In times of 0% interest rates for your balance and a Federal funds rate of 0,25%. even 10,99% is a total Rip-off!
3-4% would be adequate depending on credit score. Steve would have never allowed this.
Steve would likely have not weighed in on the interest rate assigned to a card holder since at the time there was an Apple Credit Card that carried interest rates from 16.99% to 27.99%. I don't think that is a realistic argument for what the current rate on the Apple Card should be. Steve might have weighed in on the design of the card, etc. but it would be tough to argue what a rate should be when you already have a card with high rates.
I am not going to argue that people should be using credit cards for purchases, that bus left the garage long ago and is not pertinent to the rate on the Apple Card.
What is a reasonable interest rate for a card product that can easily result in non-payment of the balance owed? Due to potential losses from consumers that cannot pay off their cards, credit card rates are not going to go to 3-4% even with Federal Funds rates at 0.25%. Credit card rates are not based on the Prime Rate. As of today, the current Prime Rate is 3.25%, a month ago it was 4.75% and lowered with the change in Fed Funds rate.
The prime rate is the interest rate that commercial banks charge their most creditworthy customers, generally large corporations. The prime interest rate, or prime lending rate, is largely determined by the federal funds rate, which is the overnight rate that banks use to lend to one another. So when Fed Funds rates change, prime rates change.
A prime rate loan is generally a non-secured loan, meaning no assets collateralize the loan, such as a house and land with a mortgage or a car with an auto loan. Credit cards are also insecured loans offered to consumers, meaning there is nothing but the credit worthiness and ability of the cardholder to pay backing the loan. That rate would not provide sufficient revenue to offset card portfolio losses and related operating costs for a card program.
There are certainly individuals that have sufficient credit worthiness to qualify for a loan rate near the prime rate, but you will not see those kinds of interest rates tied to a card product. Taking a look at the 2008-2009 economic crisis. The credit card charge-off rate for all commercial banks rose from 3.85 percent in the second quarter of 2007 to 10.97 percent in the second quarter of 2010. Those losses were in part covered by the revenues generated by all the consumers that had cards, meaning many credit worthy consumers with a card carried a somewhat higher interest rate to cover the losses from those did not pay. Even folks with good FICO scores when they got their cards ended up not paying off their balances.
Given the economic upheaval that is being endured, we can assume many people will not be able to pay their cards off. Those will result in losses. The entire portfolio of Apple Cards will be used to cover those losses.
As to the card limits and rates assigned to cards, there certainly has been enough exposure on complaints and unfairness in assigning limits. During the underwriting for a card, several things must be determined to determine the credit worthiness of the Consumer. Things such as the FICO provide an overview of the historical payment history of a consumer as well as the outstanding loans / credit lines. Credit lines are the limits on cards and consumers will be judge on both the total credit line extension from all lenders as well as the average credit line extended by other lenders. A consumer will also judged on their ability to pay - that is different than there FICO score or credit lines. That depends on their income. It should include available assets to pay from in my opinion, but it does not. Your income is used. The combination of this data is used to assign your limit and your rate.
A consumer with "perfect credit" likely has what is called "Excellent" in the FICO range score. Or the consumer may have a belief that since they have cards, have always made their payments on time, etc. they have perfect credit. The FICO score is able to rate the ability to pay based on historical payments, but not income or assets available to pay.
You could take two very good FICO scores, let's say 810 and 815 (this is hypothetical). The score of 815 is for a consumer with income around $75,000 per year, while the 810 score is for a consumer with an income of $200,000. Which is better able to pay their card payment? We don't really know....it seems like the consumer with higher income its more able, but what other mostly payments are being made? Big mortgage? Expensive car? Student loans? Neither the FICO score nor the income level actually tell you about the ability to pay.
You throw in a virus that has cost 8 million plus people their job in the last two weeks and now you really do not have any good information on who will pay. Card rates need to be high enough to cover that.
So that's my two cents plus comment on the issue.....
