Okay, I’m sitting here staring at some numbers that are unbelievable. Do I have this right? Check me on it.
Bilabial frictive suggested the other day that usury laws should be reformed to trim credit card interest rates. I agree. The suggested ceiling seems like a good one: prime plus 10%.
If my calculations are right, that would equal an immediate $122-billion injection into strapped American households. Holy crap.
Jump for the math.
I got to that number using a couple of (frightening) facts from bankrate.com:
• The average person with at least one credit card owes $9,205 in credit card debt. (That’s triple what it was in 1990.)
• The average interest rate is $18.9%
• There are 1.2 billion cards issued in the U.S.
• 60% of the cards are not paid off monthly, and therefore, interest would apply.
• The latest per-card statistic I could find came not from Bankrate, but from a 2004 report by TransUnion, and indicated the average balance of a single card was roughly $3,000. I suspect that number is significantly higher now, but can’t find more recent data, so let’s be conservative (I don’t say that very often) and go with that figure.
Now for the math blizzard. So, if 60% of 1.2 billion cards are not paid off, that’s 720-million cards with monthly interest costs.
Because the average balance for each of those cards is $3,000 and the average interest rate is 18.9%, then the average paid in interest TODAY is $567 per year, per card. (Incidentally, the average household has three cards)
If the rate ceiling was capped at prime plus 10%, the highest possible credit card rate right now would be 13.25%. A balance of $3,000 at 13.25% would cost $397 in annual interest—a savings of $170 per card.
Now the bottom line. If you save $170 per card on 720-million cards, that’s a total of $122,400,000,000 saved. That’s $122-BILLION.
Again—did I forget to carry a 1 or something? Lord Almighty.
Just to summarize. That’s an amount equal to 15% of the stimulus plan, going immediately and directly to families (although we should point out to our Republican friends that many business would enjoy the interest break too) AND IT WOULDN’T COST THE GOVERNMENT A PENNY. In addition, it would happen again year after year until the usury cap was lifted. I suspect banks would see a lower default rate ultimately, and many consumers would be able to improve their credit score and secure loans for which they are currently turned down.
Why aren’t we doing this? The only downside I can see is, banks would raise rates on preferred customers to make up the difference. Thoughts on preventing that?