An analysis of the proposed 10% cap on credit card interest rates, arguing that it will harm borrowers, drive them to predatory lenders, and ultimately fail to achieve its intended goal.
Most economically literate individuals understand that price controls are generally detrimental, leading to issues like shortages and rationing of goods and services. However, when it comes to credit cards, this understanding of price controls seems to vanish.
Senator Josh Hawley, a Republican from Missouri, and Senator Bernie Sanders, an Independent from Vermont, have joined forces to propose an arbitrary 10% cap on credit card interest rates, an idea that President Donald Trump previously floated during his campaign. While Trump has an impressive track record of keeping his promises, this is one that should not be fulfilled. It's crucial to acknowledge that credit card interest rates are excessively high and widely considered disgraceful. I personally advocate against using debt for personal spending and believe that balances should only be carried in cases of genuine emergencies. I have never run a credit card balance month-to-month and encourage everyone to purchase only what they can afford. However, I also oppose government intervention in personal financial decisions, even for activities I might deem unwise, such as gambling or buying expensive cars.Similarly, while I recognize the moral concerns surrounding 'usury,' I believe the government should not dictate private credit underwriting or decisions. Access to credit, in my view, should be reserved for worthwhile investments, but determining who deserves access is not the government's role. Imposing a 10% cap on credit card interest will likely restrict legal access to credit for many individuals, particularly those in the middle and lower classes. This cap, especially in a high-interest rate environment, will drive many away from traditional financial institutions, forcing them to seek credit from less reputable sources with potentially exploitative terms. Furthermore, any arbitrary number chosen for an interest rate cap, without a sound financial basis like a fixed rate above the Secured Overnight Financing Rate (SOFR), should be disregarded. Good intentions do not always translate to positive outcomes. While I agree that credit card rates are too high and encourage responsible spending habits, I believe individuals should make their own financial choices. Financial literacy and personal responsibility are the most effective ways to combat high credit card rates. The government, which grapples with its own significant debt issues, should perhaps prioritize addressing its own financial standing before intervening in the private sector
Economics Politics CREDIT CARD INTEREST PRICE CONTROLS FINANCIAL LITERACY GOVERNMENT REGULATION PREDATORY LENDING
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