Re: Credit Card Hearings in Congress


"Shawn Hirn" <srhi@xxxxxxxxxxx> wrote in message
news:srhi-83CF8F.06460810122007@xxxxxxxxxxxxxxxxxxxxxxxxx
In article <h_P5j.22333$MJ6.507@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx>,
"SpammersDie" <xx@xxxxx> wrote:

"Shawn Hirn" <srhi@xxxxxxxxxxx> wrote in message

If the current balance is being paid off on time then the risk is
minimal,

Considering how it can take years to pay off even a moderate balance if
the
borrower is only making minimum payments, I don't think the risk is
"minimal." It's still effectively a long term installment loan with no
collateral securiing it and it's at an interest rate that the card issuer
has just determined to be below market rate for the borrower's risk
category.

Sure the risk is minimal. If a borrower is years into paying off a
balance via minimal payments, chances are that when the balance is paid
off, the borrower will end up paying several times the value of the
original loan. So if the borrower defaults, unless the default occurs
early, the odds are good that the lender would have already been paid
back the original balance, at least once, if not multiple times.

I think what we have here is a variant of the "gambling with house money"
trap that many fall into. I.e. because you have (or will have) made back
your original investment, it's ok now to take greater risks with the
remainder of the pot. The banks aren't going to see it that way. From the
bank's point of view, there's no difference between the portion of the
balance that's "original loan" and the portion that represents accumulated
interest and finance charges. The entire balance is accounts receivable and
the bank has a fiduciary duty to invest all of it wisely. Which in this
case, translates to a duty to demand returns commensurate with the current
credit risk of the cardholder.








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