4 ms·

Funny thing is, mine recently went down. Obama's bill has made it illegal for credit card companies to continue to penalize you with higher interest rates for a

by smoody 16y ago

Funny thing is, mine recently went down. Obama's bill has made it illegal for credit card companies to continue to penalize you with higher interest rates for a late payment made more that six months ago (as I understand it). I called my credit card co and told them they have no reason for having my interest rate at 28%+ when I made one late payment years ago over the life of my card (15 years or more?). They dropped my rate to 9.9% three minutes later. I highly recommend calling them and asking them why your rate is so high -- especially if you have a late payment in your past that is more than six months old. And, if you've made a late payment recently, put an alarm in your calendar to call them six months from now. This was an awesome thing the Obama admin did that can save americans millions of dollars, but does anyone appreciate it or take advantage of it?

CWuestefeld 16y ago
I think you've missed the point of the article. The law prevents the CC companies from doing any statistical analysis to assess the higher costs to the greatest risks. That means that people who pose a lower default risk will have to pay just as much as those that pose a higher risk. You might think it's great, but that's because somebody else is paying the cost of your default risk.
- smeatish 16y ago
  They are allowed to do statistical analysis using such factors as credit score and amount of debt. The difference is that now they can't increase your rate on existing balances. They can still raise your rates, but only if you want to borrow more from them and don't opt to pay off the balance at the previous rate. This seems much more transparent to me - you are selling a fixed-rate bond, rather than borrowing at a rate subject to their whim.
  - CWuestefeld 16y ago
    You make a good point, but I don't think it's completely correct. I think what you're missing is that the period of the loan from the CC is also open-ended. With a conventional loan, the lender knows that he'll be repaid (i.e., risk goes to 0) at the end of the term (30 year mortgage, 5 years for a car, etc.). With the CC, the borrower may be holding those funds pretty much forever. This means that the lender is assuming more risk: first, that at some point way down the road the borrower will default; and second, that changes in the cost of capital make the CC "loan" unprofitable. This latter risk is much more acute today, precisely because interest rates are so low. If the CC rate is calculated to be profitable based on (e.g.) today's prime rate, then there's every possibility that 10 years down the road it's going to be a lousy deal for the CC company. So as I said (but not for precisely my original reasons) you're putting more risk on the CC company. And the CC company has to recoup the costs of that risk somehow.
- krschultz 16y ago
  That is not true at all. Different cards offer different rates to different people. Shop around. This bill just forced the companies to move their revenue from hidden charges to the interest rate. That is very different from the government forcing every card to charge every person the same rate.
  - CWuestefeld 16y ago
    I never claimed that it was forcing every card to charge every person the same rate. My claim (and that of the OP) is that it decreases the ability of the CC company to differentiate. They can still do so, but to a much lesser degree. So they can have different rates, but there will be fewer of them: it forces them to quantize, and put people with different circumstances into the same bucket.

by smoody 16y ago

CWuestefeld 16y ago

I think you've missed the point of the article. The law prevents the CC companies from doing any statistical analysis to assess the higher costs to the greatest risks. That means that people who pose a lower default risk will have to pay just as much as those that pose a higher risk. You might think it's great, but that's because somebody else is paying the cost of your default risk.

smeatish 16y ago
They are allowed to do statistical analysis using such factors as credit score and amount of debt. The difference is that now they can't increase your rate on existing balances. They can still raise your rates, but only if you want to borrow more from them and don't opt to pay off the balance at the previous rate. This seems much more transparent to me - you are selling a fixed-rate bond, rather than borrowing at a rate subject to their whim.
- CWuestefeld 16y ago
  You make a good point, but I don't think it's completely correct. I think what you're missing is that the period of the loan from the CC is also open-ended. With a conventional loan, the lender knows that he'll be repaid (i.e., risk goes to 0) at the end of the term (30 year mortgage, 5 years for a car, etc.). With the CC, the borrower may be holding those funds pretty much forever. This means that the lender is assuming more risk: first, that at some point way down the road the borrower will default; and second, that changes in the cost of capital make the CC "loan" unprofitable. This latter risk is much more acute today, precisely because interest rates are so low. If the CC rate is calculated to be profitable based on (e.g.) today's prime rate, then there's every possibility that 10 years down the road it's going to be a lousy deal for the CC company. So as I said (but not for precisely my original reasons) you're putting more risk on the CC company. And the CC company has to recoup the costs of that risk somehow.
krschultz 16y ago
That is not true at all. Different cards offer different rates to different people. Shop around. This bill just forced the companies to move their revenue from hidden charges to the interest rate. That is very different from the government forcing every card to charge every person the same rate.
- CWuestefeld 16y ago
  I never claimed that it was forcing every card to charge every person the same rate. My claim (and that of the OP) is that it decreases the ability of the CC company to differentiate. They can still do so, but to a much lesser degree. So they can have different rates, but there will be fewer of them: it forces them to quantize, and put people with different circumstances into the same bucket.