patrick.net

caps are like rent control, help some but hurt others.

I say anybody should be able to request as much interest payment as they want.

But they shouldn't come crying to government run courts and police to be the enforcer of those contracts.

When are people, especially "conservatives", going to get over the idea that everything written and signed to by two parties must be enforced by the State? At the taxpayers expense too! Some kinds of contracts are beneficial to society. Some are not. Unless there is some compelling reason for the State to enforce a class of contracts, government should be limited.

In the third world, 10% interest per month from loan sharks in not uncommon. That's 212%/yr compounded. Often the loan shark is one's own employer. If a family member gets sick, it is not hard at all to fall into debt servitude to your employer. I have personally seen the effects of this.

I'd love to see some people step up here and say the US government should enforce those kind of contracts.

This is something you should always think about...

Why would THEY screw over their buddies, for YOUR benefit?

E-man says

@ Mark,

You don’t have to go to third world country to have loan sharks. I know a few loan sharks in San Jose if you need one :-). 10%/month sounds about right. If you don’t pay them back, they’ll send someone after you. That’s all.

Hope I don't need their, um, "services".

The point is do we want our government to be in the position knee breaker?

Many people think so. If not knee caps, debtors prisons. I've even seen few supporters on patrick.net.

ptiemann says

Go over to PLA at http://www.predatorylendingassociation.com/

I love this site.

Lame! do you even understand the relationship between risk and rates ? Why should higher risk borrowers be given free ride ? This isnt about rich or poor!

thomas.wong1986 says

Lame! do you even understand the relationship between risk and rates ?

The problem is, the statistical "risk" model breaks down pretty quickly once risk is high and impossible to evaluate in any objective way. Cause and effect get confused. Could the fact that 30% of a borrowers income is going toward just interest payments have something to do with not being able to pay off the loan?

Nah.

thomas.wong1986 says

Senate refused to let states cap credit card rates.

So, you think states should be obligated to enforce every single debt contract?

I lend you a dollar. You agree to pay met a trillion dollars within a week. Hell, I see you saying "I would never do that!". So flip it. I owe you a trillion dollars. Should that be a lawful contract, to be enforced by the courts and police? If so, why? And more importantly, if not, why not?

First, people who are a higher risk just shouldn't be allowed credit cards. They have other options like pre-paid cards and debit cards. What I don't understand is why the banks can charge so much in interest for money we borrow, but there is no parity to what interest they have to pay on money they borrow from us.

Many countries outside the US regularly have very high credit card rates. 6-8% / month isn't uncommon. Of course those countries often parcel up packages, so you buy X over 10 payments, each month the company bills you, so it isn't sitting on your credit card for 10 months, only a small amount each month.

The US uses credit cards for instant lines of credit, which isn't bad, assuming you don't abuse it. Something like 45% of cards are paid off every month, it's not hard to see that many people are using them semi-wisely. It's unknown how much debt people truly carry due to the revolving credit, or because no one wants to release the number.

The problem arises, when banks see someone who is high risk, or more likely, in such a bind that they can't do anything else and abuses that situation. The lack of financial education, lack of options puts these people into a real bind. That is pretty much predatory in nature to go after them.

It isn't that the state should worry about contracts, but it should worry about citizens who don't have the ability to properly read or understand those contracts. Really the bank shouldn't be taking advantage of these people in the first place, because really that is all it is. It isn't business, it's just abusing their position.

That being said, a 30+% interest rate might be horrendous, but if it keeps people out of those check cashing places, it's probably a good thing. I remember talking to someone who's city banned those places and in the end all those people ended up in worse situations, getting loans from even worse places and putting themselves in real dire situations. They undid the ban because it was causing more problems than it was solving.

pkennedy says

getting loans from even worse places and putting themselves in real dire situations.

What's "worse"?

I don't buy it. If you're using violence to extract a profit, that is no different than extortion. Why bother with the "loan" aspect of the "transaction"? Just find somebody vulnerable and tell them to give you 10% of their paycheck or you'll beat the shit out of them. Why wait for them to come to you for a "loan"? Sounds like bad TV logic to me.

pkennedy, in 2007 my state of Oregon put a 36% APR cap on pay day loans which put many of the pay day loan businesses out of business, thank god, IMHO, but I have yet to hear why this is such a bad thing. Where is the data saying that borrowers are worse off?

And why did the cap, which still allows for very high interest charges, put these guys out of business? The pay day loan business owners that the local paper interviewed where all living large. Not sure how these folks sleep at night.

"The new bills put a 36 percent interest rate cap on short-term car title loans and on Internet payday loans that do business in Oregon, restrict fees charged by check cashers, create an electronic tracking system for payday loan borrowers and make it difficult for short-term lenders to use a different lending license to circumvent interest rate caps.

Oregon's 360 payday loan stores make small advance loans on paychecks averaging about $300, usually for about two weeks. They commonly charge an annual interest rate of 521 percent. Car title lenders also make small, short-term loans using the title as collateral.

The law passed by the Legislature last year limits payday lenders to charging a one-time fee of $10 per $100 loaned, plus 36 percent annual interest on a maximum of two renewals or rollovers. The bills passed by the House on Tuesday would extend those same restrictions to car title lenders and Internet payday lenders. The bills would not be enacted until July 1, when the law passed last April takes effect."

Nomograph says

At a certain rate, loans cannot be paid off. That is why in the wisdom of the past, usury laws existed. If you think this government and banker cabal can reinvent the wheel you are crazy.

That preditory lending association is an example of the bankruptcy of greed. I now advocate, in the wake of the senate vote, the strategic default on all credit cards. I advocate it as a protest. http://hubpages.com/hub/Never-Forget-Senate-Voting-Down-Rate-Caps If you scroll down to the bottom of the link, you will see the roll call of senators. I hope that any of you that are not sold out to greed would call the senators who voted "nay" and give them an earful. Of course, the California senators did the right thing and voted "yeah". I would support them.

Interest rate caps is a good way to force credit card companies from servicing most middle and lower-middle class people. Guess only rich people can have credit cards if the CC companies can't price for risk.

So middle class people are forced to borrow using payday loans and pawnshops, and we the lack of credit would be another deflationary force in society.

Great idea! Let's have Depression 2.0 and get it over with.

Oh, and if we ever have inflation, let's ensure that there's no lending whatsoever!

Ptipking222 says

Interest rate caps is a good way to force credit card companies from servicing most middle and lower-middle class people. Guess only rich people can have credit cards if the CC companies can’t price for risk.
So middle class people are forced to borrow using payday loans and pawnshops, and we the lack of credit would be another deflationary force in society.
Great idea! Let’s have Depression 2.0 and get it over with.
Oh, and if we ever have inflation, let’s ensure that there’s no lending whatsoever!

Yeah, lets bring back sub-prime mortgage lending too, "priced appropriately for risk". That was a huge boon to the economy. Win/win for everybody home buyers, lenders, and citizens at large.

Please explain how a credit card debtor paying 70%, or a pay-day loan customer paying 200%+ interest is being "served". Looks a lot to me like they're being served in the same way crack addict is being served by their dealer.

GaryA says

That preditory lending association is an example of the bankruptcy of greed.

I think you're missing the irony maybe?

@Leigh
I'll see if I can figure out what the alternatives where that they found these people going to. It was a guy a knew, his parents were really into abolishing these pay day loans things and they apparently went all out on them and finally got them removed from their city. Apparently they worked with the poor and they saw these things are horrendously abusive. After 6 months they realized their mistakes, although I can't remember what the conclusions where. Sorry, not very detailed either! The end gist was that they (the group that had asked for it) had to request that the law be undone because it was doing more damage now.

I hate businesses that are solely in business because they've learned to abuse the unfortunate or the desperate. Look at Western union, another great pay day loan place (in essence). They were basically out of business once it became easier to send money over seas and across the country, etc. Then they found their niche market. Illegal people who were scared to open up a bank account, but needed to send money south. I have no idea how much pain they inflict, but at $10-$15 charges to send money down there, and people sending down 1-4 times a month, that is a huge amount of a their earnings.

Anyways, if you can't make a business model work with 36% interest, then the people probably need more assistance than a loan to get them through a rough spot.

pkennedy says

Anyways, if you can’t make a business model work with 36% interest, then the people probably need more assistance than a loan to get them through a rough spot.

My ex insisted upon going to H&R Block for our taxes - then he would insist upon taking the advance loan (this is before we all had the interweb). The annual interest rate was 136%.

I have a Mexican friend who is a CPA. His wallet is stuffed with big bills so I ask casually how. Well, he basically told me that he does tax returns for his mexican clients who get's two to three thousand in tax refunds for them, primarily from the earned income credit. His reward, 20% commission or $400 - $500 in cash for basically 15-30 mins of work a $10 and hr intern performs.

basically he gets 25-50 hrs from his smart clients but 200-1,000 and hr for the dumb ones.

John Bailo says

Just don’t carry any balances.

Most obvious answer. Way too simple for some to understand.

SF ace says

I have a Mexican friend who is a CPA. His wallet is stuffed with big bills so I ask casually how. Well, he basically told me that he does tax returns for his mexican clients who get’s two to three thousand in tax refunds for them, primarily from the earned income credit. His reward, 20% commission or $400 - $500 in cash for basically 15-30 mins of work a $10 and hr intern performs.
basically he gets 25-50 hrs from his smart clients but 200-1,000 and hr for the dumb ones.

Way OVERBILLING his clients. 200+ is usually for partner rates at the big 4 accounting firms and that usually is for big name corporate clients which have much more complex accounting/tax structure.

Thomas, you must have left big 4 or (8)for a while, partner base rates are approaching $600 an hr in SFBA not including admin fee of 15%. For premium service like M&A, add another 30% to the base. My wife is a tax director and her base rate is$480. Volume discounts are available for large project (250K+ in fees) which can be anywhere from 20-30%. To be fair, partner's time represent about 5-10% of overall hr so average service rate is closer to 200-225 hr.

who says there's no inflation.

He's way overbilling is client because his client obviously doesn't know that most CPA's for small individual (like H&R block but at a propreitor level) will perform tax service personally for $50 and hr. When you get to Corporate income, a lot more risk of liability and expertise is involved, and tax system requirement is vastly difference therefor rates for corporate income tax approaches $100-200 an hr. My wife did some work as an independant contractor for $110 hr six-seven years ago.

and btw, a new associate at H&R block gets paid anywhere from $12 to $20 an hour. I hope you're not paying $200 fees for half hr work.

I finally got off of the fence, dove in, and got a new credit card after not having credit cards for about 3 years or so. Why did I do it? Because I need to get my credit score back up. Credit scores shouldn't be used as part of a background check for employment. That's not fair. If I don't need money, I don't need to work. A low credit score should mean that I really need the job and not be denied the job. The banks and credit wonks shouldn't be able to reach into my life to control what labor opportunities are open to me. That is a criminal practice that needs to stop.

So, what credit card did I get?

Well, I'm in the process from dumping Chase completely. I had credit cards with them and I was paying on time every month until they suddenly increased my interest rates to 30% and increased my monthly payments forcing me into default and then debt settlement. At least I had the resources to be able to follow through with debt settlement so I could avoid bankruptcy. The criminal tactic that was used against me was "universal default." Even though I was able to make my monthly payments (bringing down my principal balance and paying interest) they thought my debt to income ratio was too high. So they placed me in the "high risk" pool forcing me to choose between rent or credit card payments. Guess which one won...

The irony is that they "protect" themselves from "risk" by jacking up rates and payments to levels that consumers can't possibly afford forcing us into default. They do nothing to help consumers pay back the loans, as I was doing before they "intervened" on their own behalf by forcing me into default, ruining my credit.

So I joined my employer's credit union. Now I will have the opportunity to earn better interest for savings and get credit at better rates. Also I'm not contributing to the largesse of one of the criminal "too big to fail" thugs that has wrecked our economy, JP Morgan Chase.

I applied for a secured Master Card. I have a $300 limit. Therefore I keep $300 in an inaccessible account with my credit union earning interest. The interest rate on my secured card is a beautiful 10.15%. In six months or so, I may get an "unsecured" card if I so choose. I'm not sure I want one again but I may require it to build my credit score so that I'm not held back by the criminal practice of potential employers poking their noses into my business by using my credit score to help them make hiring decisions.

The current "regulations" that have "passed" house and senate do nothing to protect the consumers against any of these criminal practices that ruined my ability to pay off my loans in a straight forward way without screwing up my credit. I was plugging along just fine until Chase changed the contract on a whim without notice knowing that I had no power to negotiate until I was well into default. They won't deal with you until you are in default and they've ruined your credit. That's the fact.

It's not a level playing field when it comes to credit. The big banks have our government in their pockets and we the consumers are left to fend for ourselves. I don't see an easy way of changing this.

@simchaland
You should get several cards, because 40 or 60% of your score comes from how much credit you're using. So if you've got a $500 balance and have $50,000 in credit cards, you're in better shape than someone with $300 on a $500 credit limit. Not to mention, the different cards then try and get you to use their cards with "deals" although, less so now. So if you do get into a pickle, like happened to you, you could transfer away from the problem cards onto something better.

Having the cards isn't bad, using them to buy more than you can afford is bad. You can play their games as well, I've taken 50+K out at a time and put it in interest bearing accounts while they gave it to me for 0%. I didn't get a chance to fully abuse the system with a good 100K loan like many I knew were able to do. Borrowing 100K for $50 for a year. Not bad.

simchaland says

Credit scores shouldn’t be used as part of a background check for employment. That’s not fair. If I don’t need money, I don’t need to work

LOL! I agree and if they do implement that policy it should be retroactive. God almighty, there are people at hiring managers in sr. positions who would fail it at the blink of an eye. Should be fair either way.

yes, like i said.. "200+" .... at a 500+ we are talking audit and sox/internal control review by partner.
Tax isnt as much as audits... That is why many corporations are switching to smaller non big 4 lesser known firms for both audits and tax work.

"who says there’s no inflation."

No not overall inflation, the audit engagment as well as tax prep is prearranged as a fixed price contract with the audit committees ahead of the year. So for many public and non-public entities dont get a unkown bill at year end based solely on hours. Yes, hours are disclosed in details, but the accounting firms do eat hourly cost overruns and are not passed to client, else we go elsewhere. Not to mention, prices are negotiable, its not a take it or leave it situation. Many have switched to other cheaper firms. SOX however has added additional layers of services and accounting firm risks which has inflated hourly and fixed contract services.

If your a staffer or sr staffer, as well as audit manager, your pretty much working 12 hours a day regardless of rates.
Somethings never change! We are talking about 80-90% or more of the employees.

Companies often want to know you behave like a "normal" person. Normal people, handle situations in a "normal" way, which means people can easily identify when there is a problem. Credit score is really just to check up if you're normal or not.

Also, if you're in a dire situation, you could be more likely to take risks and/or do unlawful things to get yourself out. Lots of reasons to use credit scores.

pkennedy says

Companies often want to know you behave like a “normal” person. Normal people, handle situations in a “normal” way, which means people can easily identify when there is a problem. Credit score is really just to check up if you’re normal or not

And the norm may include getting divorced which leads to kinds of 'credit score" issues, garnishment of wages, laywers, blah blah blah. How do you define normal anyway? Just another crazy East Coast Liberal mentality infecting California.

Pkennedy,

Unfortunately, since my credit is so hosed at the moment, I have to start small and work my way up to multiple cards, if I so desire. The benefit of having done debt settlement instead of bankruptcy is that those accounts will slide off at 2013. Settlements are on your credit report for only 4 years. So, as I slowly re-establish credit and I show that I pay off my card every month, my score should improve.

I would have thought that finishing paying off my car loan, on which I never had a late payment, would have helped my credit score. Ironically, it didn't seem to help much. Oh well...

@simchaland
Yeah well many things are odd about the credit scores. Just remember that keeping additional cards around isn't bad, and often helps things out. Also apply to a bunch of places, it'll help your score a bit, it will take it down as well initially, but will show activity. Also, next time, try and keep your oldest accounts open, the length of your credit is important too... even though it's temping to shut down a bunch of cards because they pissed you off, it's better to just shelve the cards.

@thomas
Normal is whatever you define normal as being. I've found that succeeding isn't hard. We all do that, failing is in fact hard. Not in failing itself, that is easy. In HOW we fail. Do we curl up in a ball and tell no one. Do we work diligently and try and sort out the mess, without ever telling anyone? Do we break down crying and just quit? Managers can't do much if you just silently fail on them, they need to know WHEN you're in trouble and they need to be able to see that easily. If you behave "normally" hopefully they can catch that. So maybe the credit score doesn't give an exact picture, but it does paint a decent picture of who you are. Especially when you compare it with your resume, work history, references and conversations. I'm sure we've all seen an employee hired that sounded awesome on paper and did great in interviews only to find out they're miserable to work with or completely incompetent. Hiring/firing someone isn't cheap, it might be easy, but it isn't cheap. Undoing the mistakes, finding someone new, training them, etc.

Pkennedy,

Yes, this is why I've left a department store credit card open that didn't get closed. All the rest of my cards were closed involuntarily.

And I honestly have to say that my work performance has absolutely nothing to do with my credit score at all. I do well enough at my job and I'm not in danger of losing it for performance reasons at all. If I were to lose my job, it would be because our program closed due to budget cuts.

usery should be outlawed.

States may apply whatever laws they want on businesses.There may be a Federal Law or two but states have all kinds of laws for zoning, taxes, permits , etc. so at the end of the day, the States can decide.

marko says

States may apply whatever laws they want on businesses.There may be a Federal Law or two but states have all kinds of laws for zoning, taxes, permits , etc. so at the end of the day, the States can decide.

Sorry, but that is totally wrong.

What good is a state rate cap, when someone from Florida (18% rate cap) can just sign up for a credit card with with a company incorporated in Delaware (no rate cap)?

The question is will congress use it's power to regulate interstate commerce?

As it stands, the supreme court has affirmed a Delaware bank (extremely corporate friendly) can do business anywhere in the country, unless congress steps in.

MarkInSF says

marko says

States may apply whatever laws they want on businesses.There may be a Federal Law or two but states have all kinds of laws for zoning, taxes, permits , etc. so at the end of the day, the States can decide.

Sorry, but that is totally wrong.
What good is a state rate cap, when someone from Florida (18% rate cap) can just sign up for a credit card with with a company incorporated in Delaware (no rate cap)?
The question is will congress use it’s power to regulate interstate commerce?
As it stands, the supreme court has affirmed a Delaware bank (extremely corporate friendly) can do business anywhere in the country, unless congress steps in.

Well what good a rate cap is depends on performance benefits overall . For the argument, a State can impose whatever cap they want.

say anybody should be able to request as much interest payment as they want.

But they shouldn’t come crying to government run courts and police to be the enforcer of those contracts.

What other recourse would you recommend to enforce a legal business contract? If you own rental property and charge an "above market" rent, if your tenant refuses to pay you rent and refuses to move out, do you think government run courts should "butt out" and not help you evict them? Please.

Ah, but PKennedy, Bill Gross has defined the "New Normal". There is a new normal but banks always try to win no matter how many bad loans they make. They make bad loans to consumers, to countries, and they always think they can make their money back. But really they know that they will be bailed out. Have a TBTF bank around and you can blow new bubbles. Then let the IMF come in and clean things up if social revolution doesn't happen first

Zippy, if you charge above market rent you are a greedy sob. But with rent, buyer beware.

This use of credit scores to determine who gets a job is not for the benefit of the employer, it is for the benefit of the banks.

While some could say Tim the thief Geithner was ill prepared to be secretary of the treasury, he was qualified as a Federal Reserve Private Bank mole, and it didn't matter if he paid his taxes.

Here's an Idea, save your money, and don't use credit cards.

Geesh people this is a no brainier. The only people upset over credit card rules are the people that shouldn't be using them in the first place.