Should the rich pay higher interest rates?

Interest rates are at record lows, but default risk premiums are increasing, generally meaning a net increase in credit card interest rates for consumers. Despite this, consumers, especially those who are struggling, want lower rates. In other words, there is a growing consensus that wants a credit rating system for unsecured credit card debt that allows riskier customers to pay lower interest rates.

Is this cry for “inverse risk-based pricing” or “progressive risk-based pricing” fair? Should the same methodology of our progressive tax system be used to price credit card interest rates?  Or is this a nonsensical and unfair recipe for more economic disaster?

Comments

[Quick Loans]

It is a thoughtful question. According to the credit rules everone must pay debts.This is perfectly going to be awful.

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[Sharon Barlow]

I agree with Bertie: I don't have sympathy for credit card companies, either. But why in the world should they lower credit card rates for people who are less likely to pay and probably shouldn't be using credit cards anyway?

[Bertie W.]

[In other words, there is a growing consensus that wants a credit rating system for unsecured credit card debt that allows riskier customers to pay lower interest rates.]

I have to ask: where, exactly, is this "growing consensus" coming from? Because I don't feel that way at all, myself.

If I were to hazard a guess, I'd say that these are the same people who thought those interest-only loans lenders were offering were a good idea, too. I've gotta tell you: when I first heard about those, I thought my hearing was at fault. But sure enough, the lenders were able to find people stupid enough to take out loans that they could never, /ever/ hope to pay off.

And now, it seems, that same way of thinking is at work yet again. Amazing.

Yes, having riskier consumers pay lower interest rates is indeed a great idea. A great idea, that is, if the people clamoring for such a "system" believe that less credit should be extended to them. And if you'll pardon my saying so, that's /exactly/ what they're going to end up with here if they're not careful.

Are people *really* so stupid as to believe that less riskier credit customers should be charged higher rates? There's a reason why those payday lenders charge exorbitant interest rates: the desperation of the borrowers aside, the likelihood of their seeing their money returned from people who live from paycheck to paycheck isn't all that great.

I know this is going to sound perfectly awful, but someone needs to sit those folks down and explain to them what "unsecured debt" is. Because I honestly don't think those consumers understand just what the card companies are up against.

To be clear: I don't have any sympathy for the card companies. But I have even less for Silly People who insist that the federal government step in, time and again, to supply their deficiencies. Enough already.