks and then they not using cards as a tool if they canât make profits on 10%.
I also see in some cases allowing more customers to use cards reduces their risks, but if the customer canât financially support those higher rates, it borderlines predatory practice. Also, granted, without those cards, economic motility is reduced by âxâ. If there are case studies of countries using caps like these, it would be good to know. Maybe there is a modification to it that could help.
For a lot of people, getting into the credit card debt cycle is one of the worst things they can do, and they never get out of it. This in turns adds stress to their lives and relationships reducing quality of life, not increasing it. As far as I can tell, only education and discipline with money over time is the answer (and not all will choose that more difficult but more rewarding path). The goal is to get individuals to use money system and not the system use them.
In the mean time, Iâm open to any suggestion to bridge that gap.
Unfortunately, the only tool banks have to guage the creditworthiness of customers are credit reports. And these too face government scrutiny. Government intererence in credit decisions and business processes NEVER works very well. At the same time we rely on government to protect consumers from bad actors. Civiliztion is messy.
âCivilization is messyâ Amen to that!