August 25, 2010
-
Allies Side By Side In Credit Card Debt, Pt.2
Banks borrow at record lows.While credit card interest rates continue to climb in the U.S., in contrast to the U.K., the average card rate in the U.S. is 14.7 percent for the second quarter of 2010; up from 13.1 percent the same time last year. The current average credit card rate is the highest is has been in nine years. To give you a better idea on the significance of the credit card interest rate increase; this average rate is 11.45 percent higher than the U.S. prime rate; the greatest difference in over 22 years. Furthermore, interest rates for personal, home mortgages and auto loans are at historic lows. It is expected that interest rates for these loans will remain low for some time in an effort to stimulate spending and boost the unemployment rate which continues to hover around 10 percent.
Last year's credit card reform bill that was passed by the U.S. Congress and signed into law by President Barack Obama has also been considered a variable pushing card interest rates up. The rules are aimed at eliminating the unfair and deceptive practices by credit card companies that had become rampart during recent years. It is expected that these new laws will help to slow down interest rate increases. The new rules will also prohibit lenders from imposing excess penalties; especially those that exceed the original violation.
Although credit cardholders have felt the pain of excessive debt, interest rates, and fees, lenders have been reporting that profits are up and card defaults are down. It all makes sense that lenders would be posting profits because they have been borrowing money at historic lows as well. Banks say they have to charge the high interest rates to compensate for the excessive high defaults. The new law will prohibit some of the practices that brought the high profits to lenders by prohibiting them from arbitrarily raising a cardholder's interest without cause. Meanwhile, U.S. cardholders have taken the situation into their own hands by reducing card debt and curbing spending. Retailers aren't very happy about their action, however, they too have learned to cut inventory and cut costs; something the financial industry could use a lesson on.