The Regulations Are Reasonable…The Thoughts That Go Along With Them Aren’t

Saw this in today’s Wall Street Journal and just had to mention it:

Policy Makers Take Aim at Credit-Card Practices

Credit-card companies are going to have to start adhering to the followin rules, which take effect in July 2010:

• Banks can’t treat payments as late unless consumers have a “reasonable amount of time” to make the payment; at least three weeks before the due date.

• Banks must allocate minimum payments to balances with the highest rate first, or pro-rata among all balances.

• Banks cannot raise interest rates from the opening amount unless it’s a variable rate or an introductory rate with an increase disclosed in advance; or a year after the account opens, a 45-day advance notice has been made; or if a minimum payment is received more than 30 days after the due date.

• A ban on double-cycle billing, which allows banks to calculate interest based on a prior month’s balance in addition to the current month, even if the prior month had been paid off.

The comments from “advocates” and politicians are what bug me (emphasis mine):

Consumer groups have been pushing lawmakers to act, saying cardholders need relief now. The current rules “give very little help to families that are struggling with their debt,” said Lauren Saunders, managing attorney at the National Consumer Law Center.

“I don’t think the issuers should wait for these rules to come out to start dealing fairly with consumers,” she said. “The issue that’s hurting consumers the most right now are these big retroactive rate increases. They could just stop doing those tomorrow.”

Okay, here’s the deal:

If you are a debtor, you are a slave! You don’t get to pick your payment and you aren’t entitled to help when something bad happens and you can’t pay your bills. That’s the RISK of credit card debt (or any debt for that matter). You made that choice when you opened the account and started using the card—for whatever reason that was.

As much as I disliked the consumer advocate’s comments, these comments from Lawrence Summers really get on my nerves:

Over the weekend, White House economic adviser Lawrence Summers said President Obama would focus on “credit-card abuses” and “the way people have been deceived into paying extraordinarily high rates that they wouldn’t have paid if they knew what they were getting themselves into.”

Mr. Summers, speaking on NBC’s Meet the Press, added: “We need to do things to stop the marketing of credit in ways that addicts people to it and so that our households are again saving, and families are again preparing to send their kids to college, for their retirement and so forth.”

I’m not sure that people were really deceived into paying high interest rates. I’m pretty sure all the terms were spelled out in the fine print. If they weren’t then people should have the right to take legal action.

I also think Mr. Summers is smoking somthing if he thinks the big bad credit card companies are the reason why people aren’t putting money back for their kid’s college educations. If people are so stupid that they are “deceived into paying extraordinarily high rates” do you really think they are going to be smart enough to figure out how much they should be saving for their kid’s college education?

The victimization of America…

Where does it end?

35 thoughts on “The Regulations Are Reasonable…The Thoughts That Go Along With Them Aren’t”

  1. Credit card holders have gotten themselves into their own mess it is true. However, the credit card companies do have corrupt practices and are in need of some additional regulation. The reality is that they have had the politicians bought and paid for for years and have gotten away with murder. It is time for things to be a bit more evenhanded, particularly when the American public is floating the note for most of them.

  2. Yeah, the commentary is unfortunate.

    I believe firmly in reading the fine print. I will say, however, that when I’m at eg the dentist or the cell phone place, they definitely seem both surprised and bothered when I sit there and insist on reading what I’m signing.

    surprise, fine, no one does it. But they definitely behave like *I’m* being unreasonable and impinging on their time when I bother to read these things, and I suspect a lot of people submit to this kind of pervasive atmosphere and just don’t bother, even if they were otherwise so inclined (which I agree many aren’t)

  3. I am so tired of everyone playing the victim.

    I believe it was in the movie “Dangerous Minds” where the teacher said, “There are NO victims in this classroom.” The whole point to the movie quote was that, in the scene, she was explaining to the students that they all made CHOICES that brought them to their current status.

    America is our classroom and every consumer is making choices on how they spend their money, where they spend it and at what cost. The government, banks, etc. are not the ‘responsible’ party for our debt – the consumers are.

    Sorry for the bluntness…I just get tired of people not accepting the fact that THEY ARE RESPONSIBLE for their credit situations.

  4. Let’s flip things around: If I buy a corporate bond, why can’t change the interest rate if the corporation defaults on some other bond? That seems kind of silly doesn’t it?
    I think the credit card companies are foolishly squeezing more money from their customers with these questionable business practices. Without any questionable practices they get more than 20% interest! Their greed will only steer people to find alternatives. Cash is always an option, and one that many people would be better off using! Even if one needs to borrow money a credit card is a very bad option. A credit union or a lending site like or the Lending Club will likely have better rates and isn’t going to play games.

    -Rick Francis

  5. Let’s not get too carried away with victimization though. Because there are lots of folks that waived the flag and wanted a trillion dollar war, and now that the bill has come due, they are the victim because they are going to have to pay 3% more in income tax to help pay for exactly what they wanted. There is no shortage of victims in the U.S. these days.

  6. #3 Beth:

    I agree we have far too much “I’m a victim” going on in this country, but be careful. Anyone claiming that it is a level playing field is naive. When you are set up to fail, you tend to fail. I know I would be in a complete different reality had I come out the chute from an uneducated single mother in the hood.

    #5 RA:

    Good point, I agree 100%.

    Also.. I feel we need to change the “fine print”. Inundating an ignorant public with pages and pages of legaleeze is NOT informing them. Try reading a mutual fund prospectus.. I’ll wake you up after page 6.

  7. I am not a fan of the “victim” mentality that pervades much of the discussions about credit cards, home mortgages, and so on. It is a symptom of the progressive dumbing down of our society, where people are unwilling to learn and take responsibility for their own lives. Many people act like children that cannot take care of themselves and want to outsource their adult responsibilities to someone else, usually the government.

    On the other hand, there are a lot of questionable practices engaged in by various credit card issuers – such as changing interest rates and other payment terms. No quite as bad as the payday loan/title loan/check cashing folks, but not nearly as transparent and above board as they could be. As usual, it is the lenders that push the envelope of acceptable practice that cause the whole industry to be scrutinized and possibly regulated. If they can’t regulate themselves, then the government will always be willing to step in and do it for them.

  8. What bothers me about the whole credit industry lately, is that you would think the best scenario for everybody involved would be a win-win situation where consumers have access to credit, but not too much, and can make the payments without defaulting. Lately, the industry’s greed has led them turn the whole thing into a loose-loose situation where people can’t get credit when needed and some can’t make their payments, and the companies themselves are hurting due to defaults which they then go and take it out on their good customers by further jacking up rates and thus continuing the whole mess. Sure personal responsibility plays a part in this, but the individual consumer is merely a very small cog in the massive credit machine that is ultimately controlled by a relatively small group of interested parties.

  9. Oops, apparently the word “lose” only has one “o”. My bad, still on my first cup of coffee for the day.

  10. I don’t think the regulations are unreasonable. The credit card companies have been acting in a predatory manner. I do agree that the public plays the victim card a little too much but the credit card companies basically screwed the public one too many times by nickel and diming them to death.

  11. #6 – Chris,

    I fully understand your comment about certain aspects of ‘life’ paving the path for you (based on your “uneducated, single mother in the hood” comment). However, I accept that as only an excuse.

    There comes a point when people still have to quit playing the victim and take the initiative to learn from, understand and deal with the choices they (and/or their parents) have made. It’s not the things that happen to you in life – it’s how you choose to handle them and learn from them. Everyone has a story to tell and, unfortunately, most people will take the “easy” (I’m a victim of…) way out.

  12. Hey I’m a libertarian and hate to see government involvement in most things. And it’s easy to say people should just read the fine print. But the problem is that all of the banks use the same abusive tactics and absurd contacts. Some are just worse than others. Contracts with one sided terms that can be changed on a whim by one party AFTER the debt has been established are ridiculous. Some regulation of the industry is definitely needed.

    Imagine if your mortgage company mailed you a letter saying that your mortgage rate was increasing in two weeks and if you didn’t like the change to your mortgage all you could do to avoid it was move and pay off the mortgage.

  13. #11 Beth

    Understandable, but naive. It is kind of like telling a molested kid to “walk it off”.. Easier said than done.

  14. The victimization of America…

    Where does it end?

    End? Why would you expect it to end?

  15. Good rules of thumb for credit cards:

    1. If you must have one, have one. Just one.

    2. As soon as you get the bill, pay it off. Write the check. Right then.

    3. If you can’t handle credit, don’t use it. Pay cash or use a debit card.

    4. If you really, truly, want (or need) a major item (car, refrigerator, new roof, etc.) try saving for it.

    If everyone followed these maxims, we wouldn’t be having this discussion.

    There is “good debt” and “bad debt”. Revolving credit is most certainly “bad debt”. No amount of regulating will change that fact.


  16. I guess not many of you are old enough to remember the 1970’s. The government heavily regulated credit then, and the result was few people had credit cards. Free market forces will react to these new regulations by diminishing the amount of credit available to the lower sectors of the economy, but I think government will go off the deep when that happens.

    I wonder how long it will be until President Otaxa creates a “United States Government Credit Card” and issues it to “underprivileged” individuals who have the balanced paid by taxes. Don’t laugh.

    Just like the government forced banks to write mortgages that required less than 20% down and exceeded the 36% limit of debt to income. They will force someone to issue a credit card to a homeless individual with no job or income of any sort and then tell the card issuer they can’t penalize the homeless individual for paying late and can’t try to collect the debt in any way.

    Pretty soon the government will pass a law that allows someone who makes less money than you make to simply stop you on the street, demand your wallet, and take what they want.

    Back to credit cards. It is amazing that people don’t understand the basic function of a credit card, “you are spending someone else’s money every time you charge, because you can’t wait to make the money yourself before you spend it.” Regulating credit cards won’t cure the problems of people who can’t grasp that simple concept.

    I hate to say it, but if you don’t pay off your entire credit card bill at the end of every month then you shouldn’t post a word about credit cards because you truly have no business telling anyone else one thing about consumer credit.

  17. Keep in mind that the Credit card companies are in this to make a profit. THe notion that they would put these guidelines into effect before they are required to is absolutely ridiciulous. Goodwill to consumers if bad for profit. I don’t agree with how they work, but I understand it, and I understood it when I got my first credit card. These are not mom and pop shops.

  18. I agree that necessary changes need to be immediately addressed within the credit card industry. Their ability to scavenge on the young with strong marketing enticements is akin to the Marlborough Man or Camel Joe enticing the young to smoke. With that said it’s about educating those who don’t know better and that starts at the home. Let’s not kid ourselves you don’t spend what you can not afford to immediately pay back, the credit card business is just that a business. They are entitled to earn a profit.

  19. I totally agree with the commentary, also with Beth (#3) and Dave Thomas (#16)

    Banks are not in charity business. Credit card loans are unsecured loans and there is very little banks can do to collect. Interest rates have to be high enough to compensate for money lost in defaults and to generate profits in spite of defaults. To those who complain – ask yourself – under which conditions you would lend your money to people you don’t know and without any collateral.

    Americans like to play victims. I didn’t overspend, bad banks trapped me. Why then haven’t bad banks managed to trap my parents who spent over half of their lives in the Soviet Union? Somehow they were able to figure out the concept of the grace period and high interest on carried balances 2 years after they immigrated to the US. They were in their 40s at the time, my father – almost 50, and they could barely speak English. They couldn’t even dream of understanding the fine print. What they did understand was that if they pay their full balance before the grace period ends they pay no interest; otherwise – they pay high interest, and my parents have never liked to waste money. Guess what – they didn’t have that much time to save money for retirement given their age, they weren’t able to get high paying jobs with their poor English skills, yet they still managed to save something for retirement to live in the same (very modest) lifestyle as they always have. And they used credit cards too… How did they manage not to get “trapped”?

    If you chose to carry balance, it is you personal choice. Nobody forced you to do it. Credit cards aren’t magically enchanted to make you buy stuff you cannot afford. But if you do it, it’s then your responsibility to read all the conditions under which you borrow money. You have time to do it, you even have time to buy magnifying glass if you cannot read.

    @Rick Francis (#4): “If I buy a corporate bond, why can’t change the interest rate if the corporation defaults on some other bond?”
    Maybe because there are investors willing to lend them money under these conditions? It’s free market. If you can borrow under the same conditions as corporations – feel free to do so. Call yourself a corporation and issue bonds. If you can’t, then maybe your potential lenders consider you too higher risk than a corporation? Maybe there are more credit card borrowers who default than corporations?

    @Brian (#12) “Imagine if your mortgage company mailed you a letter saying that your mortgage rate was increasing in two weeks …”

    Mortgage is a secured loan so it carries less risk. Less risk = better conditions. Ditto with car loans – yes, there is risk of losses, but this risk is mitigated by the ability to recover some part of the cost.
    Again, with both bonds or mortgage, the conditions of the loan and fixed interest are agreed by both parties beforehand. The conditions of the credit card just as clearly specify that they have a right to raise interest. It’s not a fixed interest loan. If you don’t like the conditions, it is your right to either a) take advantage of grace period and pay your balance in full before any interest starts to occur or b) not to use credit cards.

    @Chris: (#13} (comparison with molested kid)

    Hello? Has someone held down this uneducated single mother and forced her to buy stuff she cannot afford? Or did she think the money she used just were printed? Has this poor single mother ever learned that if she borrows money she has to pay it back? Isn’t it part to learning how to behave in moral and ethical manner? If she has learned that if she borrowed money than she has to pay it back, how could she confuse credit with spending money? Also, are there only poor single mothers who are in credit card debt? How about some people with high salaries who still have credit card debt, were they also trapped? What about college students, are they also uneducated?
    Incidentally, a Mexican lady who works in the cafeteria in my office building is NOT in credit card debt. She works two jobs, one in the morning in the cafeteria, one on weekends – cleaning houses, but she is not in debt. Her son is studying finances, and works in his free time as well. Her husband works two jobs too. She doesn’t complain about big bad banks. Is this Mexican woman somehow smarter than your single mother from the hood?

  20. @ Kitty:

    Every situation is different. I agree that education (or a moral compass) is lacking at all socioeconomic levels of our society. Credit card companies are the ones in business to make money. Just as people aren’t forced to apply for credit, the credit card companies are not forced to OFFER it. If I am the lender, is it not in my best interest to do my due diligence to ensure repayment? As far as I am concerned the credit card companies, mortgage companies, banks, AND debtors can all get bent. All I am saying is it is easy for us to cast stones.

    As far as your Mexican lady comment, I can pull a random anecdote to disprove any of your positions, as well.

  21. To the comment about changing the interest rate on bonds if you default on other bonds: Actually this DOES happen indirectly: The low-interest-rate bond drops in value so it has a higher yield. The bond-holder, i.e. LENDER, who made a mistake pricing risk, takes the loss if they sell the bond. In the case of consumer credit, the BORROWER takes the pain in the form of an increased interest rate.

    I have only one complaint about the credit-card companies – it’s not the terms of the deal, which any consumer is free to take or leave when they sign up, but the complexity of the language.

    In my opinion, this complex language is deliberate. It would be very easy to provide a simple summary of the key terms, much like a mortgage agreement ultimately shows an APR.

    I have two higher degrees, first language English, and finance experience, yet I have to read very carefully to understand what I am signing up for. It must be difficult for less-educated people.

    I think if they had not done such a poor job of explaining the deal, they might not be facing the US Govt to explain themselves. So unfortunately for those of us who believe in the free market, the credit card companies over-reached and now we all have to pay the price in the form of an over-regulated market.

    By the way, I have NEVER paid a finance charge, pay in full each month, and only use cashback cards, so I know it is possible to figure out the system. It’s just not easy! And of course, the banks consider me a “deadbeat” – the kind of customer they hate.

  22. @Mark.

    Your interest rate is calculated on the sum of the following, unless your unpaid balance (defined as set forth in paragraph 5(h)) exceeds the total of all balances recorded by us (or other lenders, defined in paragraph 11(h)), in which case the interest rate is calculated pursuant to the table reflected in paragraph 7(g).

    I just made this up, but you get the drift.

    Best to pay off your credit cards each month, in full. Write the check when the bill comes in. Right then.


  23. My point was – unless you carry balance, nothing in the fine print applies to you. Even if you take simple interest rate listed in the summary in relatively large letters, you can still get the idea that carrying balance is very expensive. The fine print only clarifies that it may be even more expensive. Yes, the examples I provided are anecdotal, but they illustrate that even people with bad English can figure out that carrying balances is expensive without being able to even understand the explanations. One study I would’ve loved to see is a comparison between first generation immigrants and native born Americans as to who has more credit card debt. I would bet that first generation immigrants fare much better. At least I have not seen or heard anybody with a foreign accent complaining about bad credit cards – have you? How many of you have heard immigrants calling to Suze Orman asking if they can afford to buy stuff?

    Additionally, when you get your bill, the charges and the interest is spelled out. It also doesn’t require much math knowledge to add up the value of your purchases and to see how much more you are paying. One month, two months – how long should it take one to determine that carrying balances is expensive?

    I am not against having clear documentation. But I have my doubts as to if it will make any difference at all. All legalese is complicated, so maybe all forms a normal person signs should be translated in plain English? But, even the normal credit card rate listed in large letters is still very high. Yet it doesn’t seem to be a deterrent. When people buy stuff that they cannot afford, do they really think about “this will cost me more if I don’t pay in full” or do they simply think – “all I need to pay now is $15”? Would information that this rate can go even higher deter people from overspending? Would people even bother to read the information even in large letters and clear language? I have my doubts.

  24. Credit-Cards are a type of unsecured loan.

    They are a contract between borrower & lender.

    The contract terms should be whatever the borrower & lender voluntarily agree to.

    The ONLY legal authority for government intervention in such private loan contracts is fraud or criminal coercion by either borrower/lender.

    The U.S. ‘Federal’ government has absolutely ZERO constitutional legal authority to interfere in any aspect of private credit-card contracts.

    Any Federal credit-card regulations (“laws”) are legally ‘unreasonable’ (void) from the get-go.

    {What was the problem again ??}

  25. The government does whatever will give them political points at the time. When the banks dry up credit to the people due to this government intervention, the government will condemn them for not giving us poor, hard working Americans enough credit.

    JLP hit it on the head saying when will the victimization of America end. Well, it will end when the government stops acting on these silly complaints. Whenever the government steps in like this, the people start to believe the government is taking care of them so they don’t need to act responsibly. If this didn’t happen, the citizens would alter their behavior.

  26. Kitty #23:

    You are probably right. There is a “now” mentality that will likely be unaffected, regardless.

    A small andectdote of my own. I worked at a grocery store in my youth. I NEVER saw a hispanic coming through the line paying with anything other than cash. I was infuriated when I had to cashier groceries for someone using WIC and/or food stamps who was buying food MY family couldn’t afford. I get your point and it’s well taken.

    Have a good weekend everybody!

  27. #25 Kirk:

    Your first line is exactly what I was thinking. The government has to listen to the people — political points are still to be made. And since we’re Americans, we demand to be heard.

    The victim point has been made over and over and I totally agree. Yet on the other hand, we all can acknowledge that some practices (like raising rates for falling behind on an unrelated bill, or raising rates unannounced) isn’t right. But hey, you sign the contract and you become their (as JLP said) “slave.”

    I’m for the CC regulations, lets just not take it too far.


  28. #19 Kitty:

    Secured or unsecured is not the issue. Mortgages have always had terms fixed at closing. Even adjustable rate mortgages have limits on the time and size of the adjustment and fixed criteria for doing when the adjustments happen. Banks have to live with this because their competitors all use real contracts of this type. If they tried to impose credit-card like terms (i.e. bank can change them on a whim) they would be driven out of the market place by competitors with more reasonable terms.

    Credit cards have traditionally had worthless initial terms presented to the consumer. Actually stating any terms in the initial agreement is misleading since it implies that those terms will remain unchanged. I know the terms say they can change at any time but people don’t read that to mean “we reserve the right to rip you off later – and we will.” They should read it that way but don’t. I guess they expect fair treatment. How naive. When I think of credit card issuers I think of Darth Vader in cloud city.

    Banks have a market opportunity with credit cards to abuse and exploit their customers because ALL the banks use these sort of one sided agreements. It’s the contractual equivalent of the wild west. Until the marshall comes to town and imposes order we’re all subject to banditry.

    Sensible regulation is a good thing. I don’t want the government to dictate terms or issue cards. I just would like to see them impose a reasonable set of guidelines to eliminate the worst of the abuses.

    And BTW – I never carry a balance (though I did when I was younger) so this doesn’t really affect me. I just hate seeing these sorts of abuses go one for so long.

    WRT people who can’t afford to pay credit being unable to obtain it. How exactly is that a bad thing? Currently the card issuers exploit those who CAN pay to cover up for their lousy loans to those who never could pay. Coming back to the mortgage analogy – if banks COULD raise everyone else’s fees in order to cover up their sub-prime losses I have no doubt that they would.

  29. A question for JLP:

    You think these regulations are reasonable, but disagree with the reasons given by the people you quoted. So what are your reasons for believing that these regulations are, in fact, “reasonable”?

  30. @Brian – “Secured or unsecured is not the issue.”
    It is an issue because secured loans can have more favorable terms because they are less risky. The ability to raise rates is important because when the defaults are high so is the risk.

    Nobody forces people to use credit cards if they don’t like the terms. It’s not a necessity. Frank told it best – it’s a contract between two parties both of which voluntarily agreed on terms. Mortgage contract has one terms, credit cards have other terms. It’s not true that you cannot switch to another card, even if the terms are the same, there are always promotional offers if your credit is good. If someone carries a balance but has good credit, he can take a promotional offer from another card and transfer the balance there. A couple of friends of mine were shuffling out of pocket costs from cancer treatment (if you think your 8 months or so emergency fund is enough for this type of costs, think again) for their loved ones between 0% cards until they repaid it. When or if these regulations take effect this type of offers will disappear.

    These regulations will hurt those of us who pay in full: it will reduce the number of rewards, cash backs, it may even cause banks to reduce grace periods or introduce yearly fees.

  31. “Nobody forces people to use credit cards if they don’t like the terms.”

    Hah! Sure. Operating in today’s economy without credit cards is trivial. No problems. Just don’t buy from catalogs, or from web sites, or rent cars. Oh and don’t try to get reserved for late arrival at a hotel. Or even a reservation in the first place. Etc etc etc.

    Customers can always switch. Sure they can. To another bank that can and will do the same things as the old bank did. Big help. The whole system is still wild west and that’s the problem.

    People who pay in full are a drag on the system. They always have been. Banks get a few percent in merchant fees from their accounts but overhead of managing their accounts deducts from that. I agree that removing the ability to exploit economically marginal accounts will lead to less credit for them and higher fees to non-revolvers to make them profitable. That’s fine with me. I never use the rewards (most are of little value to me) even cash back options are trivial amounts given how little I use my card (I’m a cash kind of guy).

    Your arguments are equally try of snake oil salesmen. Nobody HAD to buy snake oil. Yet people who were desperate DID buy it. And snake oil sales men peddled “cures” that were in some cases toxic. Adding some regulation made snake oil unavailable for the people who wanted it. It also increased the price of medication for sick people. I’m glad we made those sacrifices. (Of course we’re heading too far in regulation there now but that’s a different debate)

  32. @Brian – the comparison with snake oil is not that good. Snake oil salesmen sell their stuff to sick people who are desperate for any cure. As to not using credit cards – you can use debit cards. Are people who buy the latest electronic gadget or a super-fancy pair of shoes on credit feel they are going to die if they don’t buy these items?

    You can do all the things you mention using debit cards. You can also pay use a credit card, but do not spend any more money than you actually can afford to repay. This is not that difficult.

    Yes customers with good credit can switch. They can, for example, switch to a 0% offer, use it for a year then switch to another one. As long as they aren’t ever late – not such a challenge with automatic payment – they can do it until they repay their debt. After that they can start to not charge any more than they can actually afford.

  33. I believe in personal responsibility for sure but when credit card companies give cards to people with disabilities, teenagers and those who cannot understand the terms, there becomes a problem. Lucky for you, you can read and understand the terms that come with the credit card but when phrases like “Average daily balance” and “interest” versus “APR” are spinning around on the pages of fine print, it becomes extremely difficult for the average person to understand exactly what they are getting themselves into. It’s time to stop believing that every person in American is middle class and educated…it’s not victimization, it’s about equality.

  34. The credit card companies are mostly banks, and borrow from the privately owned Federal Reserve bank for between 0-.25%, and re-lend to consumers for 12-30%

    How is a spread like that anywhere near fair? Why can’t the consumer borrow from the Fed at the super low interest rates, and cut out the credit card companies?

    The US has a huge trade defecit, and produces alot of BS and hot air, and little of value.

    Wages are stagnant, as credit goes stagnant, the retail stores go bankrupt, and that sends the malls into bankruptcy as well. The bankrupt banks being bailed out on the taxpayers dime probably own alot of the commercial mortgage backed securities that are gonna tank next.

    The corporations and banks have slit their own throats.

    Instead of talking about “personal responsibility” the discussion should be about government and corporate responsibility to the nation they are supposed to be loyal to. The USA.

  35. “The credit card companies are mostly banks, and borrow from the privately owned Federal Reserve bank for between 0-.25%, and re-lend to consumers for 12-30%”

    1. You are not counting the cost of losses. About 8% of credit cards default, so the banks lose money. There are predictions that these losses will go up to 10% or more with mounting unemployment. For example, if you lend 10 people $100 for a year and you are earning 10%, then your profit after a year will be $100. But if one of these people defaults, this will cost you $100, so you’ll get no profit at all. The interest has to be high enough to offset the risk of generate profits.

    2. Banks are not charitable organization, their first responsibility is to shareholders. Certain loans are at lower risk – e.g. real estate (with conservative lending practices) where the sale of a home would offset losses, hence the interest is lower. Credit card business is high risk since those that are most responsible are paying in full and don’t generate profit whereas those who do generate profit aren’t as good with money. High risk = high reward.

    “How is a spread like that anywhere near fair? Why can’t the consumer borrow from the Fed at the super low interest rates, and cut out the credit card companies?”
    Life is not fair. Fed cannot provide nearly enough money for everyone. Not all banks borrow directly from the Fed directly, and even those that do lend a lot more than what they get from Fed. Most money for lending, come from our deposits. The banks normally put about 10% in reserve, and lend about 90%. The income on this 90% should be enough to 1) pay interest on all deposits, not just this 90% 2) offset losses of defaults 3) generate profit. Right now banks keep a lot more money in reserve than normal as a cushion against future losses. The risk of defaults is higher as well.

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