Summary
Credit card interest rates has always been higher than bank rates in Canada but with the bank rate falling down to a mere 0.5 percent in the recent month, people are wondering why credit card rate is still at the high of 19.9 per cent. Such people include the Senator of New Brunswick, Pierrette Ringuette. She believes it is all due to greed of the credit card company. The reason the Canadian Bankers Association gives for the credit rate being so high is due to the delinquency rate. Since the recession, the rate has gone up to 4.5 per cent from the 1 per cent before. Companies have suggested regulating the fee that merchants pay each time the credit card is used but credit card companies are quick to dismiss such suggest. They say that regulating merchant fees would hurt small businesses as they would have to pay same amount as big companies while their profit is lower.
Connection
This chapter discusses money and the ways money can be held in Canada. Money doesn’t necessarily mean cash. It can take many forms. They can be turned into numbers on a debit card and can be burrowed through a credit card. When one purchases something on a credit card, they do not actually spend their own money. It is instantly burrowed and to be paid back later. Credit cards are handy and allow people to purchase things without having to actually to have the money. It is good for people in a recession since cash is not around and things still need to be bought. But many people in the recession are unable to pay off their credit card right away and instead have to keep the money burrowed off the credit card at extremely high interest rates. The high rates are seen by some for credit card companies to make money while some are saying they are doing it to keep up with the recession.
Reflection
With the way people normally shop, more and
more people are already using credit cards other than cash or debit. It is much easier to carry around and people feel more secure with credit cards than with cash. We have created a habit of buy now and pay later. So once the recession started, people are still buying and not thinking of paying. Many people are still shopping like the recession never happened and are using money they do not have. Some declare bankruptcy after they have accumulated so much debt due to the high interest rate of credit interest. I think it’s fair that the credit card company have such high interest rates to cushion themselves against the money they could lose due to the instability of some of their clients.
2 comments:
According to this article, I agree that Credit Card Company should have higher rate than bank; however, as economic falls, it’s reasonable for Credit Card Company to lower its interest rate. Yet, Credit Card Company doesn’t want to take the risk for giving low interest to its consumers. On the other hand, it should stand on consumers’ point of view and gives them a hand. By lowering the interest rate, it’s possible that consumers are able to pay off their payments instead of bankrupt. For those who are no in financial difficulty, it’s also possible for them to use their credit cards more frequently, which will eventually benefit the Credit Card Company.
I think one of the reasons why the credit card companies are increasing their interest rates is because of the increasing number credit card losses. Like I said in my own blog, credit card companies are trying to prevent these losses by enforcing strict rules that only allow certain people to get credit card limit raises. The increasing of interest rates is probably another way for the companies to prevent these losses. I think this is a good idea because it allows only the people who are confident enough to pay off their debts be able to use their card on major purchases. Is this overall a good thing though? In my opinion, even though this may decrease consumer spending for a while, but in the long run, it would be beneficial for the economy.
K. Chan
Block F
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