Caps on credit card rates?

[bloodyminded]

I understand what you're saying but I can't agree with you. Everything is a cost/benefit analysis, and a law of averages. Secured loans are not at issue, as a lot of credit checking goes on before it is issues. Sure you can still default on your mortgage but guess what the bank gets your house, or the bank takes the car back. Assets can be recovered and losses can be minimized if not eliminated entirely.

Such is not the case with Credit Card debt. There's nothing backing it so all revenue must be made in interest and fees. This is the only real guarantee the bank has on the loan which is why it is so high. I think many of the objections people have to credit cards is two fold. The fundamental belief that to varying degrees banks are "evil and greedy" and the second is that they have "limitless resources" so they're not going to miss a penny here or there. These fees are in place so that the bank does in fact make money off of the product. It's a business is a product is revenue neutral, or worse a contra-asset why would they continue to offer it? That's the realm of charity organizations.

If this were true, then the credit cards that do offer relatively low rates must be, in fact, charities.

I'm not suggesting there should be no fees or profits. nobody is suggesting that, though you'd think the Soviet tanks were rolling into Hungary if anyone suggests that the little rich giants might make slightly less than they do now.

(Unlike, say, cutting those huge welfare benefits to the underclass, because hey, we're sick and tired of taking care of these people! )

I think the banks'd survive just fine. In fact, everyone knows it.

Are you suggesting they're at some bare subsistence level, just scraping by on these "natural" rates and fees?

I gotta get me some of that subsistance level living!

Edited March 30, 2011 by bloodyminded

[blueblood]

If this were true, then the credit cards that do offer relatively low rates must be, in fact, charities.

I'm not suggesting there should be no fees or profits. nobody is suggesting that, though you'd think the Soviet tanks were rolling into Hungary if anyone suggests that the little rich giants might make slightly less than they do now.

(Unlike, say, cutting those huge welfare benefits to the underclass, because hey, we're sick and tired of taking care of these people! )

I think the banks'd survive just fine. In fact, everyone knows it.

Are you suggesting they're at some bare subsistence level, just scraping by on these "natural" rates and fees?

I gotta get me some of that subsistance level living!

Those banks have an obligation to bondholders and shareholders. Bondholders especially as they have to pay bondholders interest. If there is a scenario involving a seismic shift in how the banks collect revenue, the bondholders and shareholders will have a fire sale and the liquidity they provide which results in the average joe needs in order to get a loan dries up. Not only that those bond and share holders are largely made up with ordinary people.

This is why commerce, management, and economics should be mandatory for high school graduation. Too many people come up with ignorance like this.

[bloodyminded]

Those banks have an obligation to bondholders and shareholders. Bondholders especially as they have to pay bondholders interest. If there is a scenario involving a seismic shift in how the banks collect revenue, the bondholders and shareholders will have a fire sale and the liquidity they provide which results in the average joe needs in order to get a loan dries up. Not only that those bond and share holders are largely made up with ordinary people.

This is why commerce, management, and economics should be mandatory for high school graduation. Too many people come up with ignorance like this.

[edit]

Originally, I conceded your point, and followed it with a "how dare you" litany of your flaws.

But that seems petty (or at least beside the point), so now I simply concede that you and Dave have both made reasonable points. (Dave's friendly, yours not so much, eh?)

I might have made my remarks as some vague introduction to a larger philosophical point, and left it at that. It didn't really fit here too well.

Edited March 30, 2011 by bloodyminded

[William Ashley]

I can't say I support Jack's measure - as I'm more incline to allow business to be "private" especially finacial services.

BUT I also think that any financial service the government thinks is corrupt or immoral etc.. they should just offer their own service.

Example. Jack doesn't like High Credit Card rates.. the proper measure would be to create a government credit card that doesn't go above the "Reasonable credit card rate." End of story.

If it is a successful business model so be it. People have the right to choose non essential services. The public however can protect itself by offering these services via secure government crown corporations.

CROWN CREDIT CARD CORP, for instance.

Edited March 30, 2011 by William Ashley

[blueblood]

[edit]

Originally, I conceded your point, and followed it with a "how dare you" litany of your flaws.

But that seems petty (or at least beside the point), so now I simply concede that you and Dave have both made reasonable points. (Dave's friendly, yours not so much, eh?)

I might have made my remarks as some vague introduction to a larger philosophical point, and left it at that. It didn't really fit here too well.

My meanness is not directed at you, its for everyone. In fairness, I am ignorant about psychology. I never learned about it in high school, I don't read psych books, etc. A lot of us here own busineses, read up on economics/management/commerce and/or were educated in it whether by ourselves or at a learning institution.

Personally I think its a problem in the high school education system when after graduation all students are exposed to the economy yet a lot weren't taught how it works. With all the garbage classes in highschool you'd think they'd be able to squeeze that in.

[cybercoma]

CROWN CREDIT CARD CORP, for instance.

Maybe Jack is trying to tap into the Social Credit history of the West.

Edited March 30, 2011 by cybercoma

[bloodyminded]

My meanness is not directed at you, its for everyone. In fairness, I am ignorant about psychology. I never learned about it in high school, I don't read psych books, etc. A lot of us here own busineses, read up on economics/management/commerce and/or were educated in it whether by ourselves or at a learning institution.

Personally I think its a problem in the high school education system when after graduation all students are exposed to the economy yet a lot weren't taught how it works. With all the garbage classes in highschool you'd think they'd be able to squeeze that in.

Sure. Basic economics, money management (a profound problem in our society, actually...quite serious). Show people what interest rates are.

Many people do not know what "interest rates" are. I'm quite serious. I feel positively enlightened compared to some people I've spoken to, and I'm fairly ignorant.

They don't need to understand the world of high finance, if they're not interested. But some basics would be useful.

[treehugger]

Who does this NDP leader Jack Layton think he is!

Those poor banks CEO's are barely getting by on their 7 digit salaries(not including bonuses)

At least Harper is trying to help the banks out with corporate tax cuts and letting them charge whatever they like.

Another good reason to not vote NDP!

WWWTT

In today's NATIONAL POST, there is a story about the two and more main cedit card companies being sued for the very reason that ndp is speaking about. When it is solved, if ever, I wonder who will take credit for the idea.

[Moonbox]

If this were true, then the credit cards that do offer relatively low rates must be, in fact, charities.

I think you've made it completely obvious that you have no idea how the banking system works. The highest cost of doing business for a credit card company is people not paying back the balances and defaulting on the debt. The amount of credit cards that get written off or go to collections is staggering and when it happens it's usually a total loss for the bank. A low interest credit card is usually offered to clients who are very unlikely to default on their debts. Someone who has a relationship with the lendor (long time client), background assets and high income is usually the type of person who gets such a credit card.

(Unlike, say, cutting those huge welfare benefits to the underclass, because hey, we're sick and tired of taking care of these people! )

Personally I am pretty sick of it. It's largely money down the toilet. Welfae, as far as I'm concerned, should provide food and shelter and perhaps help finding a job (if looking). Disposable income for smokes and booze really isn't one of my concerns.

I think the banks'd survive just fine. In fact, everyone knows it.

Yep. They'd look after themselves. Overnight you'd see millions of credit cards revoked for anyone marginally risky and nobody with an under $40,000 income or security would ever have one.

Are you suggesting they're at some bare subsistence level, just scraping by on these "natural" rates and fees?

Nope I'm suggesting they're a business and looking to make money instead of a charity for poor people to get emergency money cheaply when they need it. Also, nobody is forcing the poor to borrow at 20% interest. They do that alllll on their own.

I gotta get me some of that subsistance level living!

Work hard, use your eductation (if you have one) and maybe one day you can! That's the beauty of this country!

[bloodyminded]

I think you've made it completely obvious that you have no idea how the banking system works. The highest cost of doing business for a credit card company is people not paying back the balances and defaulting on the debt. The amount of credit cards that get written off or go to collections is staggering and when it happens it's usually a total loss for the bank. A low interest credit card is usually offered to clients who are very unlikely to default on their debts. Someone who has a relationship with the lendor (long time client), background assets and high income is usually the type of person who gets such a credit card.

Personally I am pretty sick of it. It's largely money down the toilet. Welfae, as far as I'm concerned, should provide food and shelter and perhaps help finding a job (if looking). Disposable income for smokes and booze really isn't one of my concerns.

Yep. They'd look after themselves. Overnight you'd see millions of credit cards revoked for anyone marginally risky and nobody with an under $40,000 income or security would ever have one.

Nope I'm suggesting they're a business and looking to make money instead of a charity for poor people to get emergency money cheaply when they need it. Also, nobody is forcing the poor to borrow at 20% interest. They do that alllll on their own.

Work hard, use your eductation (if you have one) and maybe one day you can! That's the beauty of this country!

I will never become one of these people, because I don't think their behaviour is fine and dandy.

Aside from that, your response (through no great fault of your own, I add) is out of place, given my later remarks.

See my response to blueblood, #78.

Edited March 30, 2011 by bloodyminded

[Bonam]

There is one reason why the NDP plan is probably not workable. Only one reason.

Because people will not stand up and demand it of the financial institutions.

That's it. There's nothing more to it than that.

The discussion as it's been going on here works through certain elitist principles...and almost only through them. It's understandable; we're used to having discussions and debates in which the "reasonable" parameters have been drawn by those with power and wealth...or those who most loyally defend power.

Put it this way: if all of us said "Fuck you" to the banks, then they would offer lower rates; they'd offer whatever the hell we demanded them to offer.

Your premise doesn't work, there is no reason for me to say "fuck you" to my bank, because I never pay them any unreasonable rates on my credit cards. Neither do most other people. Credit card debt is a problem only for a small minority of people who tend to share a characteristic of being utterly clueless about finances. So why should I say "fuck you" to my bank when it gives me forms of free convenient payment (credit cards), cheap loans via credit lines (3.3% on up to $250,000 right now), no service fees, etc? I have nothing to complain about. I have no reason to want banks to make less money on credit cards off of stupid people. And, again, neither do most bank customers.

Edited March 30, 2011 by Bonam

[cybercoma]

The highest cost of doing business for a credit card company is people not paying back the balances and defaulting on the debt. The amount of credit cards that get written off or go to collections is staggering and when it happens it's usually a total loss for the bank.

No one is disputing the costs incurred by credit card companies. However, you make it seem like these poor credit card companies are in a precarious position, constantly on edge waiting for the bottom to fall out of this incredibly risky endeavour. Consider, for the last quarter of 2010, Mastercard, the number two credit card company, had profits (not revenues) of $415,000,000. One quarter, they PROFITED nearly half a billion dollars. At that rate, it doesn't even sting when they lose a few thousand dollars now and again when people default. They sure as hell are not running as much risk as you make it seem. Edited March 30, 2011 by cybercoma

[bloodyminded]

Your premise doesn't work, there is no reason for me to say "fuck you" to my bank, because I never pay them any unreasonable rates on my credit cards. Neither do most other people. Credit card debt is a problem only for a small minority of people who tend to share a characteristic of being utterly clueless about finances. So why should I say "fuck you" to my bank when it gives me forms of free convenient payment (credit cards), cheap loans via credit lines (3.3% on up to $250,000 right now), no service fees, etc? I have nothing to complain about. I have no reason to want banks to make less money on credit cards off of stupid people. And, again, neither do most bank customers.

If you'll forgive me, I'll repost my words to Moonbox:

Your response (through no great fault of your own, I add) is out of place, given my later remarks.

See my response to blueblood, #78.

(By the way, you seem pretty hung up on your "stupid people" theme lately.)

Edited March 30, 2011 by bloodyminded

[Moonbox]

Aside from that, your response (through no great fault of your own, I add) is out of place, given my later remarks.

See my response to blueblood, #78.

That's what happens when I take too long to respond.... Sorry.

No one is disputing the costs incurred by credit card companies. However, you make it seem like these poor credit card companies are in a precarious position, constantly on edge waiting for the bottom to fall out of this incredibly risky endeavour.

No I'm merely suggesting that, as a business (rather than a charity) the companies are there to make money. The banking industry in Canada is actually extremely competitive and there's always choice for the consumer. If you have a 28% interest rate on a credit card, you could always go to your bank or another and ask for a consolidation loan which would have a lot lower rate. If the other bank (who is always hungry for business) declines your loan application, that's a pretty good indication that your interest rate on your credit card is pretty justifiable because you're a credit risk.

Consider, for the last quarter of 2010, Mastercard, the number two credit card company, had profits (not revenues) of $415,000,000. One quarter, they PROFITED nearly half a billion dollars. At that rate, it doesn't even sting when they lose a few thousand dollars now and again when people default. They sure as hell are not running as much risk as you make it seem.

Your half a billion dollar figure is very interesting, but let's put it into perspective. For all we know, Mastercard could have $40 billion invested in Canada, in which case a return of $415,000 / quarter just plain sucks. That's a 4% return per year on the stock market. You can find GIC's that make more money. Get me a stock market report on Mastercard Canada and then maybe we can decide if your number means anything. You say that it doesn't sting when the credit card companies lose a few thousand here and there, but it definetly does when thousands and thousands of people are defaulting, which happens every year.

The risk is HUGE.

[cybercoma]

Thousands of people are defaulting, but they still made nearly half a billion dollars in one quarter last year.

[cybercoma]

Oh and Visa's profits are a little less than double that too.

[Moonbox]

Thousands of people are defaulting, but they still made nearly half a billion dollars in one quarter last year.

How much money did they invest? Answer that or your number means nothing.

Would you be happy if you invested $10,000 and earned $100/year on it?

Similarly, would you be happy if you invested $10,000,000,000 and only earned $1,000,000.

They're the same thing.

[ToadBrother]

In today's NATIONAL POST, there is a story about the two and more main cedit card companies being sued for the very reason that ndp is speaking about. When it is solved, if ever, I wonder who will take credit for the idea.

There are issues around the way interest is reported, and in some ways calculated. What there isn't is a lawsuit about hefty interest rates for credit cards. Since a lot of people, particularly people with little credit history or iffy credit history, are reasonably calculated as risks, they pay more interest than, say, someone who has a good credit rating. I can get interest far below the 21% (or whatever it is), because I've got a good credit rating. All I have to do is walk into my bank and say "Hey, I'd like to apply for a low interest credit card."

[Bonam]

If you'll forgive me, I'll repost my words to Moonbox:

Your response (through no great fault of your own, I add) is out of place, given my later remarks.

See my response to blueblood, #78.

Ok.

(By the way, you seem pretty hung up on your "stupid people" theme lately.)

Do you have an alternative, concise, description of people who carry credit card debt?

[capricorn]

Do you have an alternative, concise, description of people who carry credit card debt?

Debtors?

Some people were born to fit that category.

[punked]

How much money did they invest? Answer that or your number means nothing.

Would you be happy if you invested $10,000 and earned $100/year on it?

Similarly, would you be happy if you invested $10,000,000,000 and only earned $1,000,000.

They're the same thing.

If I get that money for free from the government I would be happy to have an extra 100 bucks for nothing.

[cybercoma]

How much money did they invest? Answer that or your number means nothing.

Would you be happy if you invested $10,000 and earned $100/year on it?

Similarly, would you be happy if you invested $10,000,000,000 and only earned $1,000,000.

They're the same thing.

There's nothing to think about. Your example is a million dollar earnings on ten billion dollars invested. If Mastercard makes nearly $2 billion per year in profits, for your example to be relevant they would have to invest $20 trillion. They don't.

The debate has been revolving around the amount of risk these companies assume and how damaging it will be for them if they're regulated to make only 5% above prime (which gives them roughly 8% right now). The prime rate itself gives them a profit, the additional 5% above prime ought to be more than enough to make up for the risk.

Perhaps I'm jaded with the banks, but I don't see any problem whatsoever with helping Canadians in debt by reducing crippling and nearly criminal interest rates (upwards of 30% in some cases) to something more reasonable when companies are earning straight profit (after all of their losses and so-called risks) of between $1.5-4 Billion per year and that's following the worst recession we've had in nearly 30 years. How much is enough?

Edited March 30, 2011 by cybercoma

[William Ashley]

Maybe Jack is trying to tap into the Social Credit history of the West.

The crown corp is my idea - and I strongly support many Social Credit policy fronts - hence part of the namesake for my own party "The Social Party" (We don't support credit and debt though - atleast for the government) but we do support social contracts and a public alternative to the banking industry (through a Citizens Bank that would replace the CRA - for domestic reporting and benefits payments - such as payroll accounts - although every service would be able to be mirrored in private banks - everyone has a master account though held in the citizens bank (called the Second Bank of Canada - the first bank is Federal Government Accounts (internal payroll and internal transfers) with private bank accounts linked to it for FINTRAC purposes - income reports etc.. Income taxes would be removed, but the public debt would be divided - the default rate of this "divy would be the "cost of citizenship" for all new immigrants for them to get "citizenship, they would pay the annual interest on that ammount while only residents with the option to pay down the principle)

The credit card option would just be another side option (although it would not be forced, it would be a service)

Jack just wants to cap the maximum interest rate. I say let it go as high as any idiot is willing to pay.. hell some investments or "spur" buy could have a greater return over a given period.. people should be willing to set their risk level imo. There is no reason the government shouldn't offer a sane alternative... as long as it is break even or profitable.

(BTW the citizens have to pay the interest instead of income tax, once their principle is paid down. it is done - people who pay their debt down get incentives, and cashbacks on debt interest payments - people who help other people pay it down do too. - the end line is that when people die if they have debt remaining it is taken from their estate after hardship is taken into account people who don't pay the debt interest wouid be stipended.)

The credit card thing would make it easy for people to have a credit card right in their bank card. (and secure because it has biometric security systems inbuilt)

Edited March 31, 2011 by William Ashley

[Bonam]

There's nothing to think about. Your example is a million dollar earnings on ten billion dollars invested. If Mastercard makes nearly $2 billion per year in profits, for your example to be relevant they would have to invest $20 trillion. They don't.

Mastercard's market capitalization is $33.13 Billion. You said their quarterly profit was $415 million, which is $1.66 billion per year. That's a 5% rate of return.

The debate has been revolving around the amount of risk these companies assume and how damaging it will be for them if they're regulated to make only 5% above prime (which gives them roughly 8% right now). The prime rate itself gives them a profit, the additional 5% above prime ought to be more than enough to make up for the risk.

Sounds to me based on the above numbers that they are operating on a barely worthwhile rate of return already and any drop in revenue would be crippling. Would you invest in a company that had only a 5% rate of return, and was slated to earn even less because they were gonna cut rates? I wouldn't, there are much better options out there.

Perhaps I'm jaded with the banks, but I don't see any problem whatsoever with helping Canadians in debt by reducing crippling and nearly criminal interest rates (upwards of 30% in some cases) to something more reasonable when companies are earning straight profit (after all of their losses and so-called risks) of between $1.5-4 Billion per year and that's following the worst recession we've had in nearly 30 years.

Again, a few billion in profit means just a few % rate of return as these companies have tens-hundreds of billions of dollars invested. As for lowering interest rates for consumers... excessive debt was what caused the recession, the LAST thing we need is cheaper access to debt for people with poor credit histories.

Edited March 31, 2011 by Bonam

[Bob]

This is actually a very interesting proposal. It would, in the negative, cut into bank profits any maybe make them less willing to issue credit in this manner, but it would also positively effect the lives of many Canadians (not me, since I don't generally carry a balance if I can help it). This is enough to more the NDP into being my second choice. The Liberal policy today was, comparatively, a boring token.

It makes no sense, whatsoever. The banks would just raise rates somewhere else (bank fees, mortgages, lines of credit, loans, institutional services, etc). You can't set a limit on how much money a corporation can make in this manner. Moreover, varying rates are typically based on risk. Lower-risk clients typically get lower rates, and vice-versa. If you set a cap on credit card interest rates, credit card companies might be forced to remove credit from higher-risk customers. who won't have any credit card solutions available to them.

This is seriously amateur-hour economics and quite a stupid idea. It's expected, though considering it's Jack Layton. It's populist stupidity. Come on Smallc, I thought you were smarter than this.

Edited March 31, 2011 by Bob