By Ryan C. Wood
They say your credit card interest rates are based upon credit risk. It is far more complicated than that and a little history regarding interest rates is helpful. Your individual credit risk does come into play. It is just not as large a part of the equation as they would have us all believe. Credit card interest rates are high because there is no law capping credit card interest rates under Federal Law. Prior to 1978 state usury laws limited or capped credit card interest rates for you protection.
In 1978 the Supreme Court of the United States allowed one bank in one state to export their interest rates based upon their state law to their customers in other states with different usury laws limiting interest rates. Naturally state “X,” to be named later, just did away with all caps on interest rates under their state law, the banks said great, we will come setup shop in your state with no cap on interest rates so we scan export high interest rates to all our customers throughout the United States of America. This is why credit card interest rates are so high and everything else you hear is just fake news to take your eye off the ball.
Here in California generally the cap on interest is 10%. This is a generalization and there are of course exceptions after exceptions. The 10% cap only really applies to human to human extension of credit/loans. Does not matter given Citibank, N.A. is doing business out of South Dakota and South Dakota has no caps on interest rates. Citibank, N.A. may export the interest rates of South Dakota to their customer here in California trumping the California state law usury 10% cap.
If You Have A Net Over Worth $1.0 Million How Can You Have A 79% Interest Rate?
They say interest rates are based upon your credit risk. That is why your credit card interest rate is so high. That is not really true and probably the smallest part of the truth. If so, then why does someone with an 825-credit score have not one credit card with an interest rate under 15%? If so, then someone that has never missed a payment on anything their entire life should have a credit card interest rates that are extremely low, say 5%. No, this is not how it works because YOUR credit risk is only a small part of the truth. The truth those who pay each month and on time will always have to pay higher rates to make up for those that default. So the truth is extension of credit/loans are given to those with a higher credit risk driving up the interest rates for everyone. Why not have a lower rate of default by lowering interest rates? No, no, we make more money getting everyone to pay once illegal loan shark interest rates.
The truth is 79% interest on a revolving credit account for an 80-year human that has a net worth over $1.0 million is somehow legal and has nothing to do with credit risk. This is actual fact that happened to one human. Only in certain aspect of our economy do we allow buyer beware to fully take over.
Attempts To Reform Interest Rates At The Federal Level Are Always Rejected
It seems so simple given we had protection for consumers against loan sharking and predatory lending to consumers based on each state’s laws. Just legislate caps on interest rates at the federal level and we will no longer have this patchwork of state usury laws confusing everyone and it seems limitless loopholes. As I have yelled from the highest mountain top for years, we protect people from price gouging during natural disasters yet allow humans to get destroyed by once illegal interest rates during their personal financial disaster. Why is a bankruptcy attorney arguing for limits on interest rates decreasing the number of bankruptcy cases filed? How about we be intellectually honest and treat all types of disasters equally. Oh no, there is that word again, equal. We cannot equally apply philosophies to different circumstances creating equal opportunity. Somehow capping interest rates is arguably a bad idea because we have a free market economy? That has to be the biggest joke out there and the biggist lie. The government/law allows, even requires, manipulation of the free market creating financial losers and winners all the time. This market manipulation is how we have a safe food supply, safe buildings, safe cars, seatbelt laws, product liability, and finally speed limits. The market is manipulated and made not free all the time for all kinds of horrible reasons. THE REAL MANIPULATION OF THE MARKT NOW IS NOT LIMITING INTEREST RATES GIVEN WE KNOW NOT LIMITING INTEREST RATES IS BAD FOR HUMANS. THIS IS WHY LAWS WERE PASSED IN EACH STATE TO LIMIT INTEREST RATES.
PLEASE EXPLAIN TO ME HOW DOING AWAY WITH SEATBELT LAWS HELPS CONSUMERS? PLEASE EXPLAIN TO ME HOW DOING AWAY WITH LIMITS ON INTEREST RATES HELPS CONSUMERS?
You all support rent control right. The manipulation of the market for a very select few humans creating massive inequality. If you qualify for rent control can you even have credit cards? If you are a rent control human can you human also have your interest rates be capped too? You are limiting how much rent control human pays for rent but still allow rent control human to have a $1,200.00 phone with a monthly bill of $200.00? How can a trillion-dollar world conglomerate charge rent control human 36% interest on what they are purchasing at Target? The human only has money to drive to Target and buy stuff because their are on rent control and pay less rent. Does that make any sense to you? So this human’s landlord is forced to not make as much money so the rent control human can have four credit cards, each with a 30% plus interest rate, and buy a bunch of junk that sooner than later will all be worth $0.00. I am all about affordable housing but rent control does nothing to fix the problem of affordable housing. Rent control merely treats the cancer for a select special few and does nothing to cure the cancer. Everyone seems to like band aids to cover cuts rather than preventing further cuts. No, no, we will just keep placing band aids.
See these issues are cherry-picked. So just one parameter (RENT) is manipulated while not changing anything else in someone’s financial life. It will never work. No doctor is going to reattach your pinky finger when you have a punctured lung. You cannot cherry-pick the remedy to the problem and ignore the other problems that are also contributing to the patient’s death. So why do we do this when it comes to economic problems? Why can we not consistently apply philosophies equally to all issues?
The Most Recent Matry I Am Aware Of – U.S. Sen. Sherrod Brown (D-OH)
U.S. Sen. Sherrod Brown (D-OH), Chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs apparently would like to cap interest rates for poor people at 36% interest. Sorry, but that will not help much, is still loan sharking, and used to be illegal for a reason. Apparently, the following bill/law will be introduced to the U.S. Senate entitled: “Protecting Americans from Debt Traps by Extending the Military’s 36% Interest Rate Cap to Everyone.” Thirty-six percent is almost five times the eight percent reasonable rate of return for us normal oxygen breathing humans are supposed to be happy to receive on our investments. Wish I could guarantee 36% return on my money guaranteed.
I may comment on each paragraph of this “Opening Statement” by Ranking Member Senator Pat Toomey (R-Pa) via YouTube. Please YouTube Ryan C. Wood and Bankruptcy to find the YouTube video. It may not be up yet, but it will be shorty.
Hello Senator Sherrod Brown. How about creating another federal or state entity to help protect consumers? We have/had the Federal Trade Commission along with the Consumer Financial Protection Bureau (FTC). It would be nice to see the FTC did not allow two corporations to merge together further and further limiting choice by human consumers thereby forcing us to pay more? It would be nice to get back to trust busting for the benefit of the consumer. Then the Consumer Financial Protection Bureau (CFPB) was created after the mortgage meltdown to help consumers more. So now we have two federal entities, FTC and CFPB doing the same consumer protection, so consumers should be twice as protected right? Both entities are doing great things to help consumers everyday. The job is overwhelming though and there are just too many scamsters out there to prosecute. For ten plus years I see the same problems with interest rates and consumer loans and credit cards repeatedly.
Here in California Governor Newsome signed into law the California Consumer Financial Protection Law (CCFPL) which created the new California government entity the Department of Financial Protection and Innovation (DFPI) in September 2020. The language says the DFPI is supposed to resemble the Consumer Financial Protection Bureau. But the CCFPL and DFPI only create another set of eyes on persons offering or providing consumer financial products or services in California. Like magic federal and state-chartered banks ARE NOT SUBJECT TO REGULATION BY THIS NEW CALIFORNIA CONSUMER FINANCIAL PROTECTION LAW. Ah, so you are creating more oversight of “persons” making loans to other “persons” in the State of California? I will guess that the big federal and state chartered banks are the ones making 99.99% of loans and they are the ones that need 99.99% more regulation and oversight. THIS IS THE NEW NORMAL THOUGH. THE LAW ALLOWS CORPORATIONS AND THE GOVERNMENT ACTORS TO DO TO OTHER HUMANS WHAT THEY [CORPORATION OR GOVERNMENT EMPLOYEE] COULD DO TO ANOTHER HUMAN INDIVIDUAL ON AN INDIVIDUAL LEVEL.
The reality is there is very little competition at the corporate large-scale consumer credit industry. There are only a few players, and THEY ARE TOO BIG TO FAIL, and you are TOO SMALL TO MATTER. The thermometer says 80 degrees, so I report the 80 degrees. I did not make the 80 degrees. The fake news is your individual life, your rights, your happiness, is more important than the over all system. The overall system sadly is more important than you.
Caps On Interest Rates Were Legislated For a Reason: Your Financial Protection
It all comes down to bargaining power and the free market. Or what “they” call the free market. Poor consumers have no bargaining power so those with the means of production, the money, can take advantage of the consumer. This is precisely what took place until laws were passed to limit interest rates, prevent abusive loansharking, and bring order to the chaos. The reason why usury laws were passed to limit interest rates still exists, yet we have chosen, well the Supreme Court of the United States in Marquette National Bank v. First Nat’l. Bank of Omaha Corporation, 439 U.S. 299 (1978) decided to take the limits off interest rates. So, if there is no more cap on interest rates how is the problem this creates being solved now? It is not. You all are getting fleeced by banks and interest rates that are supposed to be illegal. Since life is so short you should probably just dump as much money in the stock market and take advantage of the increase in share value of these same corporations. Why make things better when you can profit off the bad?
The 1978 Marquette National Bank Supreme Court Decision Changed It All
I believe this case, its holding, changed more about our lives than previously considered. Prior to 1978 there were caps on interest rates. Each states usury laws regarding interest rates controlled. In 1978 state parks were free. There were no bank fees for services such as balance check fee, money order fee, ATM fee or statement fee. Government buildings were not Taj Mahal’s built with marble with an entire room dedicated to “espresso.” Most people did not have multiple revolving consumer unsecured debts (a bunch of credit cards with balances carried over each month accruing interest.)
The removal of caps on interest rates changed it all. This started the downward spiral of your ability to work a normal job and afford a normal house, two or more cars, a boat, a houseboat, a cabin, and retirement. All of this when working a normal job clocking in day in and day out. You know this person can no longer afford to buy a house let alone the other items to enjoy life.
We are going to open the credit markets to the higher risk borrowers that are less likely to pay back the debt, so we have to charge everyone higher interest rates to lend you the money. This is a blatant lie and an example of how truth is disseminated modernly. We small consumers prior to 1978 were protected by state usury laws limiting credit card interest rates. That is the entire point of the usury laws existing to begin with. That said this limited the availability of credit and extension of credit. Limiting the availability of credit to the masses is also bad. Having the law determine the maximum interest rate is always better than “Joe Loan Shark” choosing an interest rate for a human……..
- This opened the door to blatant discrimination that previously could not exist given there was capped interest rates for all; capping credit card interest rates at 10% ensures the delta/difference for manipulation is far less; we all get the same equal treatment with the same limited interest rates
- When interest rates can be as high as 79% a company can give one person an interest rate of 5% and another 79% under the lie of credit risk; what a massive delta for discrimination creating winners and losers in our FREE market…….
So it is not your credit score or likelihood to pay back the debt controlling interest rates but the law itself, greed and extension of credit to everyone.
There is nothing new about human interaction between humans or how humans interact with Earth. Those in power who are not ignorant just ignore what history has taught us for their own personal financial gain. Our system determined it was in the best interest of all to limit interest rates to limit abuse of the poor. Once that determination is made over years of experience, trials and tribulations, I would call this an absolute. There are certain absolutes in the law and why certain laws exist. You can call it natural law. Limitations on interest were legislated to thwart loan sharking for the benefit of all yet somehow, we reverted back to loan sharking by even more powerful entities: corporations that live on forever. Infinite existence with infinite financial dealings with humans with limited lives. The law got rid of individuals or organized crime from loan sharking and gave the reigns to legal corporations.
It is called capitalism and life is just so short that humans choose themselves over other humans. We are lucky to get 50 good years. The first 18 years, or more, are spent trying to figure out whom you are and if what your parents brainwashed you with is the right or wrong stuff. The next years are traditionally dedicated to making other humans and money to support them gaining experience. The next period can range anywhere from 20 – 50 years or more depending upon the individuals’ finances. Sadly, some humans have to work their entire lives until they die. No human should be forced to die working. So not necessary in 2022.
THERE IS A FORREST BEHIND THE TREES; A BIGGER PICTURE
This saying is about only being able to see the first row of trees yet there is a vast forest behind that cannot be seen. I encourage everyone to research the forest and ignore the first row of trees. You must ignore the first thing you hear or read. There is a reason this is the first thing you are being told. The first row of trees is what leads to commercials advertising how cigarettes are healthy for you. If you did not know this is true it is true. There is always a bigger picture and what you are being shown is rarely the truth.
WHY ARE CORORATIONS PART OF THIS DISCUSSION?
Corporations are part of this discussion because the corporate entity insulates the officer and director humans from personal liability when charging humans loan sharking interest rates. It is the “corporation” doing this not me personally. The “corporation” is a fault. Well, the corporation breaks all the rules of punishment and deterrence our system is based upon. We cannot put a “corporation” in jail or put the “corporation” to death for premeditated willful murder of another human. A “corporation” can commit willful first-degree murder and be fined money for it. A human being will be put in prison and potentially put to death. So, the “corporation” charges you the anti-human financial health interest rates and there is not one single human liable for such an atrocity.
Here is an excerpt from a Federal Reserve article written by Lisa Chen and Gregory Elliehausen published on August 21, 2020.
Trends in Costs of Consumer Finance Companies
Gross revenue of consumer finance companies in 2015 was $29.09 per $100 of receivables (table 1), an amount higher than gross revenue per $100 of receivables in 1964 and 1987 ($21.40 and $24.89, respectively). Total cost in 2015 ($25.19 per $100 of receivables) was also higher in than in the earlier years. Gross revenue less total expenses (net income) is the cost of equity funds. This amount is compensation for owners’ investment on the firm. The cost of equity funds in 2015, $4.80 per $100 of receivables, was more than twice the cost of equity funds in 1964 or 1978.
So I will say that legislating out caps on interest rates significantly expanded the United States economy, hell the world economy, on the backs of working Americans and going into debt. The argument goes now that banks can offer higher interest rates, they can offer credit to higher risk borrowers allowing everyone to have stuff, cars, whatever without having the money to purchase the thing. Previously only high-cost items such as homes and cars had loans. Everything else you had to pay for it all at once or you could not purchase the thing. K-Mart has lay-away for certain items. So, has opening up credit markets to everyone been a good thing? For the rich and powerful of course. For the poor and fragile no.
1968 is apparently the first-year revolving consumer credit was totaled. In 1968 Americans had $1,316,000,000 ($1.3 billion) in revolving consumer credit debt versus $105,455,000,000 ($105 billion) in nonrevolving consumer debt like home or vehicle loans.
In 1968 revolving consumer credit debt was less than 1.5% of total consumer credit debt.
In 1978 revolving consumer credit debt increased to $36.92 billion versus nonrevolving consumer credit debt of $225,840,720,000 ($226 billion). 1978 revolving consumer credit grew to over 6% of total consumer credit debt.
In 2021 revolving consumer credit debt increased to $974 billion versus nonrevolving consumer credit debt of $3.2 trillion. As of 2021 revolving consumer credit grew to over 23% of total consumer credit debt.
That is exponential growth. $974 billion at an average interest rate of what? Ony 6 percent or over 35%? You do the math, and the result is trillions in interest for the poor to pay to obtain credit. Prior to 1978 this was not legally possible for your protection.
Look At The Stock Market Before 1978 and After 1978
Please go to: https://www.macrotrends.net/2324/sp-500-historical-chart-data and look at the chart after 1978. But for a couple of blimps nothing but up for the largest companies in the world. Is this direct evidence or merely a correlation?
How about something like:
THE PERSONAL FINANCIAL DISASTER AND EMERGENCY PRICING ABUSE PREVENTION ACT
So a law exists entitled: The Financial Disaster and Emergency Pricing Abuse Prevention Act barring price gouging during natural disasters and PANDEMICS. Have you heard of enforcement of this Federal Law during the COVID NOVEL CORONA VIRUS PANDEMIC? Yeah, some humans believed they could corner the market on hand sanitizer by doing what would normally be a perfectly legal way to screw people and charge too much. So how about “The PERSONAL Financial Disaster and Emergency Pricing Abuse and Prevention Act? Seems intellectually honest and consistent right?
What is the point protecting humans from one disaster only to leave them entirely exposed to other types of disasters? Is this intellectually honest to you? If someone is starving due to loss of employment, does it really matter how or why they are no longer employed and cannot feed themselves anymore? The important part is they are starving, and it is wrong to take advantage of this persons because they are under this stress. Yet the system has you walking the fence on this one whether you admit it or not. Anyone can buy a 75” television whether they need it or not or can afford or not at this point on credit. There is no credit check when using the credit card. When the card is issued a marginal evaluation of ability to pay back the credit card is made. Understand that doing a thorough evaluation of ability to pay first was taken off the table with the SCOTUS 1978 holding. Do not worry about ability to pay. Just charge a very high interest rate to even it all out. Why treat people fairly and equally when we can just charge 36% interest and we, the big bank corporations, will make money hand over fist no matter what. It is a mathematical certainty. We will CAPITALIZE upon the masses and the masses do not care so what is the problem?
What is bad for one human is bad for all humans. Be stubborn about this. If you believe this and execute on it all humans should be happy and healthy. You do want this right?
You must work on raising the tide, so all ships go up.
Can you honestly believe someone is in their right mind getting a payday loan at 70% or more in interest so they can eat or pay their rent? Or the fees for this short period loan are 150% of the total amount borrowed?
Are you being kept just treading water, your head is just above the water lever, never actually swimming anywhere but you can always see the land?
Seems like prior to 1978 humans had a house, a boat, a motorhome, retirement, and healthcare all while working normal jobs. How a wonderful a world this was. Can you imagine? State and Federal parks did not have admittance fees and the maintenance of the land was all part of your taxes already. This is also back when government buildings would never contain marble. There was a feeling of we are all in the same boat. That changed. I argue our entire economy changed with increased access to credit for all.
Back to The Personal Financial Disaster and Emergency Pricing Abuse Prevention Act. The human seeking a payday loan is under constant mental stress for probably an extremely extended period of time. Unlike someone that is involved in an earthquake or tornado. The earthquake or tornado happens, you deal with it, and hopefully things get better within a year or so. Your personal financial disaster does not register the same as an equally devastating natural disaster. Your personal financial disaster may extend for 10 years or more before there is some sort of finality for the stress and anxiety to go away permanently. Your personal financial disaster should be treated the same way as a personal disaster due to a natural disaster. The stress someone is under is daily when they are coming up short each day on their bills. It is detrimentally affecting their entire life which will also affect yours because you are living in the same world as them. Those things other people are doing you complain about are symptoms of their financial disaster and these symptoms are negatively affecting your life. How about we do things that cure the debt cancer and not just treat the cancer only to have the patient die? Why?
Has Quasi-Deregulation of Caps on Interest Rates Worked?
Has this been a good thing? I say no. As a bankruptcy attorney that has dealt with thousands of humans in financial turmoil, I have to say no. It has just led to financial abuse of those who can least afford it. We humans have been here before. This is nothing new.
There is a reason why we created usury laws and caps on interest rates. We humans lived for many years with no protection from those more powerful holding all the means of production and generational wealth.
Individual humans born with nothing have always and will always needed protection from those that were born with everything. This is an absolute truth regardless of period of history, location on Earth, skin color, or gender. When will humans learn? We must “OUTTHINK INSTINCT” (@ All Rights Reserved 2022) and this is what laws are.
Consumer Credit Levels:
See Federal Reserve: www.federalreserve.gov/releases/g19/hist/cc_hist_sa_levels.html
CIVIL CODE – CIV – TITLE 4. UNLAWFUL CONTRACTS [1667 – 1670.11]
(a) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
(b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.