Would Credit Restrictions Hurt Low Income Borrowers?

Ken D. Whether this is a problem heavily depends on the state homestead exemption. Wisconsin has had such a lien law for decades, but but also protects the first $40,000 of homestead equity from such liens. That amount is not great, middle of the pack or lower nationally, but high enough that few credit card judgments are collected by that route. Even aside from this issue, however, there certainly are strong arguments that high-interest credit cards are predatory.

no amount of equity is exempted in michigan. by exempting such a large amount of homestead equity, the wisconsin law seems narrowly crafted to address egregious credit card fraud/abuse.

the michigan law on the other hand allows credit card issuers to charge their high interest rates (which are typically much higher than interest rates on secured lines of credit, ostensibly because the credit cards are unsecured) but then allows the credit card issuers to make that unsecured debt secured debt ex post facto . i don’t have a problem with charging 20% on unsecured debt.

what i have problem with are policies (like the michigan judgment lien act) whereby the gov’t significantly mitigates the risk for the lenders when the lenders are already being compensated for that risk in the form of such high interest rates in the first place. It is so hard to understand what is wrong with credit cards as a source of funds. After all they only charge 18 - 24% interest.

Full text