I’ve always been skeptical when I hear the government is going to try to regulate something that would otherwise balance through supply and demand. Credit card rates are no different. I respect that President Obama is trying to fix what he sees as broken or unfair, but some things don’t require fixing. There are those whose credit scores are low enough that their risk of default is high. It would be natural that those customers would see rates higher than those with good credit scores. Recently, news broke that Obama is planning to introduce legislation which would cap the rates card issuers could charge. So far, that cap appears to be 15%.
My fear is that when you put a price limit on something, you get less of it. If banks are forced to put a cap on their rates, I’m expecting they’ll simply cancel many cards, and offer their own FICO score floor, below which, they won’t offer any credit. This will result in a worsening of the current recession, and will have the unintended consequence of reduced spending and tighter credit. To be clear, I have no love of banks, and I think that anyone with a rate above 12% should do their best to negotiate a better rate or pay it off and cancel their card.