In other words, they were extending credit to high-risk borrowers. It's only common sense to realize that, if they're clamped down upon, they won't extend credit as far as they had.
I should note that a blessing can be salvaged from the (possibly!) unintended consequences. As a result of that law, more high-risk borrowers will have to do without. Although they's basically being dragged into financial prudence, they may wind up more modest in their expectations.
(Or, they might wind up getting mad...)
What will happen is the pinched poor and lower middle class will start demanding more “help” from the government to pay their bills, buy groceries, fix their mortgage, etc. So those of us with middle incomes and families are going to get squeezed even harder in the name of “compassion.” We have no advocates.
Default rates on credit cards run 10% of the outstanding balances per year.
The high interest is required to cover credit losses and servicing costs. At present epidemic levels of deadbeat behavior, nearly all the major card issuers are losing money even at these rates charged.
When people pay them back, they are a profitable business - even if paid off immediately with minimal interest charges. Because they collect the merchant's servicing fee, and don't experience default losses.
As usual, the populist crapstorm directed at "usury" rises exactly when the masses are sticking their bankers and robbing them blind. Not the other way around.
Many people are morons.
If the CC companies could show them just how much a purchase is going to cost, based on the rate they anticipate paying off the card, maybe it would help more of them make better decisions.
But they shouldn’t really need to....
Subprime lending has always been a money losing proposition, numerous firms that specialized in that segment have crashed and burned.
Mercury Finance financed subprime auto loans, went belly up.
Same with the firm that Danny Marino shilled for 10 years ago.
There have been others, “predatory” lending is no sure deal unless you’re working with Tony Soprano’s crew to collect the loans. If the default rate goes up too high, there is no way to charge enough interest on the others to make up for it.
Our only bills are a mortgage (yes, we did borrow for that) and our utilities.
We try to live within our means and our lack of debt is a nice piece of sunshine in our lives.
I have a USAA Mastercard Rewards card with no Annual Fee which was just raised from a 4% interest rate to 6%. I pay off each month and at the end of the year they post my cash rewards as a payment towards future purchases. Great deal. Will be interesting to see what happens in the next few months.
CITI just sent me a notice that they’ll charge $60 a year to hold their card. So long CITI!
So, if we wanted something, we saved up for it. Thats how my parents bought their cars. They were used cars, too.
Or, if you just had to have it and could make payments, then you did a layaway. Lots of people did that.
I don't recall that any of us felt particularly impoverished.