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Credit Card Bill Still Allows Usury
Some credit card bill passed with large majorities:
The Senate voted overwhelmingly on Tuesday to put new restrictions on the credit card industry, passing a bill whose backers say will make card-issuers spell out their terms in fewer words, using plain English, and treat customers more fairly.
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Credit card debt has increased by 25 percent in the last decade, with delinquency rates up by more than a third since 2006, according to statistics cited by the White House. Americans pay $15 billion in penalty fees a year, accounting for about 10 percent of the industry’s revenues. About one-fifth of those carrying credit card debt pay more than 20 percent in interest.
Before Tuesday’s vote, the senators applauded their colleague Carl Levin, Democrat of Michigan, who cast the 11,000th vote of his Senate career. “I couldn’t think of a better bill to cast this 11,000th vote on,” Mr. Levin said.
Well - I for one certainly can think of a much much better bill to cast a Yea vote on.
How about one that forbids usury which I define as anything beyond a 5% margin. If the credit card companies can refinance at 0% through the Fed than asking anything beyond 5% in interest on debt is usury.
German law sets the usury limit a bit higher than that but at current refinancing rates anything above 12% "effective rate" (which includes upfront costs, credit insurance etc.) would certainly make the contract illegal. The U.S. killed any usury limit in the 1980 with the Depository Institutions Deregulation and Monetary Control Act. The "better bill" Levin can not think of would reintroduce sharp usury limits and void such loans ab initio.
The credit card companies need higher interest payments because they have large charge offs?
Well – why do they market their product to people who abuse it? I do not lend money to people who are unlikely to be able to pay back (except of course to friends in need). The credit companies do so and make their good customers pay for it. This is an abuse of honest people.
A very simple way to cure that is to limit the amount of interest they can charge. With such a limit the credit card companies would only service customers that are likely able to pay back what they borrow. There still would be some charge offs for people who unexpectedly have some trouble and can not pay because of illness or something else. That is the normal business risk.
But what is currently allowed is for these companies to catch people through sophisticated marketing campaigns, induce them to run up debt and then charge them hellish interest rates that will never let them recover to a real life. Credit card debts have become a virtual debtor prison.
This chart tells a story about half-way decent regulation versus runaway neo-liberal deregulation. It is time for the U.S. and other countries to re-learn the decent lending lessons.
#9, you recommend the complete scrapping of credit cards based on the fact that ‘credit’ is immoral and destructive. Well, my friend, ‘credit’ is thousands of years old, like prostitution which would also be impossible to ban without boosting the incidence of rape even further. Would you then also ban ‘lending’ of any type whatsoever? What about barter trade? Totally impractical, not to mention that other nations that are more responsible and save far more than U.S. citizens (the Japanese, Germans, for instance) would then issue their own cards. Then some enterprising middlemen would find ways to supply European cards to debt-hungry Americans….
A.) So, let me see if I have this straight. Because credit is thousands of years old, it is therefore with us to stay? It’s just the way things always were and always will be? There are no other options? Lump it or leave it? A very tidy fatalistic approach. It’s hard to argue with such a flawed philosophy.
Are you familiar with The Moken, Parviz? Look up their story, if you’re not, if you’re interested. They survived the tsunami because they, unlike the credit card junkie tourists, recognized that the water sucking out to sea meant imminent danger. When they witnessed the water being drawn out, they immediately fled to higher ground, and the majority were spared. Tsunami’s, like credit, have been with us for thousands of years, but, ironically, The Moken don’t have much knowledge of, or need for credit. There are numerous examples of cultures that have existed, and still do exist, without any concept of credit, so let’s not feign that credit is necessary for our survival. It’s quite the opposite. Its ubiquitous presence in the “civilized” world could very well lead, in part, to the extinction of our species. In part is the operative phrase. Of course it’s not solely responsible. It’s an exploitative tool used to further exploit, and a damn good one at that.
B.) Are you implying that Prostitution is Rape? If not, where the hell do you get the notion that banning prostitution will cause more rapes? I agree that banning prostitution is silly because people will find a way to do it somehow, but rape will also occur regardless of its illegality, and regardless of prostitution’s illegality. Should we legalize rape based on your logic? Maybe, just maybe, it has nothing to do with legality and illegality, and more to do with our social arrangements, and this thing we call “Civilization.” Maybe it facilitates the manifestation of such cruel outcomes, and so long as the arrangement known as “Civilization” continues, these outcomes will always be with us. I happen to think that “Civilization” is not all its cracked up to be and I laugh now when someone seriously refers positively to someone, or a group of people as “civilized.” By the way, I never suggested banning anything. In fact, I firmly believe, considering the constructs of “Civilization” that decriminalization of many things that are currently criminalized (drugs, gambling and prostitution) is preferable. I would delight in being able to light up a doobie without fear of being ass-raped in prison.
b) Obviously after submitting post #9 you saw the folly of your proposal and submitted post #10 which is almost identical to my proposal. I said LIBOR + 3 % and you now want LIBOR or PRIME plus 2-3 %!!!
As for a ‘ceiling’ of 8 %, if the PRIME rate goes to 21 1/2 % as during the Reagan years I cannot see any financial institutions committing suicide by capping rates at max. 8 %.
There’s no back-tracking on my part. As I said, it’s a concession. Considering the constructs of “Civilization,” credit will be with us for the foreseeable bleak future, so I suggested what I did as a bridge to a possible future….one without credit. I say cap at 8% because I no longer have any faith that the financial markets will be regulated properly and without massive corruption, so to say that the market sets the rate of interest any longer is a farce. If rates climb precipitously as they did in the Reagan era, it will be because of manipulation, not because of some nebulous free market mechanism at play. If that means that no credit is offered when “market” rates rise above 8%, then so be it. It would be an incentive to the manipulators to not raise them above that point.
Oh, and by the way, I’m not a fatalist….but I am a cynic. I do hold out hope, however slim the probability is. Obama’s not that hope, though.
Posted by: Obamageddon | May 20 2009 19:58 utc | 17
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