There is a group of credit card holders who represent such a risk of non-repayment that 28% just about covers the pool with maybe no profit. What's criminal (or should be) are interest rates that are too high for the losses plus servicing cost plus rate risk plus cost of funds.
The last reported national average interest rate on CCs was 13.08:
http://www.federalreserve.gov/releases/g19/current/g19.htmSo most cardholders aren't being charged high rates, and that is because they represent much less of a risk. Chargeoffs on CCs for banks are still hanging in over 5.5%.
http://www.federalreserve.gov/releases/chargeoff/chgallsa.htmSome non-banks provide CCs with higher risk profiles, and if they were included that charge-off rate would be higher.
Delinquencies are beginning to rise a bit, at least in the more risky portfolios.
http://online.wsj.com/article/BT-CO-20111115-705785.htmlAnyway, with 5.6% chargeoffs, plus 3% servicing costs, plus 1.5% cost of funds, and increased rate risk, about the minimum average interest rate you could possibly see on CCs to break even over the longer run would be 5.6% + 3% + 1.5% + 1.5% + 1.5% (profit) or 13.1%. So I conclude that overall the industry is not abusive at this time.
The non-bank higher-risk CC providers are paying a higher cost of funds because of their higher risk profiles - note the LIBOR + 4% rate CompuCredit is paying right now to Wells Fargo as disclosed in this SEC filing:
http://www.faqs.org/sec-filings/111011/CompuCredit-Holdings-Corp_8-K/http://www.faqs.org/sec-filings/111107/CompuCredit-Holdings-Corp_8-K/Interest rates charged on any group of loans have to cover servicing costs, losses (charge-offs of uncollected debts), cost of funds (you have to get the money you lend from somewhere and you have to pay for that), rate risk (the risk of future loss because you have lent money at low rates in the past and are now forced to pay higher costs for the pool of money you have lent out.
I think what is more criminal is that so many people in the US are forced to either borrow money at title/pay day lenders or from these types of high-risk lenders. It's probably better, if you are forced to it, to be paying CC interest from 20-30% on a rather low balance rather than a much higher annual rate for a payday or title lender, but it seems as if we could make things better if we tried to provide some sort of last-resort credit at lower rates to those with jobs.
Why doesn't our country do this? It seems as if we don't really care to help out lower-income people. Most of the cost of non-secured high-rate credit comes from the inability to repay. If we tried to make some loans from treasury at rates of say 6%, paid back as a salary deduction from payroll, and collected by the IRS we would have some losses, but much less.
And anyone who has ever had to take high-risk loans and try to pay back at those rates knows that it is much easier to pay them back at 10% versus 20-30%.
If you banned such CC rates you would just restrict issuance of CCs, and many people would end up going the payday/title loan route. But if you provided a pooled alternative with much lower repayment rates collected by the US government (and non-dischargeable in BK), a lot of people would get real financial relief. Any cost the taxpayer ultimately had to absorb would be much less than that incurred by all the bailouts of car companies, Fannie/Freddie, banks, GE etc.
The appropriate role of government is to do things that people can't do by themselves. Providing high-risk credit is something that literally can't be done by the private sector cheaply - why not use government to provide a way for lower-income people to be able to access credit at lower rates if they really had to?
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