banktime.com

It’s been suggested in some circles that credit card interest rates should be capped. A ceiling of, say, sixteen percent might ensure that banks were no longer able to fleece their customers with exorbitant costs of doing business. That’s the claim, anyway. In fact, a host of unwelcome changes would quite probably overwhelm consumers almost immediately, in the event that this happened. It’s true that bank’s profits on credit card business would definitely fall, appeasing those consumers who have long believed that banks should be made liable for the damage they have caused. Experts believe that, in reality, what would really happen is that credit would almost suddenly become a lot less attainable for the vast majority of Americans.

It’s foolishness to expect that anyone would actually have a lower interest rate than they do now. Those who have an interest rate under sixteen percent (the proposed ceiling) would either keep their rate or have it increased close to the sixteen percent cap. Those with rates over sixteen percent, or whatever the prescribed maximum were to be, would probably have their accounts closed. All of the sudden, millions of customers would no longer enjoy access to credit in the form of plastic.

The best customers in terms of credit score, those who already pay less than sixteen percent in annualized interest rates, are not those who make money for banks. Banks might collect a certain amount in interchange fees from these people, but prime customers are largely an “option” value for credit card companies. Their value lies in the possibility that they might, one day, miss a payment or make it late, and suddenly begin generating money in the form of late and overlimit fees. Those customers paying high rates of interest are those who make the majority of banks’ profits. Losing those people would definitely hurt, and prime customers would pay for it in other ways. They could expect an end to rewards and other loyalty programs, and possibly an increase in annual fees and nickel-and-dime penalties. It might be the case that people who pay off their credit card bill in full every month would have very little incentive to use their plastic anymore, and might start using debit cards in increasing numbers. Should this happen, the credit card industry would face another massive decrease in the number of customers using their products. There’s a possibility that the whole industry might flip inside out and eventually cease to exist altogether.

For this and many other reasons, it is extremely unlikely that a credit card interest rate cap is going to happen now or ever. The credit card industry is a mighty legislative force, and the Legislature is already exhausted from its face-off against the monolithic American healthcare lobby. Consumers may need to just content themselves with the progress that has already been made, and find a way to deal with the difficulties they face otherwise. Because I think most Americans would probably agree that a high-interest credit card is fall better than no credit card at all.