It's time to bring back usury laws.

[KrazyHorse]

We make choices all the time about what is good for people. I don't see usury laws as any different than many other laws.

We should try to avoid making them whenever possible. Because something as ridiculously rigid as "you aren't allowed to charge more than x for y" is bound to lead to hardship for those who REALLY WOULD like to make that transaction.

I've already given you an example of a situation where, robbed of my ONE other alternative (outside of begging my friends and family for money) I would quite happily have paid that interest rate. The anti-usury laws are RIDICULOUS. No less so than price controls on any other good or service are. The only difference is that folks like you and NYE can't understand the benefit that service provides.

[KrazyHorse]

I don't find it impossible to imagine it. I just think that such a scenario would be rare enough, that the people that are hurt by banning a 213% interest rate would be far less numerous than the people that are hurt by allowing such an interest rate.

Right, because somebody who can't understand what 200% annual interest means when it's printed in large type on the first page of the credit offer doesn't have bigger problems. Like remembering to check both ways before entering traffic

How about this: people who want to pay more than 60% interest are subjected to a basic math exam like "how much will you owe in 1 year if you don't make any payments on this debt until then"?

[OzzyKP]

I dunno if this has already been answered.

I'm not well-acquainted with your banking system, so please bear with me as I pester you with questions.
What does building a credit mean? Establishing a good credit history? What benefits does it have? Lower rates on future loans? Here in Russia only a bad credit history means anything, it means you won't get another loan.

I guess it means generally the same thing here. I'm not sure if it affects rates, it might actually. But obviously you don't want to have bad credit and be unable to get a loan.

Do many people use credit cards for their primary purpose, unlike Asher? Why do they do so? It might make sense here, with higher inflation overtaking the interest, but why do they do that in the US?
Can you get these other benefits Asher talked about when using a debit card? I can, here in Russia.

Basically people generally use credit cards to buy things they can't afford because they don't want to wait to save up. So it is a loan in essence.

[ShaneWalter]

"Caveat Emptor" was the rule in the Roman Empire. In the modern era, there are laws -- or at least there used to be -- to protect consumers.

Banks often target college kids and low-income folks because the banks know they lack economic sophistication and thus can be easily cheated.

Thats another thing. Last year I was planning a trip to Tanzania, and of course I had never had a credit card before. At the time I was employed and a part time student. I applied for a credit card, since I figured I'd pretty much need one. First I got a credit card with a $1500.00 balance. I was working full time and making about $17 an hour, so I mean that was reasonable.

Then, at a football game there was an application for credit cards (They gave you free Roughrider merchandise if you applied). I filled it out, including that I already had a credit card. A few weeks later I get a credit card with a $2500.00 balance. So at that point I had $4000 in credit. Not unreasonable, I guess, I was working fulltime, and had no "bad marks" against my credit.

Then I quit my job in December, and I was shopping for a few last minute things, and there was a kiosk to apply for a credit card at one of the stores I was shopping at, and they gave you a free flashlight if you applied. Well, a flashlight was one of the things I was looking for! So I apply again. I indicated I was a student, but that I was also unemployed. I put my address as my parent's house, since at the time I no longer really had a permanent address. It asked if I owned or rented. Well, neither but I had to check one, so I checked rent. Anyway, a few weeks later I'm in Tanzania and I'm talking to my Dad on the phone and he told me I got a credit card in the mail, with a $3000 credit limit. So now, in total, as an unemployed "arts student" I have access to $7000 worth of credit! This is in the middle of 'credit crisis' as well.

Anyway, I found that a bit ridiculous. Since coming back, I've canceled all but one of my credit cards, and I haven't used that one credit card basically at all.

[ShaneWalter]

We make choices all the time about what is good for people. I don't see usury laws as any different than many other laws.

We should try to avoid making them whenever possible. Because something as ridiculously rigid as "you aren't allowed to charge more than x for y" is bound to lead to hardship for those who REALLY WOULD like to make that transaction.

I've already given you an example of a situation where, robbed of my ONE other alternative (outside of begging my friends and family for money) I would quite happily have paid that interest rate. The anti-usury laws are RIDICULOUS. No less so than price controls on any other good or service are. The only difference is that folks like you and NYE can't understand the benefit that service provides.

I can understand the benefit the service provides.

I don't really think you, as a physics undergrad (or were you a grad student by then?) would have had to pay 80% interest for a $500.00 loan anyway. The people getting these credit cards with 80% interest are not university students with little or no credit history, rather it is those people who have already proven they can't handle credit. I was able to get several thousand worth of credit on three different credit cards basically by being an unemployed liberal arts student with little credit history (though no bad history).

[Ben Kenobi]

"Caveat Emptor" was the rule in the Roman Empire. In the modern era, there are laws -- or at least there used to be -- to protect consumers.

I'm not arguing that there should be no laws to protect consumers. A big one is truth in advertising. All I am arguing is that an 80 percent yearly loan is not necessarily a problem for consumers if they are careful and responsible.

Banks often target college kids and low-income folks because the banks know they lack economic sophistication and thus can be easily cheated.

College kids tend to be spendthrift, and a credit card is a great way to rack up a big tab very quickly.

Banks are teh Evil. A couple of months ago, I had to fire off a hostile letter to my old bank because, after I closed out my account, they charged me $45 in fees. What were the fees for? Well, my account no longer had the required minimum balance, and because I had not paid off the fees for the previous months for not having a bank account with a minimum balance.

My bank switched up my fees. After I complained I got them to reimburse me the fees that I had paid back to about 6 months or so. I agree with you that banks have their best interest in mind, and so do lawyers, etc, etc.

For a careful consumer the 80 percent loan would be a far better way to establish credit than the alternatives, and it would permit lenders to recoup their costs. If it meant opening up the credit, then I'd be in complete support of such a move.

You bring up the hypothetical example of somebody that has been temporarily unemployed? So, he would have no savings at all from his previous job?

The ideal loan for such a person would be the following:

1. Savings of around a months worth.
2. Recent hire.
3. In need of start-up costs.

I would have met all three conditions a year ago, I ended up having to juggle things for a month until I got everything together. There are many costs associated with starting up at a new job, all of which an 80 percent loan would go a long way to solving.

They may not have family who are capable of helping them out, or the sum may be difficult at this point in time.

I guess my point is this: You make the assertion that a credit card with 80% APR could allow people to repair their credit rating.

Yes, I would take one straight away if offered, depending on the monthly fees for holding the card. No fee and an 80 percent ARM would be ideal for this purpose, as I wouldn't be relying on it for monthly costs.

Do I know what is better for people than they do? Well no, not on an individual level. But on a collective level, it doesn't take much statistical analysis to say "Credit cards with 80% APR are harmful for the vast majority of people that utilize them."

We don't know that though. Even if 90 percent were to pay their bills, the other 10 percent would pay for the other 90.

[Zevico]

Any interest, provided it is on interest on default of payment, is fine. You just need to make your bank account has enough money to meet the balance of the debt you owe (and preferably more). Also, in this way you continue to earn interest on your account, while you lose nothing from the interest on the money charged to your card. Obviously fees>can make this an impossible arrangement. So imo an 80% interest credit card can be handled responsibly if it's interest on default of e.g. 30 days' payment.

[KrazyHorse]

I have no idea why people think it's a good idea to cancel their liquidity if it doesn't cost them anything. I have over 40k worth of credit available to me. I have no plans to use it, but as long as it doesn't cost me anything to carry around that liquidity why would I choose to rid myself of it?

[Flubber]

I don't see much value in discussing anecdotes as if they were universally applicable. Perhaps you could enlighten me.

I never claimed universal applicability although any intelligent person can use credit cards to their benefit if they are responsible and have impulse control.

I was responding to BKs anecdote of his practice with an anedote of my own. In response you posted two article about the perils of credit cards. Although I agree with both articles about the potential perils, they offered nothing new and your lack of any commentary meant I didn't know if you were saying

1. Bullsh** Flub, credit cards are always bad
2. Bullsh** Flub, I don't believe you use credit as you portray
3. Flub makes good points but there are hazards with credit cards that many can fall into OR
4. Something else entirely

Since you quoted me, I thought you might have something to say. But you said nothing.

Oh and if you don't see value in discussimg an anecdote, don't. But it is relevent to my premise that prudent credit card use can be beneficial to the user.

As for value, I come here for amusement when I have time. That's this place's value for me. If I learn something, that is simply a bonus

[Flubber]

Anyway, I found that a bit ridiculous. Since coming back, I've canceled all but one of my credit cards, and I haven't used that one credit card basically at all.

What is ridiculous is that you COULD likely get 4th or 5th or 6th credit card. Some people do that and it looks like they have good credot as they use their latest card to make minimum payments on the prior ones. Some people get in these credit cycles that are quite obscene.

There is a TV show here called 'Till DEbt us do part". The host does a credit re-vamp on people each show and to see people carrying 10 credit cards with balances and then borrowing for new cars etc etc. her solution is always the same-- She puts people on a cash budget with money jars for the various categories. It generally works


Oh -- I have been working for almost 20 years and I have TWO credit cards-- One is mine and one is a business card since my employer requires I use their card for most business expenses. I never saw the need for more. My credit limits are high enough for most uses and if I wanted to make a super huge purchase on my card (for points) I could always just prepay in enough to cover it.

[Asher]

I have two cards, but I'm sure I could get many more...

1 Visa, 1 Mastercard...since some places accept one but not the other.

My mastercard (the main one) has an obscene limit, though.

[DanS]

I have found credit cards to be great financial tools mostly -- at rates of up to about 18%. I've used them to finance the inventory of a business that I started, among many other things.

But one thing that an 80% interest rate does is narrow the margin of safety considerably. I wonder whether in these instances, charity would be the better option. As rates go up, it gets tougher and tougher to see the marginal borrower benefiting and easier and easier to see a debt spiral.

[Fake Boris]

What DanS said. If borrowing at 80% is your only option you have been shown to be either stupid or so deep in **** that usury laws become understandable.

[notyoueither]

Bite your tongue, DanS.

Why should KH be forced to seek help to pay his rent when it is clear that the market can meet his needs at 80% interest?

His freedom from the burden of seeking charity is well worth the misery of those who cannot manage the trick.

**** them! It's all about his freedom in the market.

[DanS]

I think you misread me somewhat, NYE. For one, bankruptcy is not the end of the world, mainly by virtue of these details being wiped from your credit history after a period of time. Second, I do think it a tragedy that the market can meet some needs, but the government does not allow it due to an out of touch electorate and know-it-all big government types.

Mostly, I'm for the liberalization of credit that has taken place over the past few decades. Unduly strict usury laws (and bankruptcy laws) have been in place forever in the West and we have suffered for it.

However, the math gets pretty daunting at rates like 80%. That's all.