Caps on credit card rates?

[capricorn]

But never the less, the first repercussion would be that credit for low income canadians would dry up...

I wonder how this would affect money mart and other payday loans outfits? More business if the banks turn away the have-nots?

[punked]

I wonder how this would affect money mart and other payday loans outfits? More business if the banks turn away the have-nots?

Well if you cap at 5% above prime money mart would not exist.

[TimG]

I don't think the banks are bad or evil. I am saying that we have a right as a citizenry to tell the banks if they want our money then we get a say in how that money is spent. If that means setting a cap of 5% above prime than so be it. The banks will give credit to anyone who will pay it back I will tell you that right now.

People are evaluated on a continuum. It is not a simply yes or no. Cap rates and people on the edge will not be able to get credit. It is a braindead policy that will accomplish the exact opposite of what it intends.

[Bonam]

Look, you can borrow money from banks at about 3-4% right now. That's what I get on my credit line and it has a limit of a quarter million. There are a variety of such loan options. Credit cards are not meant for prolonged borrowing of money, they are meant as a means of convenient payment.

Stop using your freaking credit cards to borrow money and then complaining about the 20-30% rates. That's like trying to use a tank as a car and complaining that it uses too much fuel. Well duh, it's not meant for driving on your daily commute.

The only people who pay credit card interest are stupid people.

I buy everything on my credit card, and I have yet to ever pay a cent of interest on it.

But never the less, the first repercussion would be that credit for low income canadians would dry up...while the NDP may think they can dictate how much a bank can charge for a risky loan, they can't dictate who the banks decide to lend to.

Heh, you'd be surprised. At the behest of stupid people, a sufficiently socialist government may well compel or encourage banks to issue credit cards to poor people regardless of their ability to pay them back, similar to the housing policies in the US.

Edited March 30, 2011 by Bonam

[TimG]

Well if you cap at 5% above prime money mart would not exist.

If you cap at 5% above prime only people with excellent credit would get a credit card. For everyone else they would need to go to money mart.

[Scotty]

Who asks for 30%? That is 10% higher than any I am familiar with.

The store cards, probably

[M.Dancer]

Again in Iceland every person now owes 20,000 dollars more then they did 2 years because the government lent to the banks and they couldn't pay back. If you believe the people assume no risk and thus should have no say then you live in the world of 2006 not in 2011. Hop in a time machine and catch up will you.

That is not the reason....the ordinarybIcelanders were using cc and loans in other foriegn currencies...which was great when the rate was in their favour but when the foreign currencies rose they sank, meaning when they thought they owed 20,000Kr, they found overnight they owed 30,000Kr....and the US experience is not relevant to this discussion....mainly because, banks were free to charge what they deemed competitive then, and we did not follow the US....

[punked]

That is not the reason....the ordinarybIcelanders were using cc and loans in other foriegn currencies...which was great when the rate was in their favour but when the foreign currencies rose they sank, meaning when they thought they owed 20,000Kr, they found overnight they owed 30,000Kr....and the US experience is not relevant to this discussion....mainly because, banks were free to charge what they deemed competitive then, and we did not follow the US....

No their banks were deregulated and their banks were allowed to lend to anyone. However the government had guaranteed the banks loans so when they crashed the government had to bail them out to keep its money afloat. Again the people were on the hook to the money they lent to the banks.

We did not follow the US because the government REGULATED the banks and told them what to do.

[WWWTT]

This is another reason why the NDP should never be allowed near any fiscal or economic policy.

His proposal would:

Prohibit low income earners access to credit cards.

Force credit card providers to charge a user fee to hedge their losses against default.

You forgot to include mass hysteria,rape and a higher drug use among teens.

WWWTT

[M.Dancer]

You forgot to include mass hysteria,rape and a higher drug use among teens.

WWWTT

I take it that cogency is not your forte...

[WWWTT]

I take it that cogency is not your forte...

I'm trying to help you here buddy.

Thank you is the costumary reply in Canada

Your welcome

WWWTT

[Rovik]

This is another reason why the NDP should never be allowed near any fiscal or economic policy.

His proposal would:

Prohibit low income earners access to credit cards.

Force credit card providers to charge a user fee to hedge their losses against default.

I disagree. Even at prime +5, the credit card companies and the banks make money. These banks/credit card companies need to be reined in. They charge interest up into the 20 percentage range and yet, if you have a money master account, you're lucky to have 1-2 % interest going to you.

If the banks start to prohibit low income earners access to credit cards or enact user fees they should be charged and penaltized. Let's also see them show us the books to prove that they are actually losing money. I'm sorry, but if a company is making 1 billion instead of 3 billion in profits, I have no sympathy. The banks/credit card companies have been gouging the public too long and need to be stopped.

I would suggest that if an individual is a low income earner then the credit allowed should be lowered as well...say $3000 instead of $10000. A friend of mine saw the bank issuer of his credit card raise the credit limit twice during a time he was unemployed (and was not using the card). As well, the minimum monthly payment should be raised. That would hopefully provide a disincentive from maxxing out a credit card.

[Smallc]

I disagree. Even at prime +5, the credit card companies and the banks make money.

Credit card companies generally make their money at the front end by charging the merchant a percentage of the total purchase. The banks are the ones that make money on the interest.

[ToadBrother]

I don't think the banks are bad or evil. I am saying that we have a right as a citizenry to tell the banks if they want our money then we get a say in how that money is spent. If that means setting a cap of 5% above prime than so be it. The banks will give credit to anyone who will pay it back I will tell you that right now.

Set the cap at prime+5% and you will kill unsecured loans. That will likely extend to unsecured lines of credit, which are the backbones of a helluva lot of business.

There are sensible reforms to loans, but this isn't one of them. Banks will either not offer unsecured credit or will slap huge fees on it as a means of insuring against default.

What Layton is really saying, when you get rid of the feelgoodisms is "Banks can't use higher interest rates as insurance against default of those with poor credit." It's a ludicrous position.

[Moonlight Graham]

Easy to say. There are one heck of a lot of people that are having to use credit to feed their families. Yes, sure there are those that abuse it, but you can't use such a broad brush.

An even better idea would be to fund and offer financial classes in secondary school.

The last suggestion is a good one also.

I was careful to mention "non-essential" items. However, i don't think it matters even if it's food to feed families, it is absolutely insane to use a credit card if you are not certain you can pay it back at the end of the month. You will have a meal now, but the interest will cost you 4 meals shortly down the line. It's a bad investment any way. But i feel bad genuinely for those that get stuck with unforeseen costs during the month and then can't afford to pay back Mastercard.

On the other hand, I just know too many people who are moronic in their spending. They have more than enough for the essentials and even a bit left over, yet can't stop spending on their toys, and on vacations they think they "deserve" they should have. "C'mon, go to Hawaii! You deserve a good vacation!". Ya well, not if you can't afford it and/or haven't saved/budgeted for it. I never took a vacation via an airplane until i was 18 years old and i did just fine before that.

[cybercoma]

God forbid the banks, who produce absolutely nothing, have minimal overhead and rack up monstrous profits every year, only make 5% above prime on their loans. Today, the prime rate at RBC is 3%. That gives the bank 8%. I mean, seriously, retailers make 30% and they have to buy products to continue making revenue. Banks move numbers around on paper. Give me a break. A cap on credit card interest is not going to cause the banks, who charge service fees and sell insurance, among other revenue generating activities that they didn't do in the past, to go belly up.

Edited March 30, 2011 by cybercoma

[Bonam]

The last suggestion is a good one also.

Already implemented to some extent. My sister has to take a class like that next year. Of course, just like everything else in high school, people won't actually learn anything else, but that's a whole different topic.

I was careful to mention "non-essential" items. However, i don't think it matters even if it's food to feed families, it is absolutely insane to use a credit card if you are not certain you can pay it back at the end of the month. You will have a meal now, but the interest will cost you 4 meals shortly down the line. It's a bad investment any way. But i feel bad genuinely for those that get stuck with unforeseen costs during the month and then can't afford to pay back Mastercard.

Agreed. There is no situation in which you need to "feed your family" by using credit. If your only source of money is your credit card, that means you are jobless and have no notable assets. In Canada, that means you have government programs that will provide food for you and your family. As for unforeseen costs for people in otherwise stable financial situations, there are always options to borrow besides credit cards. Anyone who has a steady job which allows them to normally pay their expenses and isn't already neck deep in debt can get much lower interest loans than credit cards. This point seems to be repeatedly lost on people. There are credit lines, installment loans, home equity loans, etc. Often, it just takes a few clicks on your bank's website to sign up for these.

On the other hand, I just know too many people who are moronic in their spending. They have more than enough for the essentials and even a bit left over, yet can't stop spending on their toys, and on vacations they think they "deserve" they should have. "C'mon, go to Hawaii! You deserve a good vacation!". Ya well, not if you can't afford it and/or haven't saved/budgeted for it. I never took a vacation via an airplane until i was 18 years old and i did just fine before that.

Not to mention some of the best vacations can be had almost for free by just driving a few hours out of town, depending on what you like to do during your vacations.

[YEGmann]

Even at prime +5, the credit card companies and the banks make money. These banks/credit card companies need to be reined in. They charge interest up into the 20 percentage range and yet, if you have a money master account, you're lucky to have 1-2 % interest going to you.

If the banks start to prohibit low income earners access to credit cards or enact user fees they should be charged and penaltized. Let's also see them show us the books to prove that they are actually losing money. I'm sorry, but if a company is making 1 billion instead of 3 billion in profits, I have no sympathy. The banks/credit card companies have been gouging the public too long and need to be stopped.

O, I see...

This such logics, why not to demand from car dealers to lower prices for their cars, even with MSRP-10% they have profits.

Lets charge them and "penaltize". And low income earners must have government guarantee of buying a decent car for no higher than MSRP-15%.

Next, I would "penaltize" lawyers for prohibiting even a middle income earners access to legal services by setting fees too high. They are making too much money in their profits. Justice is not affordable to public. This needs to be stopped!

Next...

Does this approach remind you something?

[Bonam]

God forbid the banks, who produce absolutely nothing, have minimal overhead and rack up monstrous profits every year, only make 5% above prime on their loans. Today, the prime rate at RBC is 3%. That gives the bank 8%. I mean, seriously, retailers make 30% and they have to buy products to continue making revenue. Banks move numbers around on paper. Give me a break. A cap on credit card interest is not going to cause the banks, who charge service fees and sell insurance, among other revenue generating activities that they didn't do in the past, to go belly up.

Look, it's all a matter of revenues and costs. If a bank's source of revenue like credit card interest from stupid people dries up, that means they have to get that revenue somewhere else. Where? Well, credit card usage fees will shoot way up. And then those of us who actually use credit cards responsibly will be screwed since there will be like a $5.00 processing fee on every credit card transaction. Oh, and it's irrelevant that other activities that banks pursue (such as your example of insurance) may still be profitable. Each business activity needs to be profitable or it gets scrapped. No one invests in unprofitable projects (well besides government).

[cybercoma]

People may not need to feed their family on credit cards, but I'm sure there are situations that arise where working a low-wage job requires you to put things on credit. What happens when you're living pay-check to pay-check and your refrigerator or hot water tank breaks? Lower income people may not have the cash to shell out for these expenses which most people would consider necessary. Accumulating that debt, it may take years for them to pay it off if they can only make the minimum payments. Granted, there are people that abuse credit, but there are very real situations where low-income people are being taken advantage of with the obscenely high interest rates on some cards (28.8% on Home Depot, Sears, etc). To address that, instead of making a complicated set of rules for different people with different needs, a universal rule of 5% above prime makes sense. It applies to everyone regardless of how much money you make. Those with high incomes it doesn't affect because they're not using credit anyway. Those that abuse credit are going to do it whether the interest rate is 5% above prime or not. At least those that find it necessary to use credit to get themselves out of a pinch won't be bent over at the bank anymore, keeping them behind the 8-ball for years,

[cybercoma]

Look, it's all a matter of revenues and costs. If a bank's source of revenue like credit card interest from stupid people dries up, that means they have to get that revenue somewhere else. Where? Well, credit card usage fees will shoot way up. And then those of us who actually use credit cards responsibly will be screwed since there will be like a $5.00 processing fee on every credit card transaction. Oh, and it's irrelevant that other activities that banks pursue (such as your example of insurance) may still be profitable. Each business activity needs to be profitable or it gets scrapped. No one invests in unprofitable projects (well besides government).

I'm just not convinced by your argument that giving the banks 5% above prime will dry up their revenues from credit card interest. Yeah, it'll be less, but how many people default because they find it hopeless to get out of debt? How many people declare bankruptcy because they can't seem to find their way out. You never know, the numbers of those people may go down if interest is more affordable.

[Bonam]

People may not need to feed their family on credit cards, but I'm sure there are situations that arise where working a low-wage job requires you to put things on credit. What happens when you're living pay-check to pay-check and your refrigerator or hot water tank breaks? Lower income people may not have the cash to shell out for these expenses which most people would consider necessary. Accumulating that debt, it may take years for them to pay it off if they can only make the minimum payments.

Again, you completely ignore the fact that there are other types of loans besides credit cards. Have you honestly never heard of such things?

[cybercoma]

Again, you completely ignore the fact that there are other types of loans besides credit cards. Have you honestly never heard of such things?

How do you suppose it would go over if walked into a bank and asked for a $98 loan because your toilet is leaking and you're living nearly paycheck to paycheck, although you work full-time?

[RNG]

People may not need to feed their family on credit cards, but I'm sure there are situations that arise where working a low-wage job requires you to put things on credit. What happens when you're living pay-check to pay-check and your refrigerator or hot water tank breaks? Lower income people may not have the cash to shell out for these expenses which most people would consider necessary. Accumulating that debt, it may take years for them to pay it off if they can only make the minimum payments. Granted, there are people that abuse credit, but there are very real situations where low-income people are being taken advantage of with the obscenely high interest rates on some cards (28.8% on Home Depot, Sears, etc). To address that, instead of making a complicated set of rules for different people with different needs, a universal rule of 5% above prime makes sense. It applies to everyone regardless of how much money you make. Those with high incomes it doesn't affect because they're not using credit anyway. Those that abuse credit are going to do it whether the interest rate is 5% above prime or not. At least those that find it necessary to use credit to get themselves out of a pinch won't be bent over at the bank anymore, keeping them behind the 8-ball for years,

But, as has been said above several times, if you enforce that cap, the banks and other credit card issuers will tighten the screws on who qualifies to have a card. The default rate amoung the lower income people is surprisingly large. They need to cover that expense.

It's like the people who demand higher corporate taxes. The corporation is in business to maintain a profit margin so they will just pass the cost on to the consumers, so you actually don't gain anything, and if there is a competitor in China, you lose.

[Bonam]

How do you suppose it would go over if walked into a bank and asked for a $98 loan because your toilet is leaking and you're living nearly paycheck to paycheck, although you work full-time?

You don't ask for a $98 loan. You ask for a credit line:

http://www.bmo.com/home/personal/banking/mortgages-loans//loans-loc/loc

http://www.rbcroyalbank.com/products/personalloans/royal_credit_line.html

http://www.scotiabank.com/cda/content/0,1608,CID14261_LIDen,00.html

http://www.tdcanadatrust.com/lending/lineofcredit.jsp

You use these to borrow exactly how much you want, when you want, and pay it back over time at a much lower interest rate than a credit card.

Edited March 30, 2011 by Bonam