CHAOS or COMMON SENSE

Volume 2 Financial Gouging

For everyone who can reach back and remember their American History studies you may recall the era of the "Robber Barons" during the 19th and early 20th-century. They were American capitalist’s; including John D Rockefeller (oil) Andrew Carnige (steel), and J. P. Morgan (finance)—who amassed unprecedented fortunes through monopolistic, often ruthless practices like crushing competitors, exploiting workers, and bribing officials. These tycoons defined the Gilded Age, prompting antitrust reforms.

CHAOS 

Do we have “Robber Barons” today? In my opinion we do, but in a very different light. Today’s Robber Barons, include the financial services sector of our economy, who are acting within the law but are using everyday Americans to allow them to cover bad decisions and business practices. In this One Opinion the credit card segment of their business indirectly assisted by credit rating agencies are exploiting American citizens every day.

According to the Federal Reserve the total household debt for home loans, car loans and credit cards in the United States reached $18.59 trillion in third quarter of 2025. Of this amount credit card balances had reached $1.23 trillion or about 6.6 percent of the total debt. Of the 210 million Americans carrying at least one credit card, approximately 47 percent or 97 million Americans are carrying a balance forward each month according to Bankrate and Lending Tree.

 The New York Fed reports there were 636 million credit card accounts open as of the second quarter of 2025. That represents a 6 percent increase in 12 months, a 10 percent increase from two years ago and 50 percent increase over ten years ago. Additionally, they report that the average American holds 7.1 cards, but only 3.7 of those cards are active. These excess cards may be being held to help reduce the ratio of available credit to used credit to raise credit scores. Does it seem like chaos that an individual would have to apply for additional credit and not use it to help improve their credit rating. Why wouldn’t a simple review of an individual’s credit payment history be more meaningful. “Experts” recommend that you should not use more than 30 percent of available credit to boost your credit score. Let me see if I have this correct. I am going to give you a credit card with a limit of credit available, but the more you use that credit card and approach that limit I am going to penalize your credit score and allow the card issuer to increase the interest they charge you for your unpaid balance.

Credit scores are primarily determined by five factors based on your credit report, with payment history and amounts owed having the biggest impact.

The core components of credit scoring are payment history (35%), amounts owed/utilization (30%), length of credit history (15%), new credit inquiries (10%), and credit mix (10%).

·      Payment History (35%): This is the most critical factor, tracking whether you pay credit cards, loans, and bills on time. Late or missed payments, accounts in collections, or bankruptcy significantly lower your credit score.

·       Amounts Owed/Utilization (30%): This measures the total debt you owe relative to your credit limits. High credit utilization (e.g., maxing out cards) hurts your score. Experts recommend keeping balances below 30% of your available credit.

·      Length of Credit History (15%): A longer history of managing credit generally improves your score. This considers the age of your oldest account, newest account, and the average age of all accounts.

·       New Credit/Inquiries (10%): Applying for new credit accounts in a short period indicates higher risk and can lower your score. Each application creates a “hard inquiry.”

·      Credit Mix (10%): Having a variety of credit types—such as credit cards (revolving) and car loans or mortgages (installment)—shows you can manage different types of credit. 

Maintaining high credit scores requires paying bills on time, keeping balances low, and limiting new credit applications. So, if you want a high credit score; pay on time, don’t use the card or other credit mechanism, and don’t apply for any additional credit. Is this complete insanity?

Does anyone believe that American Express, Capital One, J. P. Morgan Chase and others want you to pay your balances every month. Does anyone believe they don’t want you to use the credit cards they give you They also want you to apply for their additional cards, mortgages, or car loans. Because when you do the credit monitoring algorithm is going to penalize you and lower your credit score. This in turn allows the lending institutions to charge you more outrageous interest on open balances.

Think about this. You decide to buy a new car, and you need to finance that purchase. You pay cash for 20% of the purchase and finance the remaining 80%. You just triggered three variables in your credit score; one you applied for credit, the car dealer probably hit three or four lending intuitions in so doing (10% of the score) and if approved you now have new credit using 100% of that available credit (30% of the credit score). Plus, this credit is new and will have some impact on the average length of credit history (15% of the credit score). Undoubtedly your credit score is going to go down simply because you bought a new car, needed credit, was approved, and used the credit.

Now incorporate interest rates to this absurd chaotic environment. According to Lending Tree in 2025 someone with good to excellent credit was faced with 17% to 19% minimum interest on outstanding balances and according to Lending Tree in late 2025 the average credit card rate across all cards was between 21% and 24%, that is fifteen and one quarter percent above the current prime rate and approximately 17% to 20% above the current Fed Funds rate. In this one opinion that is outrageous.

Forty seven percent of American credit card holders carry a balance as of December 2025. Most American card holders report that the major cause of their debt is medical, car repairs, home repairs, or emergency unexpected expenses, and 33% say their balances are a result of needed help with day to day expenses such as groceries, childcare, and utilities.

A recent Bankrate survey indicated that forty percent of Americans with credit card debt say they have been carrying the debt for more than one year. Additionally, that survey indicated that over 50 percent of those carrying a balance did not have a plan to get out of debt and felt trapped. Should that surprise anyone faced with interest rates ranging between 21 and 30 percent on outstanding balances.

Is this the most chaotic system with the least amount of common sense ever? It must certainly rank high and no doubt must cause many to question why Congress (both Republicans and Democrats) cannot get their heads out of their rectum and focus on issues facing in this case 97 million American’s they were elected to help. Instead, they want to fight and bicker for power, make blatant false statements to try to prove their point, and could give a rat’s ass about the American people. We need term limits, but that is a discussion for another day.

COMMON SENSE

Where do we begin? I must give President Trump credit for at least raising this question when he proposed limiting all credit card interest at 10% for one year. I have no idea how much thought he put into that statement, but I don’t think it was much. It was something he simply threw against the wall to see if it had any sticking power. It was quickly shot down my many in Congress including Speaker Mike Johnson who said it would be dead on arrival.

Makes you wonder how the card holders paying these outrageous interest rates in his district must feel.

First let me be clear, in my opinion, our financial institutions must exist, and they must be profitable for our economic system to work. But the extreme success of a segment of their operations must not ride on the backs of American citizens and certainly not the middle class. Common sense says that you cannot offer a product to the market and then penalize those using the product. Simply said you cannot offer a credit card and ask people to use it and then penalize them for using it by raising their interest rates on unpaid balances because they did use it.

There are multiple ways financial institutions make money from their credit

card operations. These include:

1. Interest income is earned when customers keep a revolving balance

on their card and pay interest each month.

2. Interchange income comes from merchants who accept the card at

their business. These merchants are charged a percentage of the

purchase that supposedly covers the risk the bank takes and to cover

processing charges they incur.

3. Cash advance fees when card holders borrow cash against their credit limit

4. Annual fees are yearly payments that keep the card holders account open.

5. Penalty fees are imposed when a customer makes a late payment.

6. Enhancement income is the result of offerings made to card holders for insurance products, etc.

Financial Institutions don’t think charging their card holders fees that range from 16 percent to 30 percent, or more is enough, they also generate income from vendors and other means.

Has anyone’s brain exploded yet!

The first question to answer is why do they need to charge this level of interest? An irrational answer could be greed. However, the Financial Institutions continue arguing that contributing factors are:

·       The credit card portfolio. Financial Institutions say they require this level of interest because of the risk at the low end of the FICO score range. According to the Federal Reserve Board subprime loans (those with FICO scores below 640) resulted in high delinquency rates of 20.1% in the first quarter of 2025. While a prime loan (those with FICO scores above 660 resulted in a delinquency rate of less than 1% during the same period. Additionally alarming is the fact thatsince 2021 FICO says that delinquency rates, those more than 60 days past due, have risen by 48% primarily in the subprime sector. When delinquency goes up high interest rates charged on those less risky card holders who are not delinquent substantially help the banks cover poor vetting process and card approvals in the subprime market.

·       Incentives paid by banks to appeal to new and old card holders. In 2023 the six largest banks spent $67.9 billion on rewards and incentives. These incentive include reduced hotel room costs, reduced airline tickets, etc. Bank executives have argued that the high interest rates are necessary to recoup the cost of these rewards and incentives. Not exactly true! Liberty Street Economics (New York Federal Reserve economists) stated in March 2025 that the $67.9 billion rewards and incentives costs recovered by the Financial Institutions offering credit cards more than fully covered the bank interchange charges paid by merchants who accept the cards. Note: It would be interesting to learn if any of the large banks have examined and modeled eliminating incentives and allowing the bank interchange revenue to drop to the bottom line. Then institute lowering the average interest rate charged on their cards by 10 percentage points across all FICO scores which might result in equal or more profit than the current incentive model. In this writer’s opinion lower interest rates would be a bigger incentive than points awarded for card utilization. It could also put more money directly into the overall economy rather than individual

Financial Institutions profitability.

Common sense indicates that both credit scoring and credit card interest are both in need of significant review and modification. I was unable to find any public information supporting the current level of credit card interest or credit scoring from anywhere other than the executives of the largest issuers of the cards themselves.

There is no question that credit card lending is an unsecured business and carries a high level of risk. But those institutions issuing the cards can limit that risk to a level they are comfortable with simply with stronger vetting criteria. Covering their risk on the backs of the individual’s they have provided cards, and who have paid their required balances on time is not an acceptable answer.

SUMMARY

In this one opinion there are several elements that need to be analyzed,

reviewed, and modified within the credit scoring and credit card segments

of consumer lending.

1. The FICO scoring system needs a major revision. When 5, 10, or 20 years of exceptional payment history is devalued because someone applies for another card something is wrong. The scoring breakdown should be modified to reflect a stronger weighting for payment history. A scoring algorithm of 45% payment history, 35% length of credit history, 15% balance owed, and 5% credit inquiry sounds like a more common sense approach.

2. In this one opinion a FICO scores below 650 should not qualify for a credit card due to the increased delinquency probability and risk. If a Financial Institution wants to make such a loan, with a demonstrated higher risk, then they should set up a separate lending category within their institution for subprime loans, just like some did in the commercial lending sector with junk bonds 30 or 40 years ago. Price them at the appropriate risk level, but the risk stays in the bank and not on the backs of other card holders.

3. Interest rates should be tied to FICO score brackets and include components for cost of debt, risk, and profit. In this one opinion FICO brackets could be structured like the following:

a. 650 to 699 0 to16%

b. 700 to724 0 to15%

c. 725 to 749 0 to14%

d. 750 to 774 0 to 13%

e. 775 to 799 0 to 12%

f. 800 to 849 0 to 11%

g. 850 0 to 10%

Or the rates could float with a fixed component based on either the Fed Funds rate or the Prime rate and a variable component to reach the maximum rate.

The scores could be averaged quarterly and used to set an individual’s interest rate. For example, if John Doe has a quarterly average FICO score of 732, he cannot be charged more than 14% interest on his outstanding balance. If the issuing card company wants to keep the required monthly minimum payment amount constant and apply a larger amount to principal that would be fine with this one opinion.

Credit to President Trump for raising this issue and if our politicians running for election or re-election have any sense then they should get on this bandwagon. If you are serious about affordability, then here is a significant issue to attack that will directly touch 97 million potential voters. However, since politicians are receiving donations from the Financial Services industry it is unlikely that our television screens will be filled with those speaking out for interest rate reductions to help the 97 million Americans carrying credit cards balances.

If there is a real move to reduce credit card interest levels the Financial Industry executives will be screaming. Executives of J. P. Morgan Chase (an institution that dates to the robber barons) have already reacted to the Presidents first call to limit card interest to 10%. The CFO warned that a rate cut on credit cards could have detrimental effects on the bank lending business. He continued that a limit on interest could lead to negative consequences for consumers, especially the people who need it most. Additionally, Jamie Dimon the CEO added that reducing card interest rates could adversely affect customers with lower credit scores by limiting access to credit. When the executives tell you how bad it would be to lower interest rates just understand that they have been recording record profits.

Let’s see if any politicians or Financial Institution executives will step up and take on this issue facing hundreds of millions of Americans. My guess is no one except President Trump has the moxie. They would rather hunker down in their Financial Institutions and fight to keep the money rolling in or for the politicians continue to fight among themselves over influence and power and how to spend money that is not theirs. To many politicians would rather try to tie an opponent to Jeffery Epstein or protect illegal immigrant than to help some 97 million legal Americans.

One opinion believes that this will most likely be another lost opportunity to

help everyday American Citizens. For those politicians who are screaming

about affordability if you can’t get in this fight then just, PLEASE SHUT UP!!