Fed Economist Defends Card Rates
SAN FRANCISCO - High interest rates on credit cards are consistent with the risks and costs involved, an economist at the Federal Reserve Bank of San Francisco said.
"Attempts to reduce credit card rates through usury legislation will have the effect of exposing banks to increased risk and reducing the availability of consumer credit," said economist Randall Pozdena in the bank's Weekly Letter.
The report followed by about two weeks a Senate vote to limit the finance charge on credit cards to 14% a year, down from an average of more than 18%.
The stock prices of major credit card banks fell sharply because of the prospects that such a move would cut into their already dwindling profits.
"This is a curious policy direction in an economy already plagued by weak financial institutions and sluggish credit growth," Mr. Pozdena said in the newsletter.