- Apr 2013
- La La Land North
That's why I want to see the data.This is all very interesting. However, how do you make the calculation that lower rates will necessarily mean fewer credit card users?
I understand the market forces idea and that some level of interest rate justifies the greater risk, but translating that into real numbers is difficult.
It also does not factor in the damage caused by high interest rates (vicious cycle of poverty etc.).
This all smells like a libertarian fantasy complaint. Interest rates are like rules of the road such as speed limits that establish a certain boundaries to the process.
I am not enamored by the idea that the marketplace will necessarily choose the "best" interest rate. What if credit card companies have a "gentleman's agreement" to set the rates higher than the truly free market would tend to produce?
Canada has regulations about what percentage of a person's income after other expenses can be applied to a mortgage in order to get government backing that guarantees the mortgage. Trying to get a mortgage without this guarantee leads to very high mortgage rates which means reputable institutions won't give you those mortgages without a huge down payment. If you qualify for the government guarantee, 5% is all the down payment you need.
History has proven that defaults under these circumstances are minimized.
The risk needs to be known. Just like life insurance premiums vary depending on lifestyle, so do lending rates. The difference with credit cards and payday loans is that each individual is not evaluated so the risk cost is spread equally among everyone.
Whether currently that risk cost is too high is another matter.