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>>Part of me wonders what the world would look like if we massively regulated credit card terms, like no more than 5% APR. What would happen is there would be
by ejb999 4y ago
>>Part of me wonders what the world would look like if we massively regulated credit card terms, like no more than 5% APR.
What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt.
IIRC, they used to be capped at 18% many years ago, still high, but much more reasonable then some of the rates that are out there now; so not opposed to a cap, but it can't be so low that it kills the business altogether.
- cowpig 4y agoI think what would happen is that collateral for credit cards would become commonplace
- yamtaddle 4y agoAnd much lower limits.
- Pfhortune 4y agoWhich has a similar effect to the cards not being available. If you're renting an apartment and riding a bus to work, what exactly are you going to put up as collateral? Organs?
- ejb999 4y agoIf you live in Massachusetts, you might be able to soon: https://www.technologyreview.com/2023/02/03/1067768/massachusetts-bill-prisoners-swap-organs-freedom/ https://www.technologyreview.com/2023/02/03/1067768/massachu...
- midasuni 4y agoI was really holding out hope this would be a story about piano playing
- aynyc 4y agoThat's called debit card. Limit is the money in your back account.
- Marsymars 4y agoIt’s not quite the same thing. Secured credit cards exist, primarily for people with bad credit. e.g. https://www.hometrust.ca/credit-cards/secured-visa-card/ https://www.hometrust.ca/credit-cards/secured-visa-card/ Personally, I already keep hefty minimum balances to avoid monthly fees on bank accounts that allow me to waive credit card annual fees. They could use that as credit card collateral.
- manigandham 4y agoThat’s much worse than interest rates for the vast majority (that don’t have any assets to put up or can’t afford to actually lose them).
- satvikpendem 4y agoI doubt that. Visa and MasterCard make most of their money via seller transaction fees, not credit card debt payments. If anything, we should limit seller transaction fees, as I believe the EU does.
- makestuff 4y agoYeah isn't this because visa and mastercard are the issuers, and the banks handle taking on the debt? The exception to this is Amex who is the issuer and lender.
- lotsofpulp 4y agoDiscover is also.
- midasuni 4y agoDiscover is pretty much unheard of in Europe, amex has grown a lot in the last 10 or so years, it’s almost as common as visa/Mastercard for acceptance. But my inference from futurama is very few outlets take discover even in the US?
- lotsofpulp 4y agoI would not say very few. All big businesses or franchises accept it.
- amalcon 4y agoVisa and MasterCard make most of their money that way, but they don't by and large underwrite the debt -- various banks do[0]. That's why you don't get credit card offers directly from Visa or MasterCard, you get them directly from banks. Visa and MasterCard only care that debtors default insofar as it affects the market as a whole. [0]-American Express and Discover have somewhat different business models, and do underwrite most of the debt themselves. I don't know about foreign systems, but I'm given to understand they are mostly not credit based.
- deleted 4y ago
- weatherlight 4y agothere would just be less credit out there.
- chimeracoder 4y ago> What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt. Credit cards are a single product that serve a lot of different use cases simultaneously, and credit card issuers are able to profit off of most of those through different mechanisms. Not everyone carries a balance on credit cards, including some of the most lucrative market segments[0]. Furthermore, BNPL is an example of lending money to the general public at 5% (or less, in many cases) for unsecured debt. In that case they make their money back on fees for late payments. [0] If you'd like an overview of how credit cards make money, this post from patio11 covers the basics: https://www.bitsaboutmoney.com/archive/how-credit-cards-make-money/ https://www.bitsaboutmoney.com/archive/how-credit-cards-make...
- patio11 4y ago> In that case they make their money back on fees for late payments. Not primarily accurate; several BNPL providers don't even have a late payment fee. BNPL manufactures ~25% APR debt out of 0% consumer contribution and ~6% merchant discount (interchange) which, since BNPL payments revolve very quickly, annualizes quite healthily. The primary source of revenue to the BNPL provider was historically keeping a portion of the discount for themselves; the rest compensates the capital provider, who is usually not the BNPL itself. https://www.bitsaboutmoney.com/archive/buy-now-pay-later/ https://www.bitsaboutmoney.com/archive/buy-now-pay-later/ From this comes a fairly important realization that if you don't have a second party (the business) funding the cost of credit, or if the extension of credit is for a weighted average of longer than 3 weeks, it is in fact quite difficult to provide unsecured credit to the general public at ~5%.
- pessimizer 4y agoPeople should only be borrowing money to spend on productive capital. If you're not investing borrowed money into something more profitable than the interest, what you're actually doing is falling into a hole. We should be helping people who are falling into holes, not exploiting them.
- joelfried 4y agoSo are you against giving people of limited means a way to shift part of the purchase cost of a necessary replacement item into the future? As a concrete example, it seems entirely reasonable to me for someone of limited means to spend something like $2,000 on a credit card to repair a broken car so that they are able to get to their job. If you don't give people a legal means to access money like that (even if the rates are borderline usurious), I would expect them to seek out illegal methods -- and that seems worse all around for society.
- browningstreet 4y agoNot at 24% APR.
- plonk 4y agoNot American, but giving one of your country's credit cards to someone too poor to pay for vital car repairs is just throwing them into the street with extra steps. What that person needs is public aid that gets them out of the hole.
- lotsofpulp 4y agoPolitician A: I will increase aid to poorer people to get them out of the hole. I will need to increase taxes. Politician B: I will increase access to credit to poorer people to get them out of the hole. I will not need to increase taxes. Voters will go for B every time. See taxpayer subsidized loans for home purchases, education, small business, etc.
- 4y ago
- Retric 4y agoLess credit is not zero credit. Plenty of cards offer stupid low introductory rates and excessively large credit limits. Smaller credit limits + lower interest rates makes it much harder for people to become unable to pay.
- giantg2 4y agoWhat there really needs to be is a lifetime payback cap. 20% interest would be fine if you had say a maximum payback amount of 2-3x the original amount adjusted for inflation. The companies can still make money, but it prevents a hole with no bottom.
- s1artibartfast 4y agoThe all could still keep growing in this case, just not at a higher rate than inflation once it hits the cap
- giantg2 4y agoYes, but after the cap only the number grows, not the value.
- MuffinFlavored 4y ago> What would happen is there would be no credit cards for anyone. Nobody is going to lend money to the general public at 5% for unsecured debt. What is the rate of (sorry, I don't know the correct term) how often current credit card companies get "shafted"? aka somebody runs up a $10,000 balance or whatever and then doesn't pay it
- quickthrowman 4y agoHere is the data for credit card delinquencies from the Fed: https://fred.stlouisfed.org/series/DRCCLACBS https://fred.stlouisfed.org/series/DRCCLACBS
- CallMeJim 4y agoIs 'rate of default' the term you are looking for?
- midasuni 4y agoI took out a 7 year unsecured 25k loan last year for 1.99%. Today it’s 4.9% after the rate increases Set it at 5% above a given base rate (fed rate, Bank of England rate, etc) and what’s the problem?
- ac29 4y ago> Set it at 5% above a given base rate (fed rate, Bank of England rate, etc) and what’s the problem? All the credit cards I've ever had do have a variable rate like you describe, though base+5% would be pretty good. I'd expect super low rate cards like that to have limited or no rewards (which can otherwise be substantial in the US). I'm guessing part of the reason banks dont tend to go that low is that people that carry balances as opposed to paying off their bill every month are much higher credit risks.