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"I missed three credit card payments, and now the credit card company has raised the interest rate from 16% up to 28%! That should be illegal!" Where I live th

"I missed three credit card payments, and now the credit card company has raised the interest rate from 16% up to 28%! That should be illegal!" Where I live the national limit on interest for Credit Cards is 16%, no ifs, no buts. If credit card companies benefit when people miss their payments they have an incentive to give credit cards to people who can't afford them. This, in turn, reduces the general level of prosperity in the country. So, why do you think it -should- be legal for CC companies to raise the interest rates to absurd levels?

deleted 19y ago
[deleted]
cperciva 19y ago
why do you think it -should- be legal for CC companies to raise the interest rates to absurd levels? Because someone who misses three credit card payments -- I'm not talking about someone who doesn't pay off the credit card completely, I'm talking about someone who doesn't even make the minimum payment -- has a significant likelyhood of going bankrupt and never paying off the debt. Not making credit card payments on time exposes you as a poor credit risk; why should those of us who are good credit risks pay higher rates to subsize you?
- disconnect 19y ago
  The credit card companies will eventually get their money - it will just be painful for them. They have to send a bunch of warnings, get a collection agency involved, and so on. If somebody goes bankrupt the CC company won't get its money back, so the rates then become irrelevant. You argue that the pain to the credit card companies will ultimately end up at the doorstep of those who do pay off their debt. And to some extend, that's true. But I don't think it's as bad as you make it sound. Let's take an analogy. When amazon offers free shipping, are you upset when you live close to their distribution center so that you (effectively) pay a higher price for the product? After all, the money for the shipping has to come from some place, and if shipping to your house is relatively inexpensive, then you're subsidizing the shipping costs of others. It's not really something anybody would worry about. Implicitly subsidizing others happens all the time, and I think that it averages out pretty well. Besides, when people go bankrupt because they borrow money irresponsibly, the society as a whole also suffers. So preventing unnecessary bankruptcy is a good thing. And CC companies make it hard for people to get higher caps on their CC to minimize their own risk. And everybody benefits from that.
- yters 19y ago
  A. Higher interests rates for people who can't pay to begin with isn't going to get them more money. B. Don't give credit cards to people who historically pay badly. In my opinion, greed on the part of the CC companies is also to blame, besides financially stupid creditees.
  - cperciva 19y ago
    A. Higher interests rates for people who can't pay to begin with isn't going to get them more money. As a matter of fact, it does. In bankruptcy, assets are divided between creditors of the same class (in this case, the class of unsecured creditors) in proportion to the size of debts they hold; a credit card company which records a higher rate of interest ends up getting a bigger slice of the pie. B. Don't give credit cards to people who historically pay badly. Credit card companies do this too -- if you have a poor credit rating to start with, you'll find it hard to get a credit card; and if you start with a good credit rating but start not paying your bills, there's a good chance that the credit card company will lower your credit limit.
    - sanj 19y ago
      "a credit card company which records a higher rate of interest ends up getting a bigger slice of the pie" That's fascinating. So there's a clear financial incentive to drive the rates up quickly as soon as there's a sign of trouble Would it make sense to remove that incentive? For example, slice the pie based on principal rather than principal+interest? Or to add in some consistent rate of interest across all creditors?
      - yters 19y ago
        Yeah, that's what I was thinking. Absurdly high interest rates clearly seem a form of theft on the part of the CC company.
mwerty 19y ago
Who decides what levels are absurd? What is magical about 16%?

deleted 19y ago

[deleted]

cperciva 19y ago

why do you think it -should- be legal for CC companies to raise the interest rates to absurd levels? Because someone who misses three credit card payments -- I'm not talking about someone who doesn't pay off the credit card completely, I'm talking about someone who doesn't even make the minimum payment -- has a significant likelyhood of going bankrupt and never paying off the debt. Not making credit card payments on time exposes you as a poor credit risk; why should those of us who are good credit risks pay higher rates to subsize you?

disconnect 19y ago
The credit card companies will eventually get their money - it will just be painful for them. They have to send a bunch of warnings, get a collection agency involved, and so on. If somebody goes bankrupt the CC company won't get its money back, so the rates then become irrelevant. You argue that the pain to the credit card companies will ultimately end up at the doorstep of those who do pay off their debt. And to some extend, that's true. But I don't think it's as bad as you make it sound. Let's take an analogy. When amazon offers free shipping, are you upset when you live close to their distribution center so that you (effectively) pay a higher price for the product? After all, the money for the shipping has to come from some place, and if shipping to your house is relatively inexpensive, then you're subsidizing the shipping costs of others. It's not really something anybody would worry about. Implicitly subsidizing others happens all the time, and I think that it averages out pretty well. Besides, when people go bankrupt because they borrow money irresponsibly, the society as a whole also suffers. So preventing unnecessary bankruptcy is a good thing. And CC companies make it hard for people to get higher caps on their CC to minimize their own risk. And everybody benefits from that.
yters 19y ago
A. Higher interests rates for people who can't pay to begin with isn't going to get them more money. B. Don't give credit cards to people who historically pay badly. In my opinion, greed on the part of the CC companies is also to blame, besides financially stupid creditees.
- cperciva 19y ago
  A. Higher interests rates for people who can't pay to begin with isn't going to get them more money. As a matter of fact, it does. In bankruptcy, assets are divided between creditors of the same class (in this case, the class of unsecured creditors) in proportion to the size of debts they hold; a credit card company which records a higher rate of interest ends up getting a bigger slice of the pie. B. Don't give credit cards to people who historically pay badly. Credit card companies do this too -- if you have a poor credit rating to start with, you'll find it hard to get a credit card; and if you start with a good credit rating but start not paying your bills, there's a good chance that the credit card company will lower your credit limit.
  - sanj 19y ago
    "a credit card company which records a higher rate of interest ends up getting a bigger slice of the pie" That's fascinating. So there's a clear financial incentive to drive the rates up quickly as soon as there's a sign of trouble Would it make sense to remove that incentive? For example, slice the pie based on principal rather than principal+interest? Or to add in some consistent rate of interest across all creditors?
    - yters 19y ago
      Yeah, that's what I was thinking. Absurdly high interest rates clearly seem a form of theft on the part of the CC company.

mwerty 19y ago

Who decides what levels are absurd? What is magical about 16%?