Why Are Credit Card Companies Allowed to Charge so Much Interest?

Ask any bankruptcy attorney, and he or she will probably tell you that the main cause of the average client’s need for bankruptcy is credit card debt.

A few of you might feel a bit worried about the credit card companies. After all, with all of these people filing for bankruptcy and a large percentage of the debt being from credit cards, aren’t these companies at risk of going out of business?

But when was the last time you heard of a credit card company going out of business? How  can this be?

In reality, many of those who file for bankruptcy have already paid off their original credit card balances and then some. The reason they have any balance left at all is due to the exorbitant interest rates and fees charged by the credit card companies. Had their fees been reasonable, many clients may not have had to file for bankruptcy in the first place.

Why Are They Allowed to Charge so Much?

In short, the regulations that used to exist to protect the consumer have been all but eliminated. Usury laws used to exist which would keep these rates low. Over the years they have been eroded to the point where now, a credit card might charge you 29% interest.

Credit card interest rates are dictated primarily by state law. In an effort to attract companies and therefore jobs to individual states, legislatures have continually passed laws allowing greater amounts of interest to be charged. Meanwhile, the federal government has not made an effort to intervene and keep these rates at a reasonable level.

It has also gotten easier to get a credit card with a high balance. In the early days of credit cards, it was difficult to even get a card. And once you got one, it took a long time to increase the limit you could carry on a card.

These days, a quick trip to any college campus will show you how easy it is to get a credit card. Just fill out a form and come home with your free T-shirt. Your credit card will soon follow you in the mail.

Credit card balances also increase much faster now. You will have a high balance before many of you have learned how to manage the monthly payment, and well before your credit card company can accurately gauge how much of a debt load you can handle. It makes it that much easier to get into trouble with credit card debt in the first place, and the extreme interest rates ensure that it will be very difficult to get out of.