One of the most profitable segments of the financial services industry is Credit Cards. There is a massive debate taking place as to whether governments should institute new laws that cap interest rates and fees.
According to the financial industry this type of regulation will hurt consumers and make it more difficult for people and small businesses to acquire credit. They argue that the people who most acutely need access to credit will be the most at risk of being declined access to credit.
Even though legislators from the US, Canada, and the UK are all proposing some type of regulation of Credit Card Issuers, there is little chance of any serious relief from the unreasonably high interest rates or punitive fees that have become the norm.
The sad fact of the credit card business is that the people who can least afford high interest rates are the people who pay the highest rates. And make no mistake about it, although most of the disclosures made in the agreements you sign in the terms and conditions for use your credit cards are not hidden, average consumers have very little chance to understand exactly what they are paying and the consequences of not complying to those terms.
There are many consumers that are in serious financial trouble today and according to the experts, one of the critical reasons for the financial meltdown was the refinancing of mortgages to pay off credit card debt.
Millions of Credit Card holders refinanced their Credit Card debt into their mortgages. This may come as no surprise to some financial experts but many people have been stung by consolidating the balances from credit cards into refinanced mortgages. Should Mortgage Refinancing be used to Consolidate Credit Card Debt? No way!
By opting into mortgage refinancing and then using the same credit cards, as if no extraordinary measures were taken to pay down the balances in the first place, consumers have basically been the masters of their own financial demise and have incorrectly used mortgage refinancing to consolidate debt. This is what the industry would have you believe. I say bring on regulation.
One of the most important things you must realize about credit cards is that there is no regulation on the way interest rates and fees are imposed and applied. Much to the detriment of the credit starved consumers who fall prey to, what I would call, loan shark interest rates.
Much of the problem here is that a typical person will have nothing to worry about until something unusual happens in their financial situation such as the loss of a job or in the US, a catastrophic sickness.
As we all know there have been many people lose jobs over the past 15 months as the crash on Wall Street sent ripples throughout the world economy. Everyone in some shape or form is feeling the crunch financially. Banks can get money cheap but do they pass the low rates on - nope, not a chance!
So what should be done? Should governments stop Credit Card Companies from charging 35% or 25% interest rates on credit card balances? Is it usury or is it the free market at work? I would say the former.
Just ask yourself if you would knowingly sign up for a credit card that charged a 35% interest rate on all outstanding balances, or, would you prefer that the credit card issuer declined your application even if you were aware of the interest rate to begin with?
The financial services industry has shown that they are in business to make money and buyer beware. Can they be trusted to do the right thing? For some reason people hold their financial institutions in high regard and they don't realize that banks and credit card companies are businesses just like the electronics dealer, or any other business in your local mall.
I would argue that even though these financial institutions are selling products and services just like any other business, they do have the ability to seriously impact the well being of their clientele disproportionately and therefore should be held to higher standards of conduct.
Some groups believe charging interest rates over 18% is immoral and considering the interest rates charged to the banks are the lowest they've ever been, they may have a point.
As in all financial transactions, if you don't need money and can prove it, you will be able to get credit. If you need credit and don't have a stellar credit record, it's becoming increasingly obvious that you should be very careful about which type of credit you try to get.
Your financial well being is in the balance and don't expect your government to do anything to contain the rampant greed shown by the financial institutions either.
