In response to my post this morning, where I wrote:
Follow the bouncing ball of unintended economic consequences. Banks forward credit to people who can't afford it at interest rates that are really high. Predictably, default rates on credit cards rise. Perhaps more predictably, to protect the consumer from evil bankers, the Government passes regulations on the interest rates that can be charged. Sounds 'fair' until you realize that banks have to look for ways to recover the lost revenues from not charging market based interest rates.
The Free Exchange blog at The Economist writes:
I don't understand this. If credit card companies are able to increase rates on good customers without losing them, why wouldn't they have done that before? Shouldn't we assume that firms make as much money as they can off all customer types all the time?
Perhaps. My guess is that credit card companies are hoping the new interest rate cap rules will force everyone to raise fees. But my next guess is that it won't work. At least one company is going to realize that if everyone else raises fees, I can attract customers with a no-fee credit card. As soon as one leads, the rest will follow. I probably should've said that up front. But then I wouldn't have gotten a mention on The Economist web-site. And being the glory-whore that I am...
