Admittedly, you won’t hear credit card companies call Congress’ failure to cap credit card interest at 15% annually (which is what credit unions are forced to do) that, but, as Ian Welsh notes, that is exactly what Congress’ inability to enact a cap means:
The Senate just stopped limits on credit card rates. Sometimes it takes a socialist to say the obvious:
“When banks are charging 30 percent interest rates, they are not making credit available,” said Mr. Sanders, who noted credit unions are limited to 15 percent. “They are engaged in loan-sharking.”
The banks have been given, loaned and guaranteed trillions. They are given access to money at very close to zero percent. They then lend it out at much much higher rates. As Sanders notes, 1/3 of credit card holders are being charged more than 20%, some as high as 40%.
That’s usury. More to the point, it means that for all intents and purposes they aren’t making credit available.
Does anyone wonder why consumer spending dropped again? Would you borrow at 20% to 40% to buy anything other than food or pay for housing, when jobs are still being lost at over half a million a month? No one with any sense would.
Any bank that needs to charge such high interest rates has a fundamentally unsustainable business model and needs to be unwound. One of the things that hasn’t been talked about much, but, which is looming in the background, is the disintegration of credit lines for businesses. I know four business owners in Boston, who are currently profitable, but have had their credit lines slashed or eliminated (two and two each). For a small business, not having a credit line available to pick up the slack due to a temporary downturn, such as a couple of clients who need an extra month or two to pay, can be disastrous. For most small businesses, having the ability to borrow so they themselves don’t fall behind (due to no fault of their own) is critical to maintaining solvency, never mind employment rolls. And these four business owners are now looking over their shoulders.
Instead, it seems, as was predicted by many, that the various funds liberated by Treasury have not made it out to borrowers–and why shouldn’t have this happened? Insolvent banks don’t lend money, they keep it because they are trying to become solvent.
I hope things turn around, but I think it could get really ugly without getting credit to individuals and small businesses. And that’s before a lot of adjustable rate mortgages are recast in late 2009–and more in 2010….