Interest RatesMarch 12, 2009 at 4:11 pm | Posted in Economoney | 1 Comment
One of the things that’s appalled me for a long time is the interest rates many organizations charge. And how many people carry balances on same and accept those rates. In many cases the rates are not fixed but are more about your willingness to pay. If you ask and have met your end of the bargain (paid on time), they’ll often cut your rate in half. But if you get behind, they often crank the rates way up making it more difficult to repay. They’re not trying to help you, they’re assigning you a risk factor. Yet their own actions contribute to the perceived risk.
In our legal structure, a corporation is a “person” yet it’s notable how most such “persons” come to treat actual persons like a number. This is typical enough that we accept it, even taking it personally. Plus, we attach a stigma to getting caught by fine print or getting a little behind and thus don’t seek the free help that’s available across North America. Schools teach us how to balance weights but not a budget. We’re inundated with advertising telling us what we need. The system has evolved to get us in debt and keep us there. The government too. Why make profit on just the sale when you can get ’em to keep paying for it. The problem with such a system is that when enough people play the game, the system starts running on debt rather than production. And that’s a house of cards with an end game.
Personally, I try to boycott companies who behave this way but it’s so prevalent that it can be more about avoiding the worst offenders or the ‘financial’ services of the others.
I’ve taken to using Interac rather than credit as it’s a much more viable way to run a budget. Interac is also non-profit, although the banks are lobbying to change that. We’ll see who’s side the legislators are on. While Interac marginally increases the cost of purchases, it’s much lower than credit, pays the vendor immediately, and gives me a running tally of spending. It also sets what you can actually afford to your current cash balance. Simple.
In the early ’80’s, the prime rate soared and lenders pushed their rates up with it. When interest rates settled lower, many lenders came down only a little. Some stayed up close to 30%. Many charge rates like a sales flyer, such as 19.97%. Sounds better than 20%. I find it useful to round up prices and rates to give a better sense of the actual cost, but suppliers will correct you on the .03% (laughs)
When prime rates hit their lowest, bank rates dropped accordingly but not many other loaners like credit cards. Certainly, some of them have higher money costs, but not by the margins they were asking.
Low rates created a quandary for banks. With lower margins, they needed to find new sources of income to maintain their profit. Especially when their credit card divisions were doing so well. Thus came all the fees while their costs were going down. And thus they ventured into ever higher risk scenarios. And thus arose the mortgage crisis in the US. And the investment scheme failures. And some of the other scams. Of course, it also took consumers and brokers willing to ignore the viability of the transactions.
Recently I read an article in a local rag (not on-line as it was apparently not deemed important enough) that obtained some documentation through Freedom of Information legislation. Canadian federal government legislation sets interest rates over 60% as criminal usury. Payday loan companies have become aware that they could be subject to class action lawsuits because of the way they charge interest. They have lobbied the provincial government (BC) to table legislation bypassing this, allowing charges of up to 600%!
And I was sobered by the rates micro-loans go for.
Not sure which is worse – the corporate greed that prays on the poor or that people are willing to consider such terms legal and acceptable. The loan companies argument was that they provide jobs. The question I would ask is why those jobs have to be at the expense of the people they are supposed to serve. And why the government even entertains this.
As long as we place the corporate person first, the real person will suffer. What’s the point of business and government if it doesn’t serve real people? Naive? I call it keeping things in perspective.