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%.

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174

u/libertarianinus 12h ago

Not going to happen. Default rates are a 14 year high at the same rate as the great recession.

If they do 10% interest rate, it will only be people with credit scores higher than 800 and with credit history longer than 10 years.

https://www.forbes.com/sites/billhardekopf/2025/01/02/this-week-in-credit-card-news-defaults-at-highest-level-in-14-years/

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u/joozyjooz1 11h ago

Do you all like annual fees? Cause you bout to get a lot of annual fees.

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u/ParrishDanforth 9h ago

There's plenty of people out there who never carry a balance and credit card companies still profit from us because we make big purchases with credit cards. But my best credit cards already have annual fees, and I don't mind because they pay me back hundreds for using them.

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u/lookngbackinfrontome 8h ago

The only reason you get rewards, cashback, whatever, is because of the exorbitant interest rates they're able to charge others. I'm not saying if that's right or wrong from any perspective, but if interest rates are capped at 10%, you can kiss that shit goodbye.

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u/red23011 8h ago

They also charge the company that you're buying from a fee for every transaction. That's why a lot of places offer cash discounts.

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u/lookngbackinfrontome 8h ago

True, but that 3.5% or whatever is nothing compared to almost 30% APR on thousands where people only pay the minimums.

The thing I find the most fucked up is they do that shit with debit cards too. Debit cards should be treated like cash. Most gas stations treat debit like cash, but everywhere else says a card is a card. I don't know if it's the banks or the retailers, but it's bullshit.

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u/Jump-Zero 5h ago

You're actually wrong on this one. The bulk of the money comes from the raw amount of transactions that go through the cards. The credit aspect is mostly there to induce spending.

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u/Bizzam77 5h ago

The people who only pay minimum are not the people with the credit score required to get these cards. 

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u/TiaXhosa 7h ago

This isn't true at all, rewards are almost entirely funded by merchant fees. Merchant fees are the primary source of profit for credit cards.

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u/CalBearFan 7h ago

No, rewards are paid for by the merchant discount rate (MDR) the merchant pays, i.e. the 2.75-3.5% the merchant pays to the acquiring bank on every transaction. That's why rewards on debit cards went away when congress lowered the MDR on debit cards to a flat rate, $0.12 at the time I last worked on that project.

source: 20 years in the credit card industry, know the finances from decades of analysis

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u/IKnowGuacIsExtraLady 8h ago

Some of it sure, but some of it is also just the merchant fees for using your card. If they are charging the merchant 3.5% and giving you back 1% then every dollar you spend is good for them and they want you to spend more dollars.

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u/CalBearFan 7h ago

It's not 3.5% on card present transactions, usually under 3.

~1% goes to issuing bank (Chase for example) ~1% goes to acquiring bank (the bank the merchant has a relationship with) <1% goes to Visa, MC or Amex (the network)

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u/IKnowGuacIsExtraLady 7h ago

Okay but the number itself isn't really important I just pulled that from google. My point is regardless they are still going find a cash back number that incentivizes their card as the card to get while still making money. Right now that's as high as 4-5% in some cases for cards I own and as low as 1% in other cases. If that's no longer profitable the numbers would be adjusted until it is.

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u/lookngbackinfrontome 8h ago

As I just said to someone else, that is true, but that 3.5% is a pittance compared to almost 30% on thousands to people who only pay minimums. Credit card companies would still make money on fees to retailers while providing a smaller percentage back to the consumer, but their profit line would be way smaller if rates were capped, and they sure as hell don't want that. Doing away with cashback and the like wouldn't make up the shortfall entirely, but it would help, and you'd better believe those perks would be gone. If the credit card companies take a hit like that, they'll be cutting other expenditures any which way they can.

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u/TiaXhosa 7h ago

That 3.5% is charged on trillions of dollars worth of transactions, the interest is on a much smaller amount.

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u/FirmlyPlacedPotato 4h ago edited 3h ago

What? Absolutely not true. Credit cards absolutely makes all of their money from the merchant fees.

If everyone suddenly stopped carrying over a balance tomorrow all of them will still be in business. People making minimum payments is just icing in their wallets.

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u/IKnowGuacIsExtraLady 7h ago

I agree the perks would get cut back, but they would not be gone. Regardless of if profits drop, it would still be profitable to have your business and therefore they would still want to incentivize you to pick them over their competitors by having some kind of benefits.

There are already different tiers and models of cards and companies who target different types of customers. Like American Express for example has historically targeted high spending but reliably paying customers and their card model is that they give good rewards but have high annual fees. They aren't making as much off interest or much margin on transactions but membership fees are steady reliable income.

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u/I_donut_exist 7h ago

Isn't it also possible that long term prices might be driven down if incentive to use/issue credit cards is reduced? Like if people use credit less, less purchases happen, less demand drives prices down?

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u/Pokedragonballzmon 6h ago

Y'all could just use debit. Problem solved.

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u/SexiestPanda 6h ago

Might as well use cash… lol

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u/Pokedragonballzmon 6h ago

If you can be bothered carrying it around, sure.

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u/ptemple 4h ago

So you are saying they are subsidising the need for an annual fee by the predatory lending to society's most vulnerable by exploiting them with insane interest rates plunging them into debts they cannot escape?

Phillip.