I’ve had a credit card with a major bank for the past 9 years. It was the first credit card I applied for in college and the APR rate at the time, 10.99% seemed like a lot.
About a month ago I called in because of a mistake in paying off the remaining balance of the card. The gentleman on the line was very nice and professional, but there is something even deeper and more disturbing about our conversation that was not reflected by this man’s attitude and demeanor as he helped me fix my problem.
You see, I had also recently received a letter from the company that told me they were raising my APR rates to 23.99% from the current level which was 19.99%. The frustration was and is that I have been a member or have a credit card with this company for the last nine years, I have good credit, my payments get sent in on time. High credit rates above 20% are supposed to be for people who don’t have good credit, don’t turn in their bills on time, how bad payment histories; not people like me. I hadn’t done anything wrong, in fact, the card had been paid off.
When I called in to request a lower rate and to find out what had happened I was told that ‘In order for the bank to remain healthy (they) had to charge a higher rate.’ I was fortunate to be able to cancel the account since there was no balance, but I feel for the people that still have a balance that will be effected with these new higher rates. I’ve heard this behavior described before as predatory lending.
One of the discussions that I have heard many times in the conversation about finding funding for a start-up is whether or not to allow Venture Capital. Why the debate? Well, did you know that a Venture Capitalist typically puts money into a company with the expectation of receiving 10x that amount back in five years.
The way this breaks down would look like a 58% APR. These high rates are such because the Venture Capitalist is taking a gamble since more start-up ventures fail than succeed. In order to continue investing they have to have a bigger payout.
The debate also arises because this is a lot of money and can be considered by some to be excessive. When the potential payoff is big, the excess and ability to get one’s idea off the ground can definitely make it worthwhile for an entrepreneur to choose to take the money and the benefit and success that it can bring.
I would like to point out that a 23.99%APR is nearly half the rate that a VC would expect. Also, a credit card balance is not paid off in 5 years making minimum payments, making me wonder if the credit card company is making more in the long run than a Venture Capitalist with no benefit to the person receiving the money.
I don’t believe its fair for people to be responsible for keeping the profits of a credit card company healthy and I will no longer be supporting their health with my money. I am grateful that I am privileged enough to not have to remain in their debt and I hope that those beholden to this derelict system will be assisted before their living situations gets worse.