And for today, Ritchie says!

On credit card interest rates:

In the meantime they ignore the real issue of incidence concerning banks – which is that the cost of rebuilding their balance sheets is falling on these least able to pay.

The time for regulation of interest rates has arrived, and is long overdue.

So, both banks and governments underprice risk in the past, leading to the system nearly falling over. Now that risk is being priced more appropriately, this is also wrong.

And, of course, government must have more power.

8 thoughts on “And for today, Ritchie says!”

  1. I’m not sure how I’d work out the distribution of the “cost of rebuilding balance sheets” (I mean, is the cost falling on the poor or on the middle classes or on the rich). I wonder on what he’s based his opinion that it’s falling mostly on the poor

  2. Is Murphy aware of the very easy way for the great unwashed masses to not pay interest rates (high or otherwise) on credit?

    Don’t carry a balance on a credit card.

  3. A report today shows that banks are blatantly discriminating against the most vulnerable people in society. Those on marginal incomes or welfare find it much harder to obtain loans, let alone the credit cards, that the wealthy people take for granted. This scandal must end.

    In other news we find that banks are forcing credit upon vulnerable people least able to understand finance. Credit cards are offered with gimmicks like debt consolidation and low interest introductory periods those on marginal incomes or welfare. These people do not understand the variable interest rates on the account and get themselves into greater problems. This scandal must end.

  4. The risk isn’t being priced more appropriately; it is being priced in a more greedy and money-grubbing manner, in line with industry convention.

  5. “In the meantime they ignore the real issue of incidence concerning banks – which is that the cost of rebuilding their balance sheets is falling on these least able to pay.”

    That’s one for the ages.

  6. The margin has to cover losses – uncollectable debt – as well as costs and profit, and write-offs on card debt have been sky high in the UK.

    Mind you, the UK does allow shocking interest rates – on small personal loans rather than cards 100% is not outlandish, never mind 18.5% – and some limit wouldn’t be a bad idea at all. Also UK store cards, private labelled by people like GE Money, will be higher than 18%. Lots of options – many US states have a high threshold for usury – in the 30’s maybe, high enough to stop loan sharks, but not constrain ordinary business – and the Italians apply a limit at a rolling historical average of rates plus a margin, again stopping outliers, but not seriously limiting the markets. The French have a hard, low cap on rates, varied monthly or so by the central bank, but the French market for cards is highly protected by this among other measures making it very hard for a non-local bank or newcomer to break in – consumer protection is only part of a more complicated set of motives.

    18% doesn’t seem bad, honestly – and may actually be socially useful to deter people from revolving debt on cards. Focus should be on honesty and clarity of disclosures and communication, minimum monthly payments actually capable of paying off the debt in a reasonable time, prohibiting tied-in sales of useless insurance, that sort of thing, with a high limit or threshold for usury to stop the crooks.

    Oh, and I also really like the French rule that makes a lender who extends credit without having taken care that the borrower is capable of paying it all back responsible for any other creditors’ claims in the event of the borrower’s insolvency, which focusses the mind wonderfully.

    And anyway, no-one’s rebuilding a balance sheet (if by that he means storing up capital) off credit card rates – this is just short term profit plus mid-term covering losses.

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