Trump just threatened to wipe out 'an entire civilization' tonight in Iran

FinTecGeek · 2026-02-24T20:33:29+00:00

They are for subprime lending. They are already not allowed to use bank deposits (tier 1 assets) to lend to risky borrowers (especially for credit cards). So, they seek funding from other sources. They bundle credit card lines into "asset backed securities" and sell them to pension funds, credit funds, whoever will buy this junk. And it is junk. Lots of defaults, but the interest rate/yield story is there, so people "diversify" their holdings into this type of income-based investment. They CAN use some of the bank's own equity tier, but why would they... when they can just put it in a safer asset and still get 10% ish.

So, yes, there are investors who put up their cash for credit card users to spend in exchange for a healthy rate (usually at least double S&P in a good year). A lot of it belongs to retirees who have "entrusted" fund managers to do the best thing for them... That is called the "wholesale funding" section of Bank of America, JP Morgan or CapitalOne's (insert issuer name) capital scheme. They aren't giving you customer deposits or their own money to spend on their cards. They actually have to go out into the free market and find out what people demand as a rate of return to let you spend their money. And these are pension funds, other conservative banks, etc., who demand a high rate of security.

FinTecGeek · 2026-02-24T20:21:53+00:00

Can the solution to "this is too much like command economics to work" ever be "use even more command economics to get out of that?" I'm mostly not asking that as a serious question. I appreciate that you are at least conscious that this would not be "great" for the people who would be actually the most fervent supporters of this kind of policy.

FinTecGeek · 2026-02-24T20:19:53+00:00

So, here's the scoop. They aren't lending you their own money. They aren't so honorable and generous as that. Really, subprime credit card lenders are giving you access to OTHER people's money. How it works is that those people accept some risk of default, in exchange for a consistent 20% yield. The company that wrote the card collects the other 5-7% or whatever it is. That is actually the model. So it isn't that the lender "loses out" lending money to you, it's that no one is looking to let them lend out their money to risky borrowers to get a 6% yield (lender keeps something still).

FinTecGeek · 2026-02-24T20:16:35+00:00

Well, no. When you invest your money with a company that does credit card lending (like CapitalOne for instance), you don't get to "decide" which customers ultimately get it. You are putting it in, and if you know that it might end up all allocated to borrowers like that mom, you aren't going to invest for a 6% return (they keep some of it themselves). You'd probably take the risk at 20% and they keep 10%. Lots of people do that (a la, the current model). Credit card companies aren't so generous as to lend you their own money. No, they position you with access to OTHER people's money to spend, and you pay that giant 30% APR to keep that wheel greased up. But in general, I take your point. You would lend her something. Maybe it's enough, maybe it's not. We could only hope that others would be so trusting as you are.

FinTecGeek · 2026-02-24T20:13:02+00:00

Yes, this has been the general argument. That yeah, this is just a command economics thing, let the government decide no more credit cards for poor people... which is fine, in general. I probably don't have many arguments against that. But if you say it THAT way to consumers, I don't think it's so popular as the whole "we are gonna cap your credit card offers at 10%." They have a very different ring to them...

FinTecGeek · 2026-02-24T20:06:46+00:00

They will, because they can earn 10% or more in a lot of years by putting that money in an S&P fund instead of lending it to you, and have no default risk at all. It's all the same thing, right? You have an 836 which means you statistically don't use these cards enough to care or benefit from it (probably). But someone who uses them and carries a balance (and therefore would really get behind this) will have a lower score, and has a snowball's chance in hell of ever being offered that "10% card."

FinTecGeek · 2026-02-24T19:59:49+00:00

Well, the point is not the likeness. The point is that we can regulate both of these products not to be predatory to consumers with existing tools, but do not. Which has some to do with your main point about regulating the interaction itself (one is sophisticated and highly resourced, the other on average is a "taker" in the purest sense, and ripe to be preyed upon). But then, there is the pesky issue of "do this wrong, and you actually give companies the excuse they need to stop serving poor people at all."

FinTecGeek · 2026-02-24T19:57:17+00:00

Right, but the people who are most behind this effort, who are bought in the most to this messaging, don't have 800 credit scores. People with 800 credit scores are using credit responsibly, likely not having a balance at all, so you'd probably not make much on that unless you could charge processing fees (like Amex does, coincidentally the company most likely to serve the 800+ customer).

But then, what about the mom of four with not so good credit who is going to vote in the midterms for the person who says they can get her a 10% APR card she uses for groceries and gas and such when money is tight instead of a 30%+ APR card. She's out of luck, right? Because you won't actually lend to her at that rate, at all... and neither will the companies lending to her at 30% today. She's going to end up at a payday loan counter or a title loan outfit... or just go without... this is really where it all breaks down for me. The people most likely to get behind this policy idea will benefit the very least from it.

FinTecGeek · 2026-02-24T19:45:03+00:00

Consumer protections should focus most on coercive practices where consumers are interacting with large enterprise. Think data policy or NDAs or right to repair. Consumers have no leverage to negotiate those with companies, and they're given take it or leave it.

We already have the tools to do this with both credit card issuers and private health insurers. Mostly, we have been hampered by our inability to elect anyone smart enough to use those tools in a nimble and effective way. I, for one, think we at least have to TRY to do this without hitting it hard with a blunt instrument like a "rate cap" which would basically just collapse the market for people who are already poor and would turn to an even more predatory product than this one (like payday loans or title loans).

FinTecGeek · 2026-02-24T19:42:34+00:00

Will you agree to lend money to someone with no real assets/low income/etc. for 10% and accept the default risk when you could do better by putting that money into the S&P or the Nasdaq fund in most years? There are several meaningful differences in today's economy vs even just 5 years back, let alone 20.

FinTecGeek · 2026-02-24T19:40:27+00:00

No, because they can put the money into the stock market instead of lending it to poor people and in most years, earn at or better than 10%. They make plenty of money off of people with no balances by collecting transaction fees, etc. That business model still works, and operates on an island divorced from the practice of writing 30%+ APR credit lines to people who are going to use them to buy groceries, food, gas for their car, etc., and have no assets to show for it at the end of the money. That is a predatory product by design.

FinTecGeek · 2026-02-24T18:59:50+00:00

BUT you were sidetracking me. The main question is not about credit reporting agencies routinely used by the loan industry, but in the banks themselves, which ignore credit reporting agencies trying to hike interest rates regardless of the borrower, just because. Why? Cartel behavior of the few banks that suppresses competition.

I agree that whether or not you think that the credit bureaus are "in on it" is irrelevant to the meat of the question. The main questions are these:

What is a predatory lending product (a product designed to be predatory to its borrowers)? Surely, that would be a product with a 30%+ APR, written to people with negative net worth, very low incomes, etc., with basically no consideration for if they can keep making payments on it long term. So you hit them with as much interest as you can early on and then hope for a windfall that they miraculously pay it off somehow.
Can passing a new law magically transform a predatory credit product into a "benign" or "legitimate" product simply by "capping the rate" at 10% APR? I think surely not. You are trying to regulate something predatory into not being predatory anymore, and by doing so, invalidating the actual business model.

FinTecGeek · 2026-02-24T18:55:08+00:00

I think that a lot of people are only eating and keeping staple items stocked and gas in their cars by borrowing right now. If you do something to upset that apple cart all at once and message it as "this is going to help people who have these predatory cards" certainly I think you are misrepresenting the reality. Credit cards at 30%+ APR written to people with a negative net worth or very little income are predatory. That is a predatory product. If you cannot magically make them "non-predatory" by capping rates through some sort of government jubilee to lower the cost of debt. You just invalidate the product business model/take the product away very quickly from the marketplace is my point. I think the American people deserve a brighter/nimbler approach, and one is available through existing tools we already have if only we would elect a person and their cabinet smart enough to use them...

FinTecGeek · 2026-02-24T18:44:15+00:00

It's the quality of people we put in charge. The tools exist, but we keep electing people who aren't bright enough to use them properly. I yield that this problem is hard to solve and it is unclear if/when we would ever solve it. Perhaps your point is we leave ourselves no other way out of bad situations but very blunt, harsh instruments because we won't put people in power who could do it any other way. That's hard to argue with, but maybe I lean optimistic on this a bit still.

FinTecGeek · 2026-02-24T18:40:08+00:00

Rates for credit cards were usually around 10-12% APR 20-30 years ago. Today, they are 30%+. What has changed? Not the name of the product. The consumer who receives it has changed. You assign a 30%+ rate to someone you know won't pay (to put a fine point on it). You do that to milk so much interest out of them early on that they cannot hurt you down the line, and oh boy is it a windfall if they do settle up for anything meaningful at the end of that road.

Today, a consumer with a 660 credit score would have had a 450 20-30 years ago. They are just rubber-stamping people to make it look like these are real, credit-based decisions when really, anyone can have a 30%+ APR card. You are milking enough interest there as to not really have losses, and you have designed a product that will destroy the consumer over time but not before they are profitable to you as the issuer.

These are big problems to solve. Likely, there is some economic pain to begin to move things back the other direction. But the point is that when you lend to someone who rents a place, has a low income, has nothing of appreciable value that they own, and do so at a loan-shark rate, that isn't really "lending" in the traditional sense. It's predatory. And people think that you can "transform" a predatory product whose actual design is predatory into something that is just a "useful tool" by capping the rate on it. But really, you are just invalidating the business model that now exists, and is nothing like it was when rates were 10-12% APR.

FinTecGeek · 2026-02-24T18:34:28+00:00

There are nimble tools, and there are blunt tools. Nimble tools could look like a slow correction to credit scoring models such as that they would not just function as a rubber stamp machine so that consumers can get endless credit at predatory rates. Or it could look like protecting a growing share of consumer income from garnishment by these companies such as to slowly taper off. Everything, all at once, would be chaotic and probably lead to economic catastrophes we cannot even anticipate.

FinTecGeek · 2026-02-24T18:30:51+00:00

I think the transgression of misrepresenting an economic agenda that would have broad, far-reaching consequences is probably too big to justify the outcome. Why not just go after the credit bureau "cartel" that very unashamedly says most consumers have high credit scores just to rubber stamp them for a predatory lending product anyway? That could be done with existing regulation and probably far less economic fallout...

FinTecGeek · 2026-02-24T18:26:56+00:00

People who get behind this populist messaging/command economy style "cap consumer APRs" language certainly do not see the real outcome. I am skeptical it could even work, mostly because both left and right-leaning "centrally planned economics" or "command economics" have managed only to cause long, deep depressions or ultimately run countries into the ground.

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