| MontanaHatchet said:
All I've understood from this thread is that credit card companies are going to raise interest now instead of later. Big...deal?
|
Yes, it's a big deal. (well, more a lesson in how government who thinks they are doing the right thing often times are not)
Let's say I am a credit card company, and I want to make a fixed profit of 10%. I loan to 4 groups of people based on risk. We have groups A, B, C, and D. Group A is very trustworthy, and group D is very risky. B and C fall somewhere in between.
Now for each group, I know some people are going to stop paying me (more in D then A), so the interest rates for these 4 groups is different. Now, there are things that happen in the world that effect all of these groups. Things like major natural disasters, 9/11, the current economic rescission.
There are two ways I can deal with these issues. One is to offer a very low interest rate that I can adjust whenever I like. This allows me to make my 10% profit, and then just adjust the rate as times get better or worse.
The other way is to fix my interest rate, and regardless of outside influences put upon these 4 groups, never change the rate. If I go this way, I have to guess how I think the market is going to fair over the next 3-4 years, and apply a rate that I think will profit me 10% across those years.
That rate will always be higher then one that could adjust. I (and everyone else) has a rate that can adjust, but soon thanks to government, that won't be a legal way to do business. So, I am forces to figure out what rate won't run me out of business, and then charge that rate all the time. My guess though, is once that law is passed, I will not be allowed to change my rate, so I have to change it now to prepare for a fixed rate business model.
Again, this effects me very little. It's more an example of someone in Power who thinks they know what's best for people, screwing with something they have no business in.
There is a reason why for over 250 years no one has done this before. I guess he thinks he knows better.
