Democrats & Liberals Archives

Because 10% is Enough

How much interest do you pay on your credit card bills? 20%? 30%? 40%? How does it feel to dish out double what an item costs because you used a credit card? Don’t you think that the 10% we use for religious tithes should be enough to pay for credit?

Yes, 10% is enough.

Misuse of credit is the main culprit in the tanking of our economy. Banks misused credit in 2 ways: first through usurious loans to their real estate and consumer customers, and second by making reckless stock market deals with little cash to support them - the opposite of usury. The first ruined the home market, and the second ruined the financial system.

The government bailed out the banks by injecting money into the banking system. However, the system will not improve until making stock market purchases with little money is made illegal. On the other side, an excellent way to put the homeowner and the consumer on a more healthy footing is to reduce the cost of credit.

An outfit called The Metro Industrial Areas Foundation is advocating that credit card interest should be limited to 10%. As they say:

Why 10%? Because 10% is enough.

Our economy needs a boost. As economists say, we need to stimulate the economy with purchases. The biggest boost we can give the economy today is a reduction in credit card interest to 10%. Imagine all the buying this would unleash! Imagine the reduction in bank recklessness that would ensue! Imagine a revived economy!

For personal and public reasons, all of us must work for a limit of 10% on credit card debt. Why 10%? Because 10% is enough.

Posted by Paul Siegel at August 11, 2009 7:23 PM
Comments
Comment #286076

Banks and credit card companies benefit from legal loansharking. They are allowed to keep their interest rates so absurdly high because the government gets a chunk. Corporations get to squeeze the little guy and keep America in a two cast system, and the government prospers because it get’s free money.

Same reason the government gets half of your lottery winnings. Imagine winning $100M on a $2 ticket and having to give the government $50M. It’s not greed on the winners part to be pissed, but what is going on there? How come the government can take whatever it wants from you, as can the banks, and credit card companies? Meanwhile, anything you get you get taxed on and penalized for buying…

Unfortunately the government can’t really tell banks/credit card companies how much interest they can charge because that would be anti-American socialist terrorist behavior!

Everything is the way it is because power, as well as wealth, is intoxicating. Keeping things the way they are ensures the rich stay rich and the poor stay poor.

The worst thing anyone can do is miss one credit card payment!

Posted by: Mike Falino at August 11, 2009 8:05 PM
Comment #286084

paul

you’re kidding right? no one forced these people to accept these credit cards. they spent money they didn’t have, and now they’re on the hook for the principle, and the interest, which they agreed to. so ya lets have the gov’t mandate a cap of 10% on credit cards and lure the public into spending even more money they don’t have.

BTW how would this stimulate the economy? other than to encourage people to spend even more borrowed money? isn’t that what was at least partially responsible for getting us into the mess we’re currently in? remember, people buying things ( like homes ) they really coudn’t afford. brilliant!

Posted by: dbs at August 11, 2009 9:29 PM
Comment #286086

It is true that nobody forced people to get credit cards, but in reality, it’s fairly impossible not to survive nowadays without a credit card. I’m lucky enough to be able to pay it off on time. I also do not live above my means like a lot of people who think credit cards are a license to live live kings. But for those who need credit cards to survive, they just get eaten alive.

Posted by: Mike Falino at August 11, 2009 9:53 PM
Comment #286090

I had a credit card once, it got me in trouble. Bought things I didn’t really need or could afford, so I got rid of it. Now if I can’t pay cash then I don’t need it. That’s one way to get around the high persentages the credit card companys charge.

Posted by: KAP at August 11, 2009 10:25 PM
Comment #286094

10% is probably enough for some people. Others are too risky. As others have said, your program will make credit once again something poor people cannot get and something that belongs only to the well established.

When you limit interest rates, you get loansharking, since many people are not good risks.


And you know that the big reason we are in the current financial crisis is that there was too much lending to people who could not or would not pay it back. A 10% rate would sure give a boost, for about a month until all the deadbeats didn’t pay it back.

Mike

Not to worry, everybody can get debit cards. They work like credit cards, but there is no interest at all and you can spends as much as you have, not more.

If you need the credit card to survive in the sense that you are consistently spending more than you have, you are headed for the poor house anyway. The credit card will just make your fall harder. For the very poor or the hopelessly profligate (eventually usually the same people) a credit card is not a help or even a crutch, it is a pernicious drug.

Posted by: Christine at August 11, 2009 10:31 PM
Comment #286095
It is true that nobody forced people to get credit cards, but in reality, it’s fairly impossible not to survive nowadays without a credit card

BS (I know because I do). I have a CC for work, that we carry no balance on and for my personal use I use a card tied to my bank account.

I pay no credit card interest because if I can’t afford it, I don’t buy it, except for my house and my car. And my car is a painful thing for me to pay, it may be the last time I do that as well.

All you are telling people, with this tripe, is that it’s ok to get them using their credit cards and get into just as bad of shape as we were in 3 years ago.

The REAL problem is that no one wants to address the REAL problems, that almost no one in this country is given any kind of education on how to manage money because business (especially the credit card companies) WANT it that way.

Our grandparents would have NEVER behaved like this. They understood. My Parents understand. I had to learn but I understand now and you can bet my children will…

Posted by: Rhinehold at August 11, 2009 10:36 PM
Comment #286124

While I think usery is something Government should limit. This post seems to say decreeing some religious value of tithing makes economic sense. It doesn’t.

Posted by: gergle at August 12, 2009 3:05 AM
Comment #286127

If you don’t like the rate, find a better one. Typical liberal ‘we must protect everyone’ position.

Almost as bad as the Republicans crying and screaming at the thought of the elderly not getting ‘all you can eat’ free health care with reform.

Posted by: Schwamp at August 12, 2009 8:53 AM
Comment #286128

No need to stop with credit cards, govt should dictate how much every company makes.

Posted by: kctim at August 12, 2009 8:58 AM
Comment #286133

Most states used to have usury laws that capped interest rates on credit at a reasonable level.
When the Supreme Court ruled that national banks could charge their customers nationwide the highest interest rate allowable under their home state’s law, that all changed. National banks moved to states with no or very liberal usury laws. The majority of states with usury limitations, understandably, modified or struck their usury laws in order to compete for the business of the major banking players.

It is time for a reasonable federal usury standard. That is the only way to restore the protections against loan sharking that Americans have historically enjoyed through their state laws.


Posted by: Rich at August 12, 2009 9:37 AM
Comment #286134

Limit interest to a percentage over prime. That way flux is allowed when the fed feels the need to raise or lower its lending rate. With the recent history of increasing rates and fees by ALL lenders, it is obvious that competition is missing in the money market place anyway, so, say limiting rates charged to consumers to five percent over prime allows lenders to make plenty of profit, while most of us could still pay what we owe without having to go without food or medicine.

Posted by: Marysdude at August 12, 2009 10:00 AM
Comment #286151

Great post Paul,

This gets to one of the big divides between Dems and Reps. When Reps talk about the “nanny state” from the cradle to the grave. It makes me mad!

There are certain things I expect from the government, roads, bridges, schools, security (local and international), and so on.

But one of the main things I depend on the government for is protection in the marketplace. When I go to the store to buy food, I expect the peanut butter to be free from salmonella and the spinach to be free from e-coli. If I buy insurance I expect the company to have sufficient capital to pay my claims. (and a willingness to pay legitimate claims)

But when a business becomes to big to fail, it’s also big enough to manipulate the market, the competition, and even the government. (I do believe in a free market, we just don’t have very many!)

The interest rate the banks charge is just the tip of the iceberg. I pay my credit card off 11 out of 12 months a year. If I have to carry a balance I do like I did last spring. I moved $6,000 to another card with a 2% come on rate. ( It cost 3% up front so I’m paying 5% total.) The banks don’t like people like me.

A fellow who works for me is horrible with money. His credit card is always maxed out, and his checking account is on the verge of being overdrawn. What they do to him should be illegal. When he writes a insufficient funds check, they charge him a minimum $35.00 for being overdrawn. Then the bank dips into his charge card to cover the check, but since the charge card is at the limit, he has to pay a $40.00 fee for being over limit. It seems to me if the bank charged him $40.00 for his charge card going over limit, then the check was covered. Likewise if they charged him $35.00 for an insufficient funds check, then his charge card wasn’t touched. U.S.Bank plays this way because the state of Delaware allows them to. Switching to the Bank of America won’t change anything, because they’re in the state of Delaware too. (Letting the insurance companies move from state to state will just cause them all to move to whatever state has the least regulation!)

On the other hand when rich people buy things with a charge card they get “rewards”. the more you spend the more rewards the bank gives you. HERE IS TRULLY A PLACE WHERE POOR PEOPLE ARE SUBSIDIZING RICH PEOPLE! Of course like most of the issues we argue about this is very complicated.

when Christine says
“If you need the credit card to survive in the sense that you are consistently spending more than you have, you are headed for the poor house anyway. The credit card will just make your fall harder. For the very poor or the hopelessly profligate (eventually usually the same people) a credit card is not a help or even a crutch, it is a pernicious drug.” She is right on.

And when Rhinehold says
“The REAL problem is that no one wants to address the REAL problems, that almost no one in this country is given any kind of education on how to manage money because business (especially the credit card companies) WANT it that way.” He is also right on.


Posted by: Mike the Cynic at August 12, 2009 12:00 PM
Comment #286199

Banks make 50% of their income from interest income, the rate they charge, 35% on punative fees/charges, and 15% from transaction income (what Wal-Mart litigated several years back, but still pays banks for the convenience of using plastic).

The CARD Act is worth studying, in my industry (credit unions) we are largely compliant with its components, but it is focused on these core things:

1. No more universal default (can’t increase an interest rate for no reason)
2. Sufficient time to pay bill
3. Protection from arbitrary rate increases (but note … not 100% protection from any rate increase)
4. Proper and timely notification of rate increases
5. Fair allocation of payments (if you have a balance at a low interest rate, and a balance at the normal card rate your payments go to the lower rate first … no more of this)
6. Consumer right to set their own credit limit
7. No more double cycle billing
8. Protection from due date gimicks

Any credit card applicant that is under 21, must prove income or have a cosigner. So no more free 44 ounce beer mug if you sign here on college campuses.

A local bank, about $1.5 billion to my market will be losing $800,000 per year in income from “over limit fee” the fees charged to bank customers that go over their credit card, credit limit. So banks allow the consumer to go over their limit, then charge them … rather than rejecting the transaction.

Professionally, I am very happy to see these changes, despite the new regulatory burden it has on my credit union. I think we’ll see some improvement, however, banks, finance companies,and even credit unions can use rate and annual fees to make up the difference. And I believe that we will see fewer and fewer banks and other companies, offering credit cards because the margins are going away.

We charge 9.99% for our credit card, no annual fee. We make 67% of our income from interest income, 31% from transaction income, and only 2% from fees. And we have had a successful, growing credit card portfolio for 10 years.

I think this is one time that regulation needs to prevent financial institutions like mine from taking advantage of consumers that are plain stupid. Education ain’t enough. We’ve made it too tempting to use the card.

Posted by: Edge at August 13, 2009 12:06 AM
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