Caps on credit card rates?

[cybercoma]

The default rate amoung the lower income people is surprisingly large. They need to cover that expense.

If the interest rates are decreased to 5% above prime, they become more affordable and less people will default. At least in theory.

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

It's considerably easier to get a credit card than a credit line, not to mention more convenient. Edited March 30, 2011 by cybercoma

[August1991]

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...

True. Under this propsal, banks would issue fewer credit cards.

This strikes me as the sort of well-meaning but in the end, dumb policies the NDP are famous for.

It would make it virtually impossible for poorer people to get credit, period. It wouldn't bother me, because I have excellent credit. It wouldn't help me either, since I don't keep anything on my card.

Exactly. And when those dodgy cheque cashing corner stores began to multiply and charge higher fees, the NDP would want to regulate them too.

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.

The NDP proposal would solve the problems of people in credit card debt now. But it would compound the problems for people who want to apply for credit cards in the future.

The NDP proposal is akin to saying that all cars in Canada, new, used, whatever, should sell for no more than $20,000. You might be lucky and get a used BMW shortly after this new policy. But within a year or less, there will be no BMWs at all in Canada.

If the NDP could, it would pass a law making it illegal to be cold in winter. Merely passing a law doesn't make it fact.

Edited March 30, 2011 by August1991

[Wilber]

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.

Fair enough but the banks will have to maintain a margin so if you restrict the amount of interest they can charge, they will have to restrict what and who they lend to. If I borrow $100 from you, lend it to someone else and they don't pay me back, does that mean I don't have to pay you back?

[Bonam]

If the interest rates are decreased to 5% above prime, they become more affordable and less people will default. At least in theory.

Here's another theory: people would just borrow even more since the cost of borrowing would be lower. The defaults would be on even bigger amounts.

It's considerably easier to get a credit card than a credit line, not to mention more convenient.

It is not hard to get a credit line. As for convenience, you click a few buttons online, then maybe print and send in a few sheets of paper. Doesn't sound like a big deal to me. You can then use a card that works identically to a credit card that is linked to your credit line.

[blueblood]

If the interest rates are decreased to 5% above prime, they become more affordable and less people will default. At least in theory.

It's considerably easier to get a credit card than a credit line, not to mention more convenient.

Layton's promise and comments like this are why commerce, management, and economics should be mandatory to graduate high school.

If people are stupid enough to rack up tens of thousands of credit card debt with double digit rates, they deserve what they get.

Out west in the ag and small business community the trend is people getting the RBC avion card and putting their cash/debit cards away. I only spend on the credit card when I have cash in the bank. If I and other guys are getting a trip to the carribbean on the credit card company every year, I'd be stupid not to use it. Not only that my credit score gets padded which makes for a more favorable bank loan experience. Why should I get squeezed because some people are idiots with their credit card with layton's plan?

[punked]

Fair enough but the banks will have to maintain a margin so if you restrict the amount of interest they can charge, they will have to restrict what and who they lend to. If I borrow $100 from you, lend it to someone else and they don't pay me back, does that mean I don't have to pay you back?

I don't know are you a bank on which our currency and solvency depend upon?

[cybercoma]

You would think if the banks make less interest on each individual, they would try to get more people onto credit to make more money

I like Bonam's point that the lower rate might encourage more people to borrow, thus more people to default. I'm sure it's the case that more people will borrow because it's cheaper, but I'm not quite sure how it follows that more affordable credit would mean more people defaulting. People borrowing more would probably spur inflation, create jobs, etc.

[Wilber]

I like Bonam's point that the lower rate might encourage more people to borrow, thus more people to default. I'm sure it's the case that more people will borrow because it's cheaper, but I'm not quite sure how it follows that more affordable credit would mean more people defaulting. People borrowing more would probably spur inflation, create jobs, etc.

It's pretty obvious. Record debt has gone hand in hand with record low interest rates. You can't get in debt if you can't qualify for a loan. You are either going to accept high credit card interest rates or severely restrict those who can get them. Personally, I think restricting borrowing limits makes more sense than restricting interest rates if you are really worried about debt levels, but that isn't an election winner.

[RNG]

Were a party actually trying to help people and the economy, rather than pander for votes (Hi, Jack) they would advocate making obtaining a credit card way harder, thus preventing people without the wherewithal from getting themselves in a position which is almost impossible to dig out of. One poster above who talked about the cards being a way of the less financially enabled to pay for an emergency is correct, but more often than not, that is not how the cards those people have is used. And we all pay, by way of 28% interest rates.

[Bryan]

Getting low interest credit is actually really easy, even for people with bad histories.

I don't believe that even Jack thinks that lower credit card interest is actually a solution to anything. There are plenty of people who want government to bail them out of all of their own messes, and he's just pandering to those people.

If Jack was really serious about saving low income people who are bad at math from their own financial self-destruction, what he should propose is stricter means testing with regards to credit card limits so that they cannot get themselves into a hole that they can't climb out of.

[Bonam]

And we all pay, by way of 28% interest rates.

Except that those of us who have even half a brain never pay any such interest rates.

[GostHacked]

Except that those of us who have even half a brain never pay any such interest rates.

Learned my lesson the hard way. Much smarter with my money now.

[bloodyminded]

It is not hard to get a credit line. As for convenience, you click a few buttons online, then maybe print and send in a few sheets of paper. Doesn't sound like a big deal to me. You can then use a card that works identically to a credit card that is linked to your credit line.

But people can be--and are--refused.

That's not a debatable point, by the way.

[M.Dancer]

Except that those of us who have even half a brain never pay any such interest rates.

Our CCs are all under 10%

[blueblood]

Our CCs are all under 10%

Or zero if a person pays it all off every month.

[Oleg Bach]

The buisness of banks feeling so entitled that they believe just because they HAVE money they are entitled to MORE free money - really is quite parasitic and smacks of institutional weailness. Look at the fact that the banks steal or shall I say skim tax dollars via the welfare sytem... Welfare recievers do NOT bank - there is a direct deposit sytem in place - the person with draws the money -the day it arrives - pays their rent and buys a meger load of food....This action is not one that is labour intensive as far as bank staff are concered - YET the bank grabs about 10 bucks per month in fees for doing nothing....add this up and you are talking millions of dollars per month across Canada in sheer un-earned profits.

[Wild Bill]

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

WWWTT

I'm not sure about your point here. Are you implying that the idea that banks would no longer give credit to poor people is not true? That they just wouldn't care?

If that's what you mean, I find it hard to believe. Frankly, if the banks DIDN'T tighten up on credit after such an NDP idea was adopted they would need their heads read! Money has no politics. One and one makes two, plus a bit of interest if you're lucky. If you lose more on default loans than you made with interest rates on good loans then you go bankrupt.

The sun rises in the east. Water runs downhill. A cap on interest rates would mean it would be harder for poor folks to get a card in the first place.

If you have some other explanation I'm sure we'd all like to hear it!

[Jerry J. Fortin]

I'm not sure about your point here. Are you implying that the idea that banks would no longer give credit to poor people is not true? That they just wouldn't care?

If that's what you mean, I find it hard to believe. Frankly, if the banks DIDN'T tighten up on credit after such an NDP idea was adopted they would need their heads read! Money has no politics. One and one makes two, plus a bit of interest if you're lucky. If you lose more on default loans than you made with interest rates on good loans then you go bankrupt.

The sun rises in the east. Water runs downhill. A cap on interest rates would mean it would be harder for poor folks to get a card in the first place.

If you have some other explanation I'm sure we'd all like to hear it!

I will suggest that money IS politics. Monetary and financial policies are the bane of our existence.

[cybercoma]

If anyone can get credit under 10% on cards or through credit lines, then this very well wouldn't be an issue.

[Bonam]

But people can be--and are--refused.

That's not a debatable point, by the way.

People also can be--and are--refused for credit cards. The requirements to qualify for credit lines are not particularly stringent. Many people just aren't aware of their options.

[Dave_ON]

Right now banks can borrow money from the government at .75% and then charge you 30% on your credit card? Where do you think they get the money in the first place to lend to you? It is from the Bank of Canada coming out of your pocket so why shouldn't the government be allowed to cap that rate?

Ok here we go again. We've had this debate many times and it's still a ridiculous idea. You can't can't compare a bank, with secure assets, insurance and multinational resources, joe off of the street, who lives pay cheque to pay cheque. The Bank can't default on those low interest loans from the government, their assets would be ceased, and sold to make up the money or it would be covered by insurance. Joe off the street could say "F You" bank and not pay his credit card. Sure they can send it to collections, but if he declared bankruptcy the bank is SOL. Further you vulunter to sign up for a credit card, nobody forces you to, and nobody forces you to use it. It's NOT your money, it's the banks, and if you wish to use it, then you have to abide by the terms set out.

First off we're looking only at the small picture here; there are a number of facts are being missed. What is the fundamental purpose of any business? To make money, of course. It's no secret that banks do very well for themselves and we should all be glad that they do. Look what happened down south when banks went under, it causes ripples throughout the entire economy. After all we are dependent on banks whether we realize it or not. Do you have a pension? RRSP? Savings or checking account? Would you invest any of the above in a bank that wasn't posting good profit margins? Even if you only have a checking account for your pay check, you'd want to ensure it was in a bank that was going to have those funds available to you whenever you wanted to withdraw them.

What's the effect of capping credit cards really? Does it just "help" those poor, misunderstood need to feed the family people or does it also cut into the return on my RRSP and other investments? My partner works for TD in the credit department so I'm aware of how credit cards truly affect a lending institution. As others have already mentioned, Credit cards are extremely High risk, unsecured loans. If those poor hungry people who can't afford to eat, max their card and then default guess what, that's not just the bank that suffers, that's me and my investments that are affected by this. Fact is if you have good credit you can get a good interest rate.

Only about 10% of credit card users actually carry a balance on their credit card, do you honestly think the bank is making money hand over fist on 10% of their clients carrying a balance? Where banks truly make their money on credit cards is merchant fees, this gets charged EVERY time a credit card is used. Fact is banks want you to have a credit card not because of the interest they make off the 10% of clients that carry a balance, but because of other fees. That's why banks offer so many different products, that have different rewards, cash back, travel points, money towards the purchase of a new vehicle etc. This is to encourage people to use it, and continue using the card, as the more the card is used the more money the bank makes off the merchant fees. It's in the banks best interest to have as many clients in good standing with cards as possible. Credit Cards are designed for people who don't need them, they are a convenience and that's the bottom line. Convenience has a cost, in the form of interest and fees.

I would like to see an analysis of the NDP's plan and how it would truly affect the banks profitability. I don't know what it is about the NDP that they simply cannot grasp that Banks and big business for that matter do not have bottomless pockets. You can't simply use the logic of "well big business x can afford it they made billions" what's the broader picture? Big business is made up of every day employees, who's benefits, salaries, bonuses will all be affected, just as much as the CEO's. It's all to easy to hate on big business and banks. Fact is many of us in this country are employed by these business's and our raises, bonuses, benefits, and chances for promotion are all dependent on profitability. We're all responsible for ensuring our departmental and individual costs remain low so that we can ensure when the company posts a good profit, we too benefit from this. I'm truly tired of how the NDP demonizes big business and banks, it's an old, tired and low hanging fruit argument that simply doesn't wash and needs to go away.

[blueblood]

If anyone can get credit under 10% on cards or through credit lines, then this very well wouldn't be an issue.

You can on your cards, just pay them off on time.

[bloodyminded]

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.

You think they'd choose to have zero rather than have less than what they have now?

Sure. Okay.

So, really, all discussions such as this one are predicated on a wealthy minority who make most of the rules. And when someone says "Hey, let's change the rules slightly," then all sorts of indignations arise.

These moralists like to pretend they're speaking from practicality. And truly, many times they are. But there's also a general acceptance of elitist power at play, an idea that the very wealthy should have more power and influence than the rest of us.

And why should they?

I dunno. The question is better put to the cringing sycophants themselves.

Edited March 30, 2011 by bloodyminded

[Dave_ON]

So, really, all discussions such as this one are predicated on a wealthy minority who make most of the rules. And when someone says "Hey, let's change the rules slightly," then all sorts of indignations arise.

These moralists like to pretend they're speaking from practicality. And truly, many times they are. But there's also a general acceptance of elitist power at play, an idea that the very wealthy should have more power and influence than the rest of us.

And why should they?

I dunno. The question is better put to the cringing sycophants themselves.

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.

[Bryan]

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.

But they have been offering lower rates. Some of the lowest rates in history. Interest rates are not the problem. Irresponsible and/or uneducated people are the problem.