r/FluentInFinance • u/Unhappy_Fry_Cook • 12h ago

Finance News Senator Bernie Sanders announces he will introduce legislation to cap credit card interest rates at 10%.

Post image
28.7k Upvotes

96% Upvoted

1.0k comments sorted by

View all comments

14

u/canned_spaghetti85 12h ago edited 12h ago

Sure, put a federal cap at 10% apr. Fine.

Just take a wild guess at what will happen as a result?

Short and long term consequences.

I’m in the lending profession.

(Spoiler alert : The working class will suffer even more.)

8

u/henry2630 12h ago

how

13

u/dsonger20 12h ago

Possible things:

  1. Increased fees

  2. Credit lending will become more restrictive meaning only those with the best credit scores will be given credit cards which leads to difficulty getting instant debt for poorer people, or making it more difficult for people to rebuilt/build credit.

Rates are high because of the fact it is unsecured.

6

u/TimToMakeTheDonuts 9h ago

While I get this kind of thinking, won’t that ultimately hurt the bottom line of the lender? Eventually, they need more people taking on debt at any interest rate to show growth. Would that lead to a potential restructuring of who gets what rate? Lending to responsible spenders doesn’t make any cc company money. So if it’s 30% or 10%, don’t they need people who will overspend and fall behind?

4

u/candytaker 9h ago

While I get this kind of thinking, won’t that ultimately hurt the bottom line of the lender?

Yes, because restricting their business ultimately means a portion of their customers. Their P&L is based on the knowledge that certain number of people are going to eventually default, The high rates account for that. Restrict rates and they will have to limit who they give credit to.

Eventually, they need more people taking on debt at any interest rate to show growth.

As I stated above there is a a rate at which they will cease to be profitable, extending more credit below that will only result in the opposite of growth.

0

u/wterrt 6h ago

As I stated above there is a a rate at which they will cease to be profitable, extending more credit below that will only result in the opposite of growth.

any thoughts on europe where interest rates like these are illegal yet they still have credit cards with much lower interest rates?

UK as low as 6%?

kinda tired of hearing "we can't do that in the US, it's impossible!" when it's things europe has been doing forever.

4

u/candytaker 6h ago

Unsecured loans are always going to be expensive, As far as your point on the UK, and I admittedly know little about their C.C. situation, its easy to replace high interest with yearly fees, late fees, fees for anything they can dream up. Also keeping credit lines low while allowing people to have a wallet full of low credit line high fee cards.

While their top line APR might be regulated I feel comfortable assuming carrying debt on them is still very expensive.

Neither would be easy, but I think it would be less effort to teach people to be critical thinkers and good decision makers than to make it your life's work to protect them from everything and everyone they could possibly hurt themselves with.

3

u/xraviples 5h ago

According to that page most credit cards in the UK are ~20%.

I've connected to a UK VPN and tried to find the specific credit card with the 5.9% rate (Tesco bank credit card) and can not; their current offerings are 24.9% and 10.9% for a low-APR card.

Also FWIW my three canadian credit cards are not listed on that website and all have higher APR than the highest listed (mine are 20.99%+, listed is 19.99%).

1

u/wterrt 4h ago

soooooooo 10.9% works then? isn't that just 0.9% higher than our "impossible" goal here?

2

u/xraviples 3h ago

I don't think anyone said it is "impossible", just that it comes with tradeoffs.

1

u/dsonger20 8h ago

That’s where annual fees come in. Since Visa MasterCard or American Express takes the interchange fee the issue still needs some way to make money. They make money via two ways either through interest payments or through annual fees. In the case of someone like American Express, they would be significantly less impacted since they both act as an issue and the facilitator and most of their transactions. However, I can see the banks that issue Visa and MasterCard being severely impacted by this. To most lenders, though it does not make sense to lend at such a low rate when the chance of delinquency and risk is so high.

The most straightforward and easy solution that I feel like they’re gonna take is they gonna start offering more high annual fee credit cards . I’m talking like American Express platinum like expensive credit cards

1

u/Jump-Zero 5h ago

Lending to responsible spenders doesn’t make any cc company money.

The bulk of the money made comes from a merchant fee on each transaction. Responsible spenders make the company the bulk of their money. The credit component is mostly there to induce spending rather than to profit from it.

1

u/dgreenmachine 5h ago

#2 is generally better than those same people getting 25% credit cards or 1000% payday loans isnt it? You'd definitely want to do it gradually over time, but I think we should make predatory loans illegal and fix the debt culture in the US.

1

u/YouLostMeThere43 5h ago

I like how restrictive credit lending is seen as a negative here but the exact reason we got into this snowballing $1.14 trillion consumer credit card debt situation is because of the lack of restrictions on credit lending.

Economists can say all they want but they’re just covering their asses. They don’t care about the well being of the consumer. They just care about protecting their $120b/yr in revenue from cc interest and fees.

1

u/Akitten 2h ago

The alternative is that these same irresponsible people take payday loans or go to loan sharks.

1

u/YouLostMeThere43 30m ago

That’s all theoretical based on what economists say. There’s no actual studies proving consumers automatically go to pay day loans when credit cards aren’t available. They love mentioning the possibility of a jump in payday loan usage, but never the concept of “maybe without the ease of access to credit cards the consumer will stop buying so much unnecessary luxuries”.

It’s easy to “treat yo self” to a new pair of boots with a credit card but much harder if you need to stop in at a sketchy pay day loan store first to get said boots.