What does a TRUMP presidency look like?

[Oexmelin]

I am guessing you are assuming that credit cards will cease to exist for a percentage of the population if the maximal interest rate is lower, and that therefore, I should burden my conscience with the consequences of that hypothetical scenario?

[Monoriu]

I am assuming that this has no chance of becoming law?

[Admiral Yi]

I am guessing you are assuming that credit cards will cease to exist for a percentage of the population if the maximal interest rate is lower, and that therefore, I should burden my conscience with the consequences of that hypothetical scenario?

Correct.

[Oexmelin]

Work me through the current appeal of lending to poor people for banks right now, and their subsequent lack of availability.

[Admiral Yi]

Work me through the current appeal of lending to poor people for banks right now, and their subsequent lack of availability.

The appeal for banks is making money.

For society/you/the poor people the appeals are:

1. Establishing a credit history.

2. Flexibility in budgeting.

3. Internet purchases.

[Camerus]

If you're lending to people with a high probability of defaulting, the best way to ensure that you don't lose money from all the defaults that you're going to be facing is by making sure the interest rate is high enough, so that you're still making money from the people that do pay back minus the money that you're losing to the deadbeats.

If the interest rate is capped at a lower level, there's less money coming in  to recoup the losses that you face from lending to people with poor credit, and so the easiest way is to simply cut those people out altogether.

Those people will then turn to payday loan sharks and other less savoury lenders.

[Oexmelin]

If you're lending to people with a high probability of defaulting, the best way to ensure that you don't lose money from all the defaults that you're going to be facing is by making sure the interest rate is high enough, so that you're still making money from the people that do pay back minus the money that you're losing to the deadbeats.

Yes, I know this is the "what ought to happen", but is that what actually happens? My understanding is that the calculation is actually quite the reverse: banks decide how much they can gut you before their own actions force you to default, rather than how much they charge you to compensate the risk you represent. Banks would still make money - just not as much. And if the big banks are not interested, I am sure the champions of the free market will point out that it opens up a new market for less greedy corps.

[celedhring]

Over here the limit is set against the market average (something like 2x the market average IIRC), but it's extremely vague (there's no clear guideline for the comparison) which means banks can regularly charge you more and it's up to you to risk taking them to court.

[Monoriu]

There is a limit in Hong Kong, and I think it is 60%.  Loan sharks get around it by charging "fees" in addition to interest. 

[jimmy olsen]

AR has a good point.  When interbank lending rates are in the 6-8% range, a 15% interest rate is not that extreme; but when benchmark rates are 2-3 percent, 15 percent is extremely high.  It's hard to see a strategy that requires higher rates for profitability, other than deliberately lending to people on the assumption they will default on principal, but not before paying off such large amounts of interest as to make it profitable even assuming a principal write-off.  That doesn't seem like a transaction with high social value.

Isn't this aimed at shutting down pay day loan places?

They're a scourge on the poor.

Any ways, Trump is dumb #32646
https://www.ccn.com/dow-risks-cataclysmic-collapse-after-trump-blindsides-stock-market

DOW WOULD PLUMMET 15% IF TRADE TALKS BREAK DOWN
Trump's inflammatory trade war commentary has already pummeled China's stock market – the SSE Composite slid 1.48% on Thursday – but Wall Street analysts warn that cooling negotiations could hamstring US stocks as well.

sse composite china stock market
Trump's inflammatory trade war rhetoric has punished Chinese stocks over the past week. | Source: Yahoo Finance

According to UBS, the Dow risks a 15% percent correction if trade talks break down.

Goldman Sachs predicted that nine of the DJIA's 30 members would suffer disproportionate losses, including Coca-Cola, Exxon Mobil, Intel, Boeing, Chevron, and Pfizer.

Conversely, Apple, Visa, and Walt Disney should weather a trade war without much difficulty.

[dps]

AR has a good point.  When interbank lending rates are in the 6-8% range, a 15% interest rate is not that extreme; but when benchmark rates are 2-3 percent, 15 percent is extremely high.  It's hard to see a strategy that requires higher rates for profitability, other than deliberately lending to people on the assumption they will default on principal, but not before paying off such large amounts of interest as to make it profitable even assuming a principal write-off.  That doesn't seem like a transaction with high social value.

Isn't this aimed at shutting down pay day loan places?

Well, the bit posted by Tamas referred to credit card interest rates, so if the quote was accurate, either no, or Bernie and co. even more nutty that I thought.

[jimmy olsen]

Explicitly calls out payday lenders.

How is it nutty, pay day lenders are far closer to loan sharks than credit card companies. If I had to choose between regulating one or the other it would definitely be pay day lenders.
https://www.cnbc.com/2019/05/09/bernie-sanders-aoc-will-unveil-plan-to-cap-credit-card-interest-rates.html

"Today, we're telling Wall Street and the payday lenders that enough is enough," Sanders said in joint remarks with Ocasio-Cortez streamed on Twitter. The Vermont independent told The Washington Post, which first reported the plan, he was "sure" it would face criticism, but added, "Maybe Congress should stand up for ordinary people."

[Tamas]

Main point is: if there's demand for something, that demand will be supplied.

Now I am not saying that ANY oversight into the lending market is bad, quite the contrary, but saying that ITS FIFTEEN PERCENT AND NOT A CENT MORE just drives people to illegal loan sharks who are NOT payday lenders.

Payday lenders are scum of the earth but they rip off the poor and helpless in broad daylight and their victims have legal ways to get out of under their thumb. But you can't declare bankrupcy to a criminal.

[Savonarola]

I am assuming that this has no chance of becoming law?

Of course not; Senator Sanders after 28 years in congress has sponsored three bills that were signed into law, two of which were for renaming post offices.  This isn't going to be number four and he knows it.  Right now there's an enormous field of contenders for the Democratic nominee for president; candidates are going to lengths to grab headlines.  Senator Booker, who is also running for president, recently introduced a bill to study the possibility of reparations for slavery; something which certainly is not going to happen in Mitch McConnell's Senate.

[Malthus]

Main point is: if there's demand for something, that demand will be supplied.

This is true of everything; but making supply of certain things really, really difficult has value. The issue is the balance of social utility of preventing the thing supplied versus the costs and unintended consequences of the effort to stopper up the supply.

To take an extreme example: if someone is well-connected or wealthy enough, it is possible to hire thugs to break other people's legs. The fact that loansharks do this is one of the reasons why the argument 'we prefer the banks doing it legally to the loansharks doing it illegally' has some merit: the banks, presumably, won't break your legs if you default.

However, the argument 'if there is a demand for leg-breaking, that demand will be supplied [therefore we should not try to stop it]' isn't very convincing, even though the first part is probably true!

Rather, we ought to look at the issue rationally and come up with solutions to the actual problems.

These problems come from at least two sources:

1.  Wages have stagnated while costs have risen, and sources of stability (like long-term jobs, guaranteed pensions, jobs with real benefits, union and contractual rights) have eroded. More and more people in all walks work on short-term contracts that lack any real security. The already wealthy are reaping the lion's share of the benefits of increased productivity. This is emphasized by the political left, who point out that poor people are kept that way by financial insecurity and the need to pay foe necessities, requiring them to rack up debt.   

2. A culture that positively revels in conspicuous consumption and instant gratification, while holding out completely unrealistic expectations of the material wealth of everyday life of the average person. This is emphasized by the political right, who prefer to believe that poor people are kept that way by lack of financial continence, through spending short-sightedly on luxuries, preferring to rack up debt rather than live below their means and achieve financial security through their own efforts.   

I suspect that it's a mixture of both. They probably reinforce each other.

A solution would, ideally, contain attempts to address these issues in addition to merely reigning in gouging in the form of absurdly high interest rates; which is not to say that reigning in gouging can't be a part of the solution.