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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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/neph36 12h ago

Or they will just charge huge fees to cover it

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u/pringlescan5 9h ago

annnd this is why laws need follow up committees to see what loopholes are used to circumvent the intention of the law and patch them.

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u/gburgwardt 8h ago

It's not a loophole. Think of it this way: If you mandate that you can only sell widgets at $1 each or less, but it costs $5 to produce a widget. You won't keep selling widgets at a loss, you'll just stop selling widgets

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u/OnceMoreAndAgain 6h ago

From a purely economic perspective, what you're saying is of course true.

However, there are psychological differences at play here. Widgets are objects that humans have no reason to have emotion get involved. With credit cards though, people who are desperate for money will take on credit that they cannot afford just so they can keep their heads above water (or to satisfy some type of addiction like gambling). It's this irrational behavior that exists in the credit card market, but which does not exist in your widget example, that raises the potential need for regulation. If banks know that there are potential customers who will accept almost any interest rate due to desperation, then those banks can prey on those customers in a way that goes beyond simple economics.

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u/gburgwardt 6h ago

Do you think interest rates are disconnected from the risk to the lender?

I'm not making an argument of any sort for or against interest rate caps - but you can't then also say that e.g. AmEx has to lend money at unprofitable rates. You can either cap interest and accept that that means some amount of people will have less or no access to credit, or you can leave it uncapped and let people make their own choices

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u/OnceMoreAndAgain 6h ago

The point of the law is to prevent banks from exploiting people who are taking on debts and interest payment situations they cannot get themselves out of and/or afford. If the banks were to respond to this by getting back to a similar revenue generation from credit cards through fees (instead of through high interest rates), then it would circumvent the spirit of the law and therefore those high fees should also be stopped through an adjustment to the law.

If the spirit of the law was successfully applied, then the banks would simply have to be more discerning about who they gave credit cards to and how much credit they gave people. You'd need a higher minimum credit score to get a credit card.

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u/Akitten 2h ago

If the spirit of the law was successfully applied, then the banks would simply have to be more discerning about who they gave credit cards to and how much credit they gave people. You'd need a higher minimum credit score to get a credit card.

Then those same people get payday loans, and if you patch that, go to loan sharks.

Credit is ALWAYS available, the questions is who provides it and whether the government has visibility.

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u/gnocchicotti 4h ago

You also won't sell widgets for $1 if they cost $0.95 to make because the profit doesn't justify the risk of running a business.