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[goodcow]

http://money.guardian.co.uk/news_/story/0,1456,1411444,00.html

Up to 70% interest - credit card aimed at the poor
Patrick Collinson
Saturday February 12, 2005
The Guardian

A new credit card aimed at millions of low-income families is to charge interest at up to 70% - the highest ever charged by a credit card company.

Marketed under the slogan: "Stay in control of your budgeting", the typical interest rate on the new Vanquis card will be 49.9%, but for some customers the company judge as high risk, it will be 69.5%. MPs and debt campaigners yesterday condemned the rate, which is 15 times the Bank of England base rate and triple the standard rate on other cards. The card also has an annual fee of £19.

Norman Lamb, Liberal Democrat MP for North Norfolk, who recently completed a Treasury select committee investigation into credit cards, called the rate "staggeringly high". He added: "People on a low income tempted by it need to be given a clear financial health warning." Debt on our Doorstep, an umbrella group that includes Oxfam, credit unions and Church Action on Poverty, said: "It's an absolute disgrace that Vanquis should even be suggesting people borrow money on a credit card at that rate."

Vanquis is a subsidiary of Provident Financial, the biggest doorstep lender in the country, and is the subject of an industry-wide investigation by the Competition Commission into the home credit market.

To find customers, Vanquis will trawl through the files of private credit rating agency Experian - it holds data on almost everyone in Britain - to identify individuals rejected by other lenders often because they have run into debt problems in the past.

It expects the typical customer to have an income of half the national average. Provident Financial's executive directors last year earned from £376,000 to £583,000, while the chief executive saw his pension fund rise from £916,000 to £1.3m.

Vanquis managing director Les Stillwell yesterday defended the national launch of the card, which was successfully piloted in part of Scotland last year. He said: "The big problem with credit card lending is not the interest rate but the amount of credit that is granted. We are only looking at that part of the market where we can lend responsibly.

"People will have to have an income of at least £5,000 a year, and will be given a credit limit starting at just £150. If they keep their payments up, the rate will be reviewed, typically falling by 3-4% a year."

But Debt on our Doorstep said it will now increase pressure on the government to amend the consumer credit bill to include a clause allowing the government to impose a maximum interest rate cap.

 

[ShadowRed]

Isn't there a limit legally on how much interest you can charge someone. Isn't this the same as loan sharking without breaking peoples knee caps.

 

[Crag Dweller]

Isn't there a limit legally on how much interest you can charge someone. Isn't this the same as loan sharking without breaking peoples knee caps.

According to Frontline, no.

There is no federal limit on the interest rate a credit card company can charge.

If you've ever looked at the return address on your statement, you may notice your credit card issuer is located in a state such as South Dakota or Delaware. That's because these are the states that have either weak or no "usury laws" meaning there is no cap on the interest rate that is charged. (View this map that shows the states where the top ten credit card issuers are located.) The federal government once had national usury laws that set a cap on the amount of interest that could be charged on a loan. But after the Great Depression, it repealed them and some states put no new usury laws in place. That's why Citibank, the issuer of Mastercard, moved to South Dakota, which has no cap on interest rates. (For more on the South Dakota story and how the credit card industry took off in the 1980s, read The Ascendancy of the Credit Card Industry.)

http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/

 

[jenov4]

Isn't this the same as loan sharking without breaking peoples knee caps.

IAWTP, this is like borrowing from the mafia. Disgusting!

 

[Diablos]

Um, that should not be legal.

I guess this shouldn't surprise me... England also makes you pay for a license to have a television!

 

[COCKLES]

Um, that should not be legal.

I guess this shouldn't surprise me... England also makes you pay for a license to have a television!

But we don't pay for healthcare!

(contracts TB on a dirty ward)

 

[Greenpanda]

Don't get me wrong, no one should be issuing these cards in good conscience in the first place, but I also have to wonder why anyone would use these cards even if they're available. Isn't it obvious that these interest rates would completely screw you over? If you can't afford the items to begin with, you certainly can't afford them with this much interest! Who keeps using this stuff?

 

[maharg]

*cough* some people may want to read it and notice it's an english company, not an american one.

Anyways, if you actually get to the end they say the credit limit will be 150 pounds to start and the limit goes up and the interest down. I dare say it's almost an interesting idea. At least, so long as the limit really is that low. The issuer is protected to some degree by the high rate of return, while the person getting it has an opportunity to fix their credit rating to some degree by actually paying off a relatively low bill.

 

[GDJustin]

Umm... why shouldn't it be legal? This is capitalism. If it wasn't a service people wanted, this credit card company wouldn't be offering it. If people can't understand that its costing them all that interest money, then thats their problem.

Why do we need a law to not give people the OPTION to pick up a card like that, should they want to?

 

[Phoenix]

There are no federal limits, but most states have maximum limits on interest rates on credit cards and other forms of 'predatory lending'.

 

[Phoenix]

Umm... why shouldn't it be legal? This is capitalism. If it wasn't a service people wanted, this credit card company wouldn't be offering it. If people can't understand that its costing them all that interest money, then thats their problem.

Why do we need a law to not give people the OPTION to pick up a card like that, should they want to?

Capitalism is not a carte blanche to ignore ethics. There are many services that businesses want to offer that are blocked by a variety of state and federal laws or that are greatly limited because of it. People want stem cells, to harvest the organs of the poor, and to work their employees without any of these 'benefits'. Not sure where people get the idea that capitalism doesn't have any limits in this country. The outright exploitation of people in the name of profit is not and should not be allowed in the US or anywhere else. The form of capitalism of which you speak should never be allowed to exist.

 

[Tommie Hu$tle]

Umm... why shouldn't it be legal? This is capitalism. If it wasn't a service people wanted, this credit card company wouldn't be offering it. If people can't understand that its costing them all that interest money, then thats their problem.

Why do we need a law to not give people the OPTION to pick up a card like that, should they want to?

Why should slavery be illegal? It surely falls in line with capitalism. I'm sure people could use a slave or two around the house. A good business stragety should be based on someone's ability to pay. If they can't pay then they shouldn't be offered cards. You can get better rates from loan sharks. Just because you can do something doesn't mean that you should.

 

[M3Freak]

There's a federal limit here in Canada. I believe it's 59.9% (still too high, in my opnion, but it's a limit).

 

[Mama Smurf]

Um, that should not be legal.

I guess this shouldn't surprise me... England also makes you pay for a license to have a television!

Well, it does pay for BBC shows and means no adverts.

Though we have in the past charged someone who was wrongly convicted of murder and released after tens of years for the food and shelter he was provided with in prison.

 

[trilobyte]

That reminds me. My credit card bill is 3k this month

 

[maharg]

There's a federal limit here in Canada. I believe it's 59.9% (still too high, in my opnion, but it's a limit).

Mind you, that limit includes fees and is on the 'real' interest rate as opposed to the 'per annum' rate. So the limit on interest rates as people are actually aware of them (because they're always listed as per annum and not including service charges) is actually a fair bit lower at normal compounding rates.