It's not just credit card debt, but the phantom loan industry only moves in one direction. What was a cottage industry before covid, has grown leaps and bounds since. If you include payday loans, buy now pay later loans, similar products from retailers like Amazon, Best Buy, Target, etc., phantom loans account for $700 billion more in consumer debt, which doesn't show up on credit reports unless default is involved. The default rate on credit cards and phantom loans is essentially the same. So revolving consumer debt is really closer to 2 trillion. Just the Buy now pay later loans accounted for $135 billion in 2024. The troubling thing is that an ever growing part of that is being used for essentials, household expenses and food, for those who are least likely to afford it. Twenty five percent of BNPL loans are used to buy groceries. Several years ago only 12% of these loans were for essentials. My problem with credit cards is the loan shark rates financial institutions and corporations are allowed to charge consumers. I don't know about other states, but here in California, the legal maximum limit for a personal loan between private parties is 10%, and yet banks are allowed to charge consumers as much as 33% (Barkleys Bank)on credit cards. Not that I want to make any personal loans, because I learned that lesson very early in life, but because those extreme rates hinder consumption to a varied degree. If there was more disposable income available, consumers would in all likely hood spend it and add to overall growth and health in the economy. Instead of one sector of the market benefiting, the market as a whole could benefit with more consumer disposable income.
California's Usury Law: California's usury law, found in Article 15 of the Constitution, sets the general maximum interest rate for loans and forbearances of money, goods, or things in action when used primarily for personal, family, or household purposes. Basic Rate: The basic maximum rate is 10% per year. Exemptions: There are exceptions and exemptions that allow for higher rates in certain situations. For example, loans above a certain principal amount (e.g., $2,500-$10,000) might have different rate limitations. Non-Consumer Loans: For loans that aren't primarily for consumer purposes, the maximum interest rate can be the greater of 10% per year or the "federal discount rate" plus 5%. Lender Fees: Lenders can also charge certain fees, which can increase the overall cost of borrowing. Important Note: It's crucial to understand the specific terms and conditions of any personal loan agreement, as interest rates and fees can vary depending on the lender and the borrower's creditworthiness and other factors. Consumer Financial Education: Other Loans - DFPI - CA.gov Maximum fee: 15% of loan amount (up to a maximum of $45) ... The term of a personal loan is generally between 12-60 months, the am...
Thank you Zdreg, for the additional info and specifics. I found out about legal maximum personal interest rates decades ago through one of my close friends who is what would be categorized by his piers as a small rancher/farmer. He would need some short term liquidity to get him through to harvest or until livestock was mature enough to go to market. Both parties benefit, quite often the transaction is initiated with just a handshake, and completed with just an invoice and a paid in full receipt. Sometimes with no documentation at all. Trust is paramount in his small rancher/farmer community and everyone knows almost everyone else. If you screw up with repayment, you'll be dealing with the banks in perpituity. Also, the very last phrase should read "more available consumer credit", not consumer disposable income.