Interesting to note too that at the same time all this is going on, Citibank is jacking up credit card interest rates to 29.9% for many of its customers:
I actually have personal experience with this. I got a letter from my credit card company saying there was going to be a 20% interest rate hike on my card. It's pretty embarassing to admit I have a credit card with a sizable balance on it, but I'd like to point out that my company gave an easy way out:
I was allowed to "opt-out" of my card to avoid having the interest rate hike affect my existing balance. This means my account is not closed, but I am not allowed to use the card anymore and my balance is still charged the pre-existing interest rate. I have no need to use this card, it is mainly a towering specter of shameful debt to be paid down, so this option was a dream come true.
Stop that! There is nothing "shameful" about borrowing money. Nothing!
Banks exist for a reason, and that reason isn't going away any time soon. People and businesses need liquidity and while you should always carefully manage your financial situation, saving up your pennies for years because you need/want a $25,000 car is silly if you can get a loan right now that you are perfectly capable of servicing.
Simplifying slightly, the way consumer credit works is, if you expect 10% of your customers to default then you need to change 10% interest to even break even, let alone cover your administrative costs, and let alone to make a profit. If you are in a market segment that has somewhere near 30% chance of defaulting then your options are a) a 30% credit card b) no credit at all.
It's not a question of chance of failure but rate of failure. If 10% of your customers failed every 10 years then you could make a lot of money at 10%APR compounded monthly. You can also be extremely profitable with a 3% failure rate per month and 30% interest rate, because you can sell that bad debt for more than 0$.
PS: How it's called an APR when they charge you APR / 12 per month is beyond me.
http://www.associatedcontent.com/article/2370258/citibank_ra...
Laughing all the way to the bank indeed...