|
That’s what the Congress did this past week. And, Senator Bernie Sanders used those exact words to describe the credit card bill. The bill does almost nothing except require that a credit card company give you a little advance notice before they pick your bank account. The card issuer still gets to decide when it wants to jerk you around by raising the interest rate on your existing balance. Where’s the remotely fair deal for the customer? Noting that one-third of credit card holder’s pay interest rates higher than 20% and up to 41%, Sanders said, “They are engaged in loan-sharking.” This next one-line quote has become part of American folklore. It is apparently incorrectly attributed to Albert Einstein. It is nevertheless something to remember at all times:
Also, don’t forget the handy rule of 72. If you pay an interest rate of 36%, divide 72 by 36. The answer is 2 years. That’s how long it takes for your debt to double. Imagine a typical household owing and simply continuing an average balance of $10,000. After 2 years, they owe $20,000. Now that’s the power of compound interest. That doesn’t even count late fees and penalties. Anything close to a 36% interest used to be called usury, and it was absolutely illegal in most states. So, credit card companies want the laws to enable them to do darned well what they please. Now let’s turn the tables upside down so that you the borrower can be protected from the corporate gouging. Oh, by the way, this solution is very fair and even-handed to the credit card companies. To simply cut to the chase, here’s a simple set of rules. Let’s explain by example under such a new, fair law for fair dealing. First, let’s set a maximum rate. Sanders said credit unions may not charge more than 15% under current law. But, let’s be overly-generous and say 18% at the most. So the credit card company can offer any lower rate for the life of the card, i.e. the term. Requiring a term would be like setting the length of a mortgage. That would be all we need to know about this The example is an attempt to describe an even-handed approach to these unsecured
Click here to contact your representatives in Washington, D.C.: – Byron
|
Tags: Bernie Sanders, Donna Rosato, Loan-Sharking
I don’t believe that there should be a maximum interest rate, a fixed rate for everyone, a ban on retroactive rate changes or elimination of late charges. The term is already fixed by the expiration date of the credit card, and either party can terminate the agreement during the term for any one of several reasons.
Interest is a function of risk. The higher the risk, the higher the interest charged. Surely, the person who has a history of paying all his bills as agreed on time shouldn’t have to pay the same rate as one who doesn’t and is a bigger credit risk. If a person doesn’t want to pay the rate that the lender charges him, he shouldn’t accept the credit card.
If the risk becomes greater during the term of the loan because the creditworthiness of the borrower is less that it was at the time the contract was entered into, the creditor should be allowed to raise the return rate to compensate for the higher risk.
When the lender’s cash flow is interrupted by late payment per the agreement, he should be compensated with a late charge. When payments are late, the lender doesn’t have as much capital available, and his total income is affected.
An excavation contractor would charge one amount for clearing an acre of ground that is easily accessible and flat, yet he would charge more to clear a remote site on the side of a hill. If he is unable to do the job because of another contractor’s fault, he submits a “charge back” to the general contractor or owner. Money lending should be allowed to work the same way.
Reality is that people shouldn’t carry a balance on their credit card. Credit shouldn’t be used to finance an unaffordable life style. A HUGE percentage of America’s problem with debt is because people refuse to live within their means. No one is forced to live in a home that they can’t afford. No one is forced to buy that expensive car or SUV. No one is required to take an expensive vacation to Hawaii or a Caribbean cruise. People can eat at home instead of spending three, four or five times more to eat out several times a week. It’s time for Americans to face reality and live within their means.
We shouldn’t and can’t be our brothers’ keepers.
I agree almost completely with Jim S. Where I differ is allowing the credit card companies to change the interest rate. A home mortgage is either a fixed or variable rate. If it’s a variable rate it’s usually tied to the prime rate. The interest rate on your mortgage doesn’t go up based on your credit worthiness.
When’s the last time a credit card company lowered your interest rate on an existing balance because you became less of a risk?
Just to see how badly “we’ve” behaved I researched the “beginning of the consumer credit card”…Seems as if it was issued by the then San Francisco-based “Bank of America” in 1966 – that’s just a short 43 years – barely two generations. It’s totally out of control – conspicuous consumption gone wild. Zero restraint. No responsibility whatsoever. Oh by the way, we’ll be expected to pick up the bill, no matter how large.