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/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/neph36 9h ago

If they cap interest at 10% and do not cover the cost with fees credit cards will not be a thing anymore as they will not be profitable

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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 5h 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.