Senate Rejects a 15% Ceiling on Credit Card Interest Rates

[boosami]

The proposal by Senator Bernard Sanders, the Vermont independent, drew only 33 votes and needed 60. A bipartisan group of 60 senators opposed it, though the Senate pushed ahead with other restrictions on credit cards.

http://www.nytimes.com/2009/05/14/us/politics/14cards.html?ref=business

[simpletron]

I think 15% is too low of ceiling. if congress restricts the credit card interest too much and limit how much money banks make on interest, then my rewards might go away and they'll just try other ways to extract money from me(fees). I just like my avoidable fees, reward credit card too much to give it up.

also by restricting the interest rate, you are telling banks not to give credit to higher risk individuals. banks would set hard credit score limits and individuals below a certian credit score wouldn't be able to get a credit card anywhere because it would be unprofitable.

15% interest seems high now, but back in the 1981, the prime rate got up to 21%(the rate the best customer get). everything is relative, so it would be silly to put a hard limit that isn't index to one of the government interest rates.

He said one-third of all credit card holders are paying interest above 20 percent and as high as 41 percent.

41% is pretty outrageous, but it still can't compete with 200+% payday loans.

[boosami]

I think they'd be better off creating legislation that correlates rate ceilings with credit scores. Creditors already do this--it's just not law. It would still allow for high-risk lending, but keep creditors from forcing high rates on everyone. When your credit score goes up/down, your rates adjust accordingly. For example:
760+ capped at prime + 1%
720+ capped at prime + 3%
660+ capped at prime + 5%
620+ capped at prime + 10%
below capped at prime + 20%

Sure, it would narrow the competitive field, but it would protect and reward consumers with demonstrated good credit histories. However, what do I care--I never carry a balance anyway

[DebbieL]

I agree with them. 15% is too low. What if banks get to the point where they are charging more than that again (it happened in the 80's - and never say never)? I really don't care however, since I pay off my card every month.

[Stuartthomas]

reply

The bill still contains provisions that would prohibit companies from raising interest rates on existing balances unless a card holder was 60 days behind, and then would require the rate to be restored to its previous level if payments were on time for six months.

[jIM_Ohio]

Congress does not need to get involved with the economic details of how a company operates.

If interest rates are capped, credit will get restricted- CC companies need to charge 20%-30% interest rates because 20-30% of the people which use CC NEVER repay the bill, so if that interest rate is cut in half, then the card companies must also reduce who they give cards to.

It would be smarter for congress to restrict things like credit available, marketing techniques, and who has access to credit scores and how those scores can be used.

Don't prevent a company from making money.

[bjl584]

Congress does not need to get involved with the economic details of how a company operates.

If interest rates are capped, credit will get restricted- CC companies need to charge 20%-30% interest rates because 20-30% of the people which use CC NEVER repay the bill, so if that interest rate is cut in half, then the card companies must also reduce who they give cards to.

It would be smarter for congress to restrict things like credit available, marketing techniques, and who has access to credit scores and how those scores can be used.

Don't prevent a company from making money.

Agreed. THese types of government caps always cause a shortage of some kind. In this case, it will be credit. On the one hand, the government is urging banks to extend credit again to get the economy moving, and on the other hand they want to restrict credit. It makes no sense.

[thekid]

I think they'd be better off creating legislation that correlates rate ceilings with credit scores. Creditors already do this--it's just not law. It would still allow for high-risk lending, but keep creditors from forcing high rates on everyone. When your credit score goes up/down, your rates adjust accordingly. For example:
760+ capped at prime + 1%
720+ capped at prime + 3%
660+ capped at prime + 5%
620+ capped at prime + 10%
below capped at prime + 20%

Sure, it would narrow the competitive field, but it would protect and reward consumers with demonstrated good credit histories. However, what do I care--I never carry a balance anyway

Right now, every users default risk is pooled permitting single rates (effectively more credit worthy clients pay higher rates than they should to compensate for poorer credit clients).

There is something inherently unfair about that. Don't know that rates should be set by gouvn't, but risk pooling into single rates should be discouraged so that decisions to extend credit actually reflect individual credit risk.

[Slug]

Right now, every users default risk is pooled permitting single rates (effectively more credit worthy clients pay higher rates than they should to compensate for poorer credit clients).

There is something inherently unfair about that. Don't know that rates should be set by gouvn't, but risk pooling into single rates should be discouraged so that decisions to extend credit actually reflect individual credit risk.

You can always call to re-negotiate your rate if you don't like it. Or, you can just not carry a balance. Or, you can just pay cash or debit card. Lots of options for anyone that thinks its unfair.

[thekid]

You can always call to re-negotiate your rate if you don't like it. Or, you can just not carry a balance. Or, you can just pay cash or debit card. Lots of options for anyone that thinks its unfair.

I don't carry a balance and only use the card for the cash back and don't even pay the yearly fee on the card as per an agreement with my bank.

Doesn't mean I don't think mutualization of CC risk is fair or leads to prudent lending practices.

[Slug]

I don't carry a balance and only use the card for the cash back and don't even pay the yearly fee on the card as per an agreement with my bank.

Doesn't mean I don't think mutualization of CC risk is fair or leads to prudent lending practices.

Time to start issuing thekid credit card with personal interest rates and put the rest out of business then since I'm sure the major credit card companies have not done the math on this to understand which approach is more profitable.

Regarding fairness, the loss of a child is unfair. Cancer is unfair. The mutualization of CC risk unfair? Meh, you need to present more data to convince me of that.

[thekid]

Time to start issuing thekid credit card with personal interest rates and put the rest out of business then since I'm sure the major credit card companies have not done the math on this to understand which approach is more profitable.

Regarding fairness, the loss of a child is unfair. Cancer is unfair. The mutualization of CC risk unfair? Meh, you need to present more data to convince me of that.

I think it unfair for a person with decent credit risk to pay higher rates than that risk represents so that CC companies can extend credit to persons with bad credit at lower rates than that risk represents. Sue me.

Beyond this basic principle of fairness (derived from treating unequal situations equally), it also has the very practical unpleasant effect of allowing credit to be extended were credit had no economic business of being extended (if it where not for the risk pooling). It thus leads to overleveraged consumers and the problems that leads to.

[jIM_Ohio]

I think it unfair for a person with decent credit risk to pay higher rates than that risk represents so that CC companies can extend credit to persons with bad credit at lower rates than that risk represents. Sue me.

Beyond this basic principle of fairness (derived from treating unequal situations equally), it also has the very practical unpleasant effect of allowing credit to be extended were credit had no economic business of being extended (if it where not for the risk pooling). It thus leads to overleveraged consumers and the problems that leads to.

If you still use that credit card, then you are not speaking to company in the language they speak.

There are companies and cards which are stricter with credit-

citibank and discover card both come to mind.

I have owned both card, and know that citi bank rewards loyal customers with lower rates, and know that Discover keeps credit limits lower when compared to other cards I have owned at same time.

Maybe you need to look around for better credit card offers.

[thekid]

If you still use that credit card, then you are not speaking to company in the language they speak.

There are companies and cards which are stricter with credit-

citibank and discover card both come to mind.

I have owned both card, and know that citi bank rewards loyal customers with lower rates, and know that Discover keeps credit limits lower when compared to other cards I have owned at same time.

Maybe you need to look around for better credit card offers.

I'm not talking about my credit card. I'm talking about what I think is good public policy.

Since I think overleveraged consumers are a threat to stable economic development and that mutualized CC default risk is a significant contributor to that threat, I believe that it would be good public policy to discourage it and encourage linkage with individual borowing risk.

In the same vein, I would consider pooled default risk mortgages a risk to the economy. Oh wait, pooled mortgage default risk (in the form of lender resold commercial paper) did contribute to lending practices out of whack with borrower borrowing capacity and a crash of an overleveraged market.

Seperating default risk from the indvidal borrower can (and most often will) lead to dangerous lending practices.

[jIM_Ohio]

I'm not talking about my credit card. I'm talking about what I think is good public policy.

Since I think overleveraged consumers are a threat to stable economic development and that mutualized CC default risk is a significant contributor to that threat, I believe that it would be good public policy to discourage it and encourage linkage with individual borowing risk.

In the same vein, I would consider pooled default risk mortgages a risk to the economy. Oh wait, pooled mortgage default risk (in the form of lender resold commercial paper) did contribute to lending practices out of whack with borrower borrowing capacity and a crash of an overleveraged market.

Seperating default risk from the indvidal borrower can (and most often will) lead to dangerous lending practices.

Fair enough

the way to discourage it could be debated.

My suggested posted earlier would include reduce ability of these companies which I do not do business with to check my credit report (require me to authorize all access to it).

Meaning no one would know my credit activity until I asked them to check it- this would reduce the ability of cc companies to market themselves by offering free cards for example.

Or restrict how often the companies can change rates- require 90 day written notice that their rates will change (whether because of a late payment, markets, or other reasons)

But do not directly control who can get credit, or what interest rates they charge, or why rates change, just indirectly control same behavior with other minor restrictions which protect people.