>>>>We're subsidizing deadbeats in housing on the backs of the responsible, why should credit cards be any different?
>>>
>>>Looked at another way the 'deadbeats' are subsidising you (and me): The credit card companies can only afford to give us free credit by gouging those who cannot pay in full with almost extortionate interest rates. Why would it not be fairer if everyone who used a credit card was charged a reasonable lower rate of interest from the time the purchase was made?
>>
>>Um, no. Credit card issuers nominally fund their operations through various charges to merchants, which can be as high as 3-4% of purchases.
>
>I'm sure retailers factor this into their pricing. The purchaser pays the cost in the end. And I think only small retailers pay the higher rate. A vast majority of transactions aren't incurring those charge levels.

It costs retailers money to handle *any* kind of payment, so yes, a typical retailer will build in transaction costs to their prices. CC issuers would have you believe, and it may even be true, that their merchant fees are comparable to, or in some cases even less than the cost of handling cash.

But I think we agree that issuer operations are funded through merchant fees, not excess profits from deadbeats. Offering unsecured loans via revolving credit is a separate business.

>
>>
>>By allowing consumers to run balances on their cards, card issuers are basically engaging in offering unsecured credit. That's a risky business, they deserve a decent ROI.
>
>Define 'decent'. I see the current average rate is 14.7%. It can be well over 25%. What's the current central bank lending rate now? 1%?

"Decent" is the intersection of the lowest rate competitive institutions can offer, and the highest rate that informed consumers are willing to pay.

I worked for a while with an unsecured-credit company. During my time with them, payday loans started becoming the "big thing" in that field. It's an ugly business (effective APRs of several hundred percent +), and the company didn't want to get into it, but they actually felt ethically compelled to do so in order to bring competitive rates and reasonable legal terms to these loans in Canada. One of their early innovations was that if a payday loan was paid off in full on or before the due date, there was *no* charge for the loan - neither fees nor interest. Rather than gouging those least able to pay, they were offering a leg-up.

I don't know how much experience you have with unsecured or sub-prime lending, but IME a lot of those borrowers would be ecstatic to pay 14.7% or even 25%.

>
>>Issuers have become better at managing these lending risks, so their profitability during the recent economic boom was very good - in some cases, forming the bulk of the profit of the parent institution. It remains to be seen how their profits hold up in the current downturn.
>>
>>While in general no-one is forced to use credit cards and take on associated debt, there are some potentials for abuse that require either competition or regulation to keep under control e.g.
>>
>>- For those who do run a balance (perhaps temporarily), the issuer should not be able to grossly change lending terms unilaterally, because the borrower may not be able to refinance elsewhere
>
>No argument there. Raising the interest rate above what it was when the debt was incurred when interest rates are lower than at that time seems indefensible to me.
>
>>- There aren't that many cards that are widely used/accepted e.g. Visa, MC, AmEx. There is the potential for collusion/price fixing. Some of what looks like competition really isn't e.g. various retailer cards are really just farmed back to one of the biggies, with a markup tagged on, so the retailer card terms are usually worse than the big guys.
>
>True.