The Celeri Journal #105: Why Credit Card Rates are so High

Written by Michael

On June 26, 2020

Global Markets Recap

The Fed lends money to Wall Street banks at zero. Wall Street banks lend you money on credit cards at 24%. Discuss.

Saw this article (see Comments) floating around on social media, and it’s a good one. Key finding: “The other reason credit card rates remain so high has to do with plain old inertia. Banks have always charged high rates on credit cards so that’s what they’ve continued to do. Because that’s the way we’ve always done this is about as good of a reason as any when you’re dealing with entrenched ideas.” Maybe the Justice Department’s price-fixing team should look into this.

Of course, high rates do reflect underlying risks. The article: “There are a number of reasons people point to for the stickiness of credit card rates:

  • Lending standards are much lower for credit cards
  • Loans are unsecured
  • Consumers have all of the power in terms of when & how to use their allotted credit
  • There’s a higher chance of delinquency in credit cards than other loans”

Startups like Brex, Galileo, Celeri Network, and even SoFi, are elbowing their way into the credit-card space by offering unsecured term loans to small businesses. In the future, this is likely to extend out past mom-and-pop shops and into the purses and wallets of consumers, too. And not at 24%, thank you very much.

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