Congress Moving to Limit Credit Card Interest Rates
Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit. “There will be one-size-fits-all pricing, and as a result, you’ll see the industry will be more egalitarian in terms of its revenue base.”
This is the stupidest idea ever. Congress thinks limiting credit card rates banks are allowed to charge will bring down rates for people with poor credit. However, what will actually happen is that the banks will just yank their credit lines completely, because they are not able to demand interest that is consummate with the person’s credit risk. Isn’t irresponsible lending at low rates to non-creditworthy parties the EXACT reason we have this recession?
It’s risk management 101 - if the interest rate isn’t high enough to compensate for the risk, don’t do the deal. Congress is full of idiots who are unable to see the real world consequences of their pie in the sky ideas.
Furthermore, do we really want to be squeezing banks credit card revenue just as they are beginning to get back on their feet, with the spectre of increasing credit card default rates looming as the recession continues and unemployment increases? Not to mention that the government owns equity in these banks - why cripple them?
