Finance Minister and Mortgages

Wilber · February 18, 2010

At one time the minister said he couldn't tell the banks what to do. but here he is doing just that. When is he going to tell the banks to drop the interest fees in credit cards? If he so worried about household debt, that would be the place to go. The only reason the government is doing this and not the banks because the banks want this across the board and if they had to do it, some banks would and others may not and the "may nots" would probably get more business.

If you have to pay 20% interest on a credit card in a world of 4% and lower credit lines in order to buy something, you really can't afford it. Lowering interest rates will just provide an incentive to borrow more and end up increasing household debt, not lowering it. The problem is the amount of debt, not interest rates.

It seems some of the same people who think we should increase taxes on booze and smokes to discourage people from drinking and smoking, think that lowering the cost of borrowing money will discourage people from borrowing. Very odd.

Topaz · February 18, 2010

I can't believe I'm saying this, but...

I agree with every word in this post. Bang on, Topaz.

Thank You!

Moonbox · February 18, 2010

If you have to pay 20% interest on a credit card in a world of 4% and lower credit lines in order to buy something, you really can't afford it. Lowering interest rates will just provide an incentive to borrow more and end up increasing household debt, not lowering it. The problem is the amount of debt, not interest rates.

It seems some of the same people who think we should increase taxes on booze and smokes to discourage people from drinking and smoking, think that lowering the cost of borrowing money will discourage people from borrowing. Very odd.

Haha I couldn't agree more.

Another thing worth mentioning is what the environment is like when interest rates go that low. The interest rates are low because the economy is in shambles. When people lose their jobs, guess which is ALWAYS the first piece of credit that a borrower defaults on? BINGO! The credit card. Like I've already said in this thread, banks aren't charities. The increased likelihood of defaults is a big part of the reason why interst rates don't go down on credit cards. They may be making money off of stupidity and bad spending habits, but the stupidity and bad spending habits are not their fault.

People who end up with big balances on 20+% credit cards are the type of people most likely to default on them. It shows an inability to manage your finances and pay your debts off. Only a desperate, stupid or lazy person would carry $25,000 VISA balance at rates like that.

The solution is not to put yourself in that situation in the first place.

Wilber · February 18, 2010

They may be making money off of stupidity and bad spending habits, but the stupidity and bad spending habits are not their fault.

Not entirely true. Banks and other agencies actively push credit cards on just about anyone and continually jack up borrowing limits on cards without the customers consent or knowledge. I keep one card with a low limit just for internet or phone purchases. I had a couple of tussles with the bank because they arbitrarily increased the limit on that card. They finally seem to have got the point and are leaving it alone. That being said, an individual's debt load is their responsibility, not the banks.

I don't really care what interest rates they charge on credit cards because I won't carry a balance. If I make a large purchase with a card that I don't plan to pay off at the end of that month, I just pay the card balance off using my credit line and then make sure that is paid off before I will do the same thing again.

Moonbox · February 18, 2010

Not entirely true. Banks and other agencies actively push credit cards on just about anyone and continually jack up borrowing limits on cards without the customers consent or knowledge.

That's true, and there's clearly some profiteering going on, but the interest rates themselves are not so much the question as it is the amounts they're allowing people to borrow. Ultimately, it's the consumer's responsibility to manage their budgets and to mainly blame banks for making it POSSIBLE to spend seems pretty silly.

Smallc · February 18, 2010

I keep one card with a low limit just for internet or phone purchases.

We had a card like that. We had set a $500 limit. My brother always spent too much, and so the bank decided to simply let the card go past its limit and then they charged us for going over our limit....that was nice of them.

Moonbox · February 18, 2010

Yeah banking fees is another issue altogether...

Hydraboss · February 19, 2010

That's true, and there's clearly some profiteering going on, but the interest rates themselves are not so much the question as it is the amounts they're allowing people to borrow. Ultimately, it's the consumer's responsibility to manage their budgets and to mainly blame banks for making it POSSIBLE to spend seems pretty silly.

And this is my point as well. I disagree with the credit card companies charging what amounts to loansharking rates (28.8&, 19.8%, etc). They freely give the credit availability and limits away, and then say they can't understand why people default. Personally, I have had those same fights with Visa over arbitrarily raising my limit by thousands at a time (I actually cut the card up and mailed it to them to make a point), and I instructed them exactly where I wanted my limit if I was to continue doing business with them. I qualify for their best rate and have never been late on a payment so I have that leverage.

Many people do not.

Good business practice would see them making the rate reasonable (in line with what they offer US customers), and actually proving some due diligence on both initial qualification and credit limit determination before provinding the cards to people. People will be idiots in some cases, but that is no reason to crucify them. If I gave a ten year old my Visa and told him to go to the toy store, I could expect a bill in the 5-digit range the next month. The same lack of diligence is what has had everyone screaming at the feds and banks in the States over subprime. Those people should never had qualified for the mortgages in the first place.

Moonbox · February 20, 2010

Good business practice would see them making the rate reasonable (in line with what they offer US customers),

In this I don't at all agree with you. The rates are how the banks can compete and where consumers should be making their choices about where and when to spend their money. Realistically, credit cards aren't meant to be borrowing facilities to carry balances on. They're meant to be convenience products.

and actually proving some due diligence on both initial qualification and credit limit determination before provinding the cards to people. People will be idiots in some cases, but that is no reason to crucify them.

People get declined for cards all the time. The only thing I can really agree with you about on here is about the automatic limit increases. The banks are here to make money, and while it might not be the most wholesome business to let morons squander their earnings on crap they don't need, it's ultimately their choice. It's the same sort of deal with alcohol, smoking, video games and food. Let people make their own mistakes. Nobody is forcing them to do anything.

The same lack of diligence is what has had everyone screaming at the feds and banks in the States over subprime. Those people should never had qualified for the mortgages in the first place.

Absolutely not. There are pretty big differences, however, between giving away credit cards and giving away mortgages, with only one of them being the amounts.

Edited February 20, 2010 by Moonbox