Are you sure about this? A quick Google search reveals that half of all bankruptcies are due to medical bills. Surely these people turned to their credit cards and racked up loads of debt before declaring bankruptcy. Were they irresponsible? Or did they get caught up in a horrible system (lack of good health care + high interest rates once you start defaulting…).

The “hard case” made be THE case.

@RC Brooks – a little math for you about why the interest rates are high:
Let’s say you lend $1000 to 10 people without any collateral, $100 to each for a year, and you are trying to figure out what interest you want to charge so that you’ll manage your risk and earn some profit. If one of your borrowers defaults, you need to collect $100 in interest from the other 9 just to offset losses. $100 in interest on $900 is a little over 11%. Now let’s say your customers are especially risky, and you worry that 2 people may default. Than you need to collect $200 in interest on remaining $800 just to offset the losses. This is 25% in interest. Now this would just offset your losses, no profit at all. Note, this assumes that you got this money for free i.e. that your cost is 0. But if you are making money on spread as banks do, you have to subtract the interest banks pay on deposits. You also need to factor in that banks don’t lend all deposited money, they need to put some money – normally around 10% – in reserve. I.e. the money they make from 90% they lend have to cover interest banks’ pay on deposits on all money, including money in reserve. Add to it expenses of paying salaries, renting or owning the building, etc. Plus I assumed equal distribution of money among all of your customers. But those with higher amount of debt is usually the riskier ones. Plus, you cannot just operate at cost, you need to have profits; otherwise, why would you do it in the first place. When you look at it this way, the interest doesn’t seem that high, does it?

Currently the default rate is close or even a little over 10% and rising. This is average default rate meaning that it is less for some customers and more for others. Being able to charge more on riskier customers more allows better conditions for less riskier customers. You do have a point that higher rates may mean more defaults, so this is something that you – if you were a lender – would have to factor into your business model. But the blanket prohibition on certain things will interfere with your ability to adjust the rates to your level of risk.

There is also the issue of lost jobs. People like to identify banks with their CEOs, but there are millions of people who are employed by these companies. When these companies experience losses or earn less money, the employees of these companies lose their jobs. Not high executives – regular employees, programmers, cashiers, financial consultants, managers.

@Rick – I have tremendous sympathy for those with medical needs. My mother is has lung cancer, two of my friends had cancer in the family, I have an idea of the costs. But, the problem with this bill is that it would have an unintended consequence of higher interest rates upfront for all. So if right now a responsible person with good credit, low debt and legitimate medical need can take advantage of 0% offers and low initial rate, this would no longer be the case. The rates for everyone will be higher right away. So if anything, this bill will make it more difficult for people with legitimate need to obtain credit.

@FV – about transaction fees. A lot of people don’t realize that not all companies make money off them. Discover and AmEx do, but banks issuing Visa and Master Card branded cards don’t – the merchant fees to to Visa and MC companies. With Visa and MC business model, merchant fees go to Visa and Master Card companies, whereas banks get their profit exclusively from lending. So banks’ don’t profit from merchant fees whereas Visa and MC couldn’t care less about interest rates, rewards, 0% offers, defaults or if you pay in full or not (except they like you to buy more stuff). So banks’ wouldn’t lose much sleep over those who pay in full not using their cards, we are a liability anyway; whereas Visa and MC will happily continue getting their merchant fees from debit cards (as long as they are used as credit).

It does not matter that AMEX and Chase Freedom have reduced their rewards payouts. My point is that there would ALWAYS be other credit cards willing to attract AMEX’s and Chase’s discontented customers by offering better rewards. Just give it some time and you will see…
FV

It has grossly inflated cost of living, so much so that an average person can have a great deal of difficulty living. For many years I didn’t even have a home phone and only bought clothes when the ones I had were unsuitable for my job. And at that time I was still making more than many in my area.

My situation has improved, but there are an increasing number who have had their situations degrade, many who have never had a well paying job. Truly we don’t need big screen TVs or brand new cars, but I know many that have neither and even though working full time, barely have enough to make it past rent, car maintenance, utilities, car insurance (which we have to have in Indiana) and basic food.

We can ignore their plights, but to our own peril. To condemn the irresponsible to a life of poverty without the real chance of betterment is dangerous as well. With the weakening of bankruptcy there is very little chance for anyone to start anew, which lead to the eventual success of many individuals.

To that end, I know many who never have used their credit cards before, having to use them just to get to work. Their option is to forfeit their jobs and quite literally live on the street. Perhaps it would call attention to the real issues, but at a high cost.

If we should punish borrowers without considering the transgressions of the lender, should we also concede that victims of burglary received fair treatment as they must not have had enough security, nor perception to prevent it? While we may not sign a contract, life has shown us that if we do not secure our possessions, they will likely be taken. In truth at least two parties will always have responsibility in a every interaction.

Those who are paying credit card fees and interest rates at trying to repay their debt. There are many who simply wouldn’t pay at all. Their penalty for borrowing money is that they are paying back more than what they owe. We should ensure however, that in a “lawful” society that those in power treat others respectfully.

Sorry Rick – I don’t think that is good policy. What Obama could have done is gone on national television, read the riot act to the cardholders who carry balances, give them a one-time relief from escalated interest rates or compounded late fees, and then left it alone. He won’t do that of course because it would cost him votes. People don’t like being told that they are behaving badly no matter how much truth is behind it.

In the first part of this rant you bemoan the federal government’s involvement in our lives but end the same post demeaning their efforts as not doing enough?!

Meddling is fine I suppose as long as they meddle with items that are demeaning and annoying to you, but to heck with the rest of the population – they are just a bunch of slackers.

Ugh, the condescending arrogance in this post is a bit much, and you might want to tone that down a bit. Perhaps interject other opinions to provide support and balance out the article would help settle the tone a bit.

Before you wonder what the heck I am talking about, imagine someone having to carry a balance to save their lives (emergency medical treatment). Do they deserve your comments, and do the credit card companies deserve to exploit them? In the words of the Daily Show, “be a person”.

Peace.
Rick Beagle