Immoral Interest Rates

What are interest rates? Yes, of course, they are percentage charges levied against the borrowing of money. But that is not actually what I am getting at.
My question perhaps should be: What are honest interest rates? But how to sort that one out?
Well there are one or two pointers. Take for example the position of observant Muslims. They regard the charging of interest as immoral and do not do it, just as they are instructed in The Koran. But they still lend money and some make a living from doing so.
Jews and Christians are equally warned against usury in the Old Testament of The Holy Bible. And the truly observant ones avoid lending or borrowing at interest.
Indeed that great book also has no truck with harsh loan conditions at all. Where, for example, a poor man has pledged his coat against a loan the creditor is told he must return it overnight so the poor man may be kept warm.
Clearly an attitude foreign to our western credit industry and specially to many members of the credit card fraternity.
I am raising this because yesterday the Daily Mail revealed the disgusting behaviour of a number of credit card companies in raising their rates to levels that cannot be defended http://www.dailymail.co.uk/news/article-1039110/Credit-card-rates-soar-just-time-family-holiday.html
In Biblical Terms this is usury—as the Oxford English Dictionary puts it this is the practice of lending money at exhorbitant interest. It also defines it as ‘higher interest than is allowed by law. Unfortunately it seems the law in England and Wales at least has little to say on the matter and the regulators even less.
But what figures are we talking of? Well the wholesale loans which the banks take on have interest rates which normally relate to the Bank of England Rate which is normally announced By Mervyn King, Governor of the Bank, each Thursday.
Currently it is somewhere over 5 per cent. In the interbank settlement each night the Banks and other institutions—who must balance their books—borrow from the specialist Discount Houses at rates pretty close to that level (unless there is a short term liquidity crisis). And generally, unless the financial institution is in meltdown, as Northern Rock was, they can find funds at a reasonable rate.
So, bearing in mind that the Credit card operations have to pay for staff and premises and sophisticated computer systems and so on, it is resonable for them to add a bit to the interest rate if they are not going to levy charges. So would we say an extra 5 per cent; let’s be generous and say seven.
So I judge a reasonable and maybe honest and moral interest charge at 12%—but let’s be even kinder and say 12.9%. That, by the way, is about 1% a month.
However, greed having no known limit, it seems MBNA is charging at up to the rate of nearly 36%, that is around 3 per cent a month. And about a third of card holders have had their rates raised in the past year by issuers Egg, Capital One, Lloyds TSB and Barclaycard, according to the Daily Mail. A monthly rate of 2% equals around an annual 24%. Should the rate be more than 18% [1.5% monthly]?
One little trick to pretend they are doing nothing at all is to stop showing the annual rate on the monthly statement, and just show the monthly. Since it is well known that most of us are not very numerate they are relying on our ignorance to deceive us. Dishonest I say. Especially as they most certainly do impose charges.
I also ask where are the regulators.
Well, I want you to do me a favour. Come back here and I am preparing some instructions for what you should do about it. If I can I will put the first up tomorrow. So in the meantime gather pen, paper, envelope and stamps.
Let’s start a borrowers’ revolt.

Joseph Harris
Debt Control Man

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5 Responses to “Immoral Interest Rates”

  1. Interest Rates » Immoral Interest Rates Says:

    […] Read the rest of this great post here […]

  2. Credit Crunch » Immoral Interest Rates Says:

    […] Credit Cards Uncovered wrote an interesting post today onHere’s a quick excerptWhat are interest rates? Yes, of course, they are percentage charges levied against the borrowing of money. But that is not actually what I am getting at. My question perhaps should be: What are honest interest rates? But how to sort that one out? Well there are one or two pointers. Take for example the position of observant Muslims. They regard the charging of interest as immoral and do not do it, just as they are instructed in The Koran. But they still lend money and some make a living from doing so. Jews and Christians are equally warned against usury in the Old Testament of The Holy Bible. And the truly observant ones avoid lending or borrowing at interest. Indeed that great book also has no truck with harsh loan conditions at all. Where, for example, a poor man has pledged his coat against a loan the creditor is told he must return […] […]

  3. Books and Magazines Blog » Archive » Immoral Interest Rates Says:

    […] Original post by Control Your Debt Crisis […]

  4. BDO Says:

    I agree with the revolt. But towards who? Credit card companies? Marketers that convince us to buy?

    How much responsibility do we need to take for accepting those terms and getting into debt? You mentioned the Bible. Proverbs 22:7 says that we are servants to the loan companies when we decide to take on loans. How does a master treat his servant? Not pretty good, right?

    The best revolt is to get sick and tired of being in the debt. Earn your freedom out of debt by paying everything off as soon as possible. Then commit to never going back into debt.

    Now you won’t have to worry about credit card companies raising fees and you can just say “No” to marketers coming around to convince you to buy.

    Less stress, more freedom by having no debt.

    Let’s revolt against our debt.

  5. debtcontrolman Says:

    Yes BDO I think this is the desireable outcome. But there are steps on the way. And perhaps many people need some signposts and a little help to get to that.

    Often too there are situations that are outside one’s control, where what seemed a secure situation suddenly goes sour – but not because of anything the debtor has done. Unfortunately I expect to see a lot of that over the next few years as the long-expected economic correction occurs.

    And these sudden increases in interest rates and increases in the percentage to be repaid each month on credit cards can easily upset a finely balanced budget; specially now, when the inflation in the stock markets and housing is feeding into food, commodities and energy.

    I approve your attitude, and would certaily urge all who will listen to aim for it. And I am pleased to be able to offer a helping hand on the way.

    Your comment reads like one who has indeed done exactly what he describes and I congratulate you on the achievement.

    Joseph Harris

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