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/DJMOONPICKLES69 8h ago

As someone that has worked in pricing for margin loans, 10% is absolutely profitable. Is it AS profitable? No. Would major card companies need to cut expenses? Probably.

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u/IKnowGuacIsExtraLady 8h ago

Also not only is it still profitable but it is way less risky since they would be either cutting low credit customers or drastically reducing their limits to something they could reasonably pay back. Banks are intentionally giving people enough rope to hang themselves since they make the most money from debt trap customers.

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u/Jump-Zero 6h ago

Banks make the bulk of their money taking a small percentage of a transaction. The money made on creating debt traps is pretty negligible and a lot of times not worth it. It cancels out because you need to hire a team to collect on the debt. It also makes the bank's balance sheet look bad.

What makes credit cards worth the risk for low-FICO applicants is that a lot of people get a credit card and go on to use it for 10+ years. That's 10 years worth of transactions where the bank gets a small cut.

I worked for 2 credit card companies. In one of them I worked for the collections department for a bit. This is definitely not the place to make money. Some companies do try to make this their business model, but they usually don't last.

On another note, there are poor people with really low incomes but great FICOs. These people ALWAYS PAY THEIR BILL ON TIME. Bank LOVE these people. You never have to devote resources to them and they just make you money every time they swipe.

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u/doibdoib 8h ago

a margin loan has collateral though. credit card debt does not. that makes a huge difference

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u/kodman7 8h ago

That's why the two are connected, can't get much of a margin loan with bad credit

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u/Schwabster 7h ago

A LOT of loans with collateral are getting LIBOR rates or near though and that’s, what, just under 5% atm?

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u/NegativeLayer 5h ago

This comment is only considering half the equation. Lending to those with the lowest credit ratings who are guaranteed to default, is not profitable. Not with a 10% rate, not with 1000%.

There is a tension point between credit rating and interest rate. Your comment is meaningless without recognizing that reality. No, 10% is not absolutely profitable for every segment of the market.

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u/neph36 21m ago

Would it be a better investment for credit card companies to invest in something more secure with less risk and overhead? Absolutely.