

Remember when people on reddit had a clue? - run4yourlives
http://reddit.com/r/science/info/66h9l/comments/c02zjj2

======
cperciva
A shockingly large number of Americans don't understand how debt works. I
suppose this must apply to people in other countries as well, but I haven't
noticed as much fiscal ignorance coming from non-Americans. Among the crazy
comments I've heard recently from outraged Americans:

"You can't take away my house just because I stopped making mortgage payments!
I live here!"

"I missed three credit card payments, and now the credit card company has
raised the interest rate from 16% up to 28%! That should be illegal!"

Maybe people are just taking cues from the US government -- after all, if the
government is going into debt by over a thousand dollars per year per person,
why shouldn't individual Americans?

~~~
disconnect
"I missed three credit card payments, and now the credit card company has
raised the interest rate from 16% up to 28%! That should be illegal!"

Where I live the national limit on interest for Credit Cards is 16%, no ifs,
no buts. If credit card companies benefit when people miss their payments they
have an incentive to give credit cards to people who can't afford them. This,
in turn, reduces the general level of prosperity in the country.

So, why do you think it -should- be legal for CC companies to raise the
interest rates to absurd levels?

~~~
cperciva
_why do you think it -should- be legal for CC companies to raise the interest
rates to absurd levels?_

Because someone who misses three credit card payments -- I'm not talking about
someone who doesn't pay off the credit card completely, I'm talking about
someone who doesn't even make the minimum payment -- has a significant
likelyhood of going bankrupt and never paying off the debt.

Not making credit card payments on time exposes you as a poor credit risk; why
should those of us who _are_ good credit risks pay higher rates to subsize
you?

~~~
yters
A. Higher interests rates for people who can't pay to begin with isn't going
to get them more money.

B. Don't give credit cards to people who historically pay badly.

In my opinion, greed on the part of the CC companies is also to blame, besides
financially stupid creditees.

~~~
cperciva
_A. Higher interests rates for people who can't pay to begin with isn't going
to get them more money._

As a matter of fact, it does. In bankruptcy, assets are divided between
creditors of the same class (in this case, the class of unsecured creditors)
in proportion to the size of debts they hold; a credit card company which
records a higher rate of interest ends up getting a bigger slice of the pie.

 _B. Don't give credit cards to people who historically pay badly._

Credit card companies do this too -- if you have a poor credit rating to start
with, you'll find it hard to get a credit card; and if you start with a good
credit rating but start not paying your bills, there's a good chance that the
credit card company will lower your credit limit.

~~~
sanj
"a credit card company which records a higher rate of interest ends up getting
a bigger slice of the pie"

That's fascinating. So there's a clear financial incentive to drive the rates
up quickly as soon as there's a sign of trouble

Would it make sense to remove that incentive? For example, slice the pie based
on principal rather than principal+interest? Or to add in some consistent rate
of interest across all creditors?

~~~
yters
Yeah, that's what I was thinking. Absurdly high interest rates clearly seem a
form of theft on the part of the CC company.

------
mynameishere
That really wasn't that bad as far as reddit goes. In spirit, he's somewhat
correct: Mortgages are different in that the house is collateral. The things
bought with credit card debt [1] are usually long gone before bankruptcy
strikes. In some cases, a forfeited house could actually be a net gain for the
bank when a person defaults. The big problem now is that people will be losing
400K houses on 600K loans.

[1] Or government debt.

------
gojomo
Previously in News.YC:

This is what happens when you lend money to poor people
<http://news.ycombinator.com/item?id=50853>

"Turns out, if you're poor, you don't need to pay lawyers. You don't like the
deal you just wave your hands in the air and moan about how poor you are. Then
you default."

Then there's SNL's take:

"That's why I've developed this unique new program for managing your debt.
It's called, 'Don't Buy Stuff You Cannot Afford'."

[http://consumerist.com/consumer/clips/snl-skit-dont-buy-
stuf...](http://consumerist.com/consumer/clips/snl-skit-dont-buy-stuff-you-
cant-afford-252491.php)

