Why Legislators Should Restrict Interest Rates For Delinquent Borrowers Senators Charles Schumer and Tom Harkin have the right idea about what Americans need right now.  The legislators have vowed to push both the Federal Reserve and Congress to provide more protection for credit card users who get hit with outrageous interest rates when they fall at least two months behind on their credit card payments.

Credit card companies can still double or triple the interest rate when a consumer falls two months behind on payments” despite new Fed rules, Sens. Charles Schumer, D-N.Y., and Tom Harkin, D-Iowa, said Tuesday. They made their case in a letter Tuesday to Fed Chairman Ben Bernanke.

These delinquent credit card debtors need the most help and are only being harmed financially when we jack up interest rates after they fall behind on payments.

Why we must restrict the interest credit card companies can charge:

  1. Increasing the interest rates on delinquent credit card debtors will only make it that much more difficult for them to repay that debt.
  2. Increasing the interest rates of delinquent credit card debtors will provide a disincentive for the credit card debtor to even try to repay the debt.  It can be overwhelming for the debtor to see the interest pile on and see no light at the end of the tunnel, causing them to totally shut down and begin to ignore the creditor.
  3. If we are going to use high interest rates as a punishment for delinquent debtors, it should only be for those credit card debtors who are severely delinquent, as in a year in default and/or those who clearly have the resources to pay but still refuse to do so.  However, punishing credit card debtors who are only delinquent by a few months with high interest rates is simply counterproductive.