Is a Credit Card Rate Cap a Good Idea?
A ceiling on how much credit card companies can charge for the use of their credit cards seems like a good idea, but is it? On the initial look, a cap on the credit card rate will protect consumers from arbitrary credit card increases, as well as, regulate credit card companies and prevent them from imposing ridiculous rates. Indeed, the intentions are well placed; however, in the long run the consequences may not be as desirable as the intentions for which the new law is intended for.
It is undeniable that the credit card rate is imposed by credit card companies not solely for the purpose of gaining revenues, but also to protect them from high credit risk consumers. You will notice that higher credit card rates are usually imposed on consumers who are considered credit risks. On the other hand, those with good credit ratings enjoy the privilege of the best credit card terms and lower interest rates.
When credit card companies are limited within the proposed 16% ceiling on card rate, it is likely these companies will explore other avenues to protect their interests and secure their revenues. These measures may turn out to be more detrimental to the consumers than what is currently being experienced in the status quo.
Here are just some of the possible negative consequences that may stem from placing a cap on card rates:
• It will compel credit card companies and providers into imposing more stringent requirements to lower risks of bad credit. As a result, hundreds of thousands of consumers will be deprived of feasible credit options and may turn to loan sharks instead in desperation.
• Good paying consumers may no longer enjoy the best credit card deals that are available to them now. Credit card companies may do away with the less than 10% card rates, because a credit rate cap will prevent them from off-setting low interest rates for good paying consumers with high interest for their high risk counterparts.
• It will compel credit card companies to increase fees to offset whatever profits they may lose as a result of limiting the credit card rate.
Clearly, the forecast is not good for the credit card rate cap. The protections it offers consumers will more likely be outweighed by the negative consequences it is most likely to produce.
Thanks for letting me know that I’m not the only one who is struggling with personal debt. I lost my job recently and have not been able to find anything in my field. I have stopped using all of my credit cards. And I now always pay cash for everything. I didn’t figure that I would ever get into this kind of a situation.
Well Lonny, I don’t think that is such a good idea. Rather than pay cash for purchases, put the cash in the bank and use a credit card to buy only what you can afford. Then, pay the card off at the end of the month. Simple.
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