Issue #69
Last Update October 31, 2010
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Finance Usury by Gert Innsry September 30, 2009 In the good old days (pre Reagan) there were usury laws that kept the lid on gauging by banks and credit card companies. Maximum interest rates were set that provided a fair rate of return to the lender, while ensuring that a steady stream of modest payments would get the borrower out of debt. The stagflation of the late 1970's put an end to that. With inflation-driven interest rates in the double digits, the usury laws had to be weakened for any lending to take place at all. Unfortunately, as with most economic matters, the free-market, get the government out of my hair so we can all get rich ideology resulted in the baby being thrown out with the bath water. Instead of pegging interest rates to inflation, resulting in a fair rate that allowed banks to profit, the usury statutes were all but eliminated, leaving banks and credit card companies free to charge whatever rates and fees, at whatever terms they wanted. While inflation (and the bank lending rate) remained high, the gauging remained invisible. Now that inflation is nonexistent, the true scope of greed and arrogance has become obvious. It's time to rein the banks and credit card companies in.
To eliminate the most egregious anti-consumer practices, the following measures should be enacted:
1. Peg consumer rates to the interbank lending rate plus six percent (the actual percentage is negotiable; the general principle is not). If inflation rears its head again (not likely soon), the interbank rate will rise, the permitted consumer rate will rise, and the banks will be protected, while maintaining a fair rate for the borrower.
2. Forbid the cancellation of credit cards except for accounts more than sixty days in arrears.
3. Limit late fees to a maximum of ½ of 1% of the balance, or two month's interest on the minimum payment due, whichever is lower.
4. Set the payment due date for any credit card invoice to be 35 days from the mailing date. This would eliminate the current practice of the borrower receiving his credit card bill two to three weeks before the due date, rather than a full month.
5. Forbid interest rate hikes for any reason other than a rise in the interbank lending rate.
6. Set the minimum payment due as the interest on the average balance for the month plus 1/60 of the outstanding balance.
The banks and credit card companies will kick and scream, of course, but their behavior lately has forfeited any claim to sympathy, and their incompetence has eliminated any claim that they know how an economy should be run. It's time to give the ordinary citizen a break and put a stop to intolerable behavior.
New York Stringer is published by NYStringer.com. For all communications, contact David Katz, Editor and Publisher, at david@nystringer.com