[quote]pittbulll wrote:
eric_lacrosse wrote:
Oleena wrote:
tGunslinger wrote:
Oleena wrote:
I think everyone missed something important that was mentioned a couple times in the article- this act will force credit to dry up, which will in turn force people to make more responsible money decisions because they wont be able to borrow as much. Also, those who have made irresponsible decisions in the past simply WONT be able to make the same type of decisions in the future because credit card companies are not going to be as likely to loan to high risk buyers.
Making someone pay a high interest rate for their irresponsible spending is only ONE way of dealing with the problem. Simply not lending them any more money solves the problem for good.
Drying up credit won’t teach anybody anything. A boy raised in a plastic bubble may be safe, but he hasn’t learned anything about being responsible for himself.
Restricting credit may prevent irresponsible spenders from spending themselves into debt, but it fails to turn irresponsible borrowers into responsible borrowers through experience. In addition, it also punishes responsible spenders by increasing the cost of borrowing.
Finally, it’s as given as the morning’s sun-rise that overall efficiency of the industry will be knocked down a bit whenever the government steps in. Rarely, regulations are worth the loss of efficiency. Usually, they’re not.
Whenever the government tries to protect us from ourselves, we all pay dearly. The “victim mentality” assumes we are all reactive, brainless automatons, and regulations stemming from such a perspective will treat us as such.
You can argue that this slows spending, but that completely misses the point that it slows spending that shouldn’t be happening in the first place because the person really can’t afford it.
This isn’t a take from the rich and give to the poor- it’s a stop giving to the irresponsible in the first place!
Think about it- if you knew that if you missed a payment they would jack up your interest rates, would that be as effect a deterent for not missing it as knowing that they would take away the rest of your line or that you wouldn’t be able to get any other company to loan to you?
Most people who are irresponsible with credit don’t learn from the high interest rates they have to pay every month. If they did, they would stop after the first time their interest rate gets jacked up over 25%. However, most people who are bad with money will keep borrowing regardless of interest rate, rationalizing that they are about to make a lot more money in the future so the interest rate doesn’t matter. What they finally learn from is the experience of reaching their max and not being able to borrow more credit from other companies while still having to manage high monthly payments. This legislation would just make that happen faster.
I disagree. Credit card companies are in business to make money off interest income. Same goes for those payday lending places and they wont change. It’s their business model. They will simply re-write their loan agreements to comply with the exact specifics of this law while passing on the lost income to the rest of us in the form of fees.
I wish this would have the impact of tightening credit, but it wont. It will just make us responsible folks subsidize the profitability of the lenders by having to pay annual fees where we had none before.
My brother is horribly irresponsible, spends way beyond what he can repay. He has a short term loan through one of those payday stores that are on every corner of bad neighborhoods. He has been making minimum payments on a $5,000 loan at 59% interest for 5 years now. He hasn’t learned a thing from the experience. The people who get into that kind of financial mess are like alcoholics, they cannot control themselves.
I agree your brother is irresponsible, but 59% interest is criminal.[/quote]
Really?
What should an interest rate be based on?
I´d say a base plus the default risk.
And that can be quite high.