[PASSED] Minimum Payment Act

[Imperium Anglorum]

Regulation: Consumer protection.

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The World Assembly,

Believing that it is an unfair business practice to set minimum payments so low that it does not even cover interest accrued,

Observing that many people use unsecured retail credit lines, such as credit cards and personal loans, and

Concerned that such low minimum payments lead to a cycle of ever-increasing debt, hereby enacts as follows.

1. The minimum payment on any unsecured retail credit line must be equal to or greater than interest to be incurred over the payment period.
   
   
2. If a person sets a minimum payment less than the amount calculated in section 1 and a borrower makes that minimum payment, that payment must be treated as if it were in the minimum amount compliant with section 1.

[Imperium Anglorum]

Reserved.

[Tinhampton]

What is a "unsecured retail revolving credit line" and why should the World Assembly care about the payments on it?

[Imperium Anglorum]

C Marcius Blythe. The United Commonwealths will make a request of the Compliance Commission to investigate Tinhampton's government for violations of GA 474 "Financial and Economic Education".

[Desmosthenes and Burke]

What is a "unsecured retail revolving credit line" and why should the World Assembly care about the payments on it?

In common parlance, ambassador, it is a credit card or similar product.

We note there is more than enough room for the authorial delegation to include a definition or two to link the jargon term to something the average political critter can grasp. Although considering the generally deplorable knowledge of economics commonly seen in these halls, we might be being overly optimistic.

For that Matter, Ambassador Blythe, is there any particular reason you have limited this specifically to unsecured retail revolving credit? This mandate would really be sensible on just about any form of credit we can imagine that charges interest.

[Tinhampton]

Alexander Smith, Tinhamptonian Delegate-Ambassador to the World Assembly: In my defence, I put my copy of Economics: First Edition by Alexander Smith in the recycle bin!

OOC: My first post was OOC. It was not issued by, or on behalf of, any named Tinhamptonian.

[Imperium Anglorum]

What is a "unsecured retail revolving credit line" and why should the World Assembly care about the payments on it?

In common parlance, ambassador, it is a credit card or similar product.

We note there is more than enough room for the authorial delegation to include a definition or two to link the jargon term to something the average political critter can grasp. Although considering the generally deplorable knowledge of economics commonly seen in these halls, we might be being overly optimistic.

For that Matter, Ambassador Blythe, is there any particular reason you have limited this specifically to unsecured retail revolving credit? This mandate would really be sensible on just about any form of credit we can imagine that charges interest.

C Marcius Blythe. We find it rather clear ourselves, but I'm sure that when further clauses are forthcoming, examples will be put in hand. Personal finance is not altogether the most difficult thing imaginable. As to the prospect of expanding the scope of the proposal, we are somewhat wary of interfering in commercial credit arrangements. Those are much more sophisticated borrowers who might prefer minimum payments which do not cover interest at certain times. They could, for example, pay something else in lieu of interest, perhaps equity, and it would be unnecessary to bind them here. As to the matter of secured retail revolving credit, forfeiture of collateral would, I imagine, produce sufficient incentives to avoid default. However, would you support, Ambassador, extension to non-revolving credit accounts?

Alexander Smith, Tinhamptonian Delegate-Ambassador to the World Assembly: In my defence, I put my copy of Economics: First Edition by Alexander Smith in the recycle bin!
OOC: My first post was OOC. It was not issued by, or on behalf of, any named Tinhamptonian.

OOC. https://www.investopedia.com/terms/r/re ... credit.asp. https://www.investopedia.com/terms/u/unsecuredloan.asp. https://www.investopedia.com/terms/r/retail_lender.asp.

[Fachumonn]

Ambassador The People: "Abstain, as I need to read more about this certain issue to formulate an opinion on this proposal. I will do so on my handy desktop computer in the office."

[Imperium Anglorum]

OOC. So I can understand that minors who do not have credit cards would not have a concrete understanding of this proposal. That's fine and utterly acceptable. People have rational interests to know things that are relevant to their current lives. For those, and apparently others, let's talk compound interest.

Let's say you have a loan in the amount of 100 dollars. The interest rate per month is 10 per cent, just to be extremely easy to calculate. The interest is 10 dollars. If the minimum payment is only 5 dollars, then you did not cover the interest amount. In the next period, the amount owed is 105 dollars. The following period, you have interest of 10.5 dollars (with a 5 dollar payment) means you now owe 110.5 dollars. You can see that the principal (along with total interest payments) go into infinity as time goes on.

If you were required to pay the interest amount in every period and did so in every period, it would turn into a perpetuity: the amount is 100 dollars and you pay 10 dollars. In the next period, the principal is unchanged and you again pay 10 dollars. In this one, technically the total interest payments also go into infinity, provided of course you never pay more than the minimum payment. This is, of course, a smaller infinity than the first one.

[Tinhampton]

Ambassador The People: "Abstain, as I need to read more about this certain issue to formulate an opinion on this proposal. I will do so on my handy desktop computer in the office."

Smith: You are literally The People! How do The People, the most pulsating mass of humanity I have ever met, persist on a single personal computer! Anyway, I can now support this.

[Separatist Peoples]

What is a "unsecured retail revolving credit line" and why should the World Assembly care about the payments on it?

Ooc: credit without attached security that renews on satisfaction of the debt and specifically for retail. I'm not sure how anybody who has ever financed a car purchase or gotten a mortgage wouldn't dope that out.

[Anne of Cleves in TNP]

“Look, although I’m a 24-year-old woman with a bachelor’s degree in international studies and thus don’t understand many economic aspects, I will support this proposal in principle.”
-Ms. Charlotte Schafer, WA Ambassador for the Clevesian Empire

[Bananaistan]

"Why is the scope limited only to retail credit?

"Also, while this is appropriate for consumers, persons in business should be excluded."

[Imperium Anglorum]

"Why is the scope limited only to retail credit? "Also, while this is appropriate for consumers, persons in business should be excluded."

OOC. What do you read (or get) when you see the word "retail"? When I read it, I get https://www.occ.gov/topics/supervision- ... redit.html.

[Bananaistan]

"Why is the scope limited only to retail credit? "Also, while this is appropriate for consumers, persons in business should be excluded."

OOC. What do you read (or get) when you see the word "retail"? When I read it, I get https://www.occ.gov/topics/supervision- ... redit.html.

OOC: Same as that but it looks like it excludes back street moneylenders. If the you deleted the word "retail", would it have unintended consequences I can't see? EG, a utility provider demanding payment 30 days after they issue their invoice would still be outside this as they're unlikely to charge interest and their minimum payment would be the entire bill anyway.

[Simone Republic]

1. What about payday loans? I know it's a very sensitive topic. The interest on that is very expensive, BUT the credit risk is also very high, so lenders really need to be compensated for this. (Whether they are over compensated is a separate topic). As a related note, if snowballing debt is a concern why not a WA resolution to ban (perceived) predatory lending outright?

2. What if the loan is a revolver and reasonably cheap? (This would more apply to sophisticated borrowers). There are plenty of 5% unsecured personal revolvers (where I live anyway) and even revolvers at 1-month SOFR or 1-month SOFR + say 50bp, and I have sometimes seen opportunities for 15-20% returns, and have taken advantage. Ditto to SME owners earning 20% ROIC on their business if they borrow at 10%.

[Fachumonn]

Ooc: Support.

[Imperium Anglorum]

OOC. What do you read (or get) when you see the word "retail"? When I read it, I get https://www.occ.gov/topics/supervision- ... redit.html.

OOC: Same as that but it looks like it excludes back street moneylenders. If the you deleted the word "retail", would it have unintended consequences I can't see? EG, a utility provider demanding payment 30 days after they issue their invoice would still be outside this as they're unlikely to charge interest and their minimum payment would be the entire bill anyway.

Commercial lending shouldn't be regulated in this way because they're more sophisticated and might have legitimate business reasons not to pay enough to cover interest.

[Simone Republic]

One more thing: maybe replace "unsecured retail credit line" with "unsecured credit facility for individuals primarily for their personal consumption expenditure", to avoid the issue of sole traders borrowing to fund their farms or small businesses (as common in less developed markets such as large parts of Africa).

The original wording seems to be more designed for binge shoppers in developed countries who can't stop themselves from using their credit cards.

Also dodges minor issues like borrowing for bail bonds (which I think should not have a minimum payment, after all the chap needed money to pay bail) and (perhaps) student loans, depending on which jurisdiction and the structure of the loan.

[Old Hope]

Banning abusive business practices? Full support.

[Wallenburg]

Does section 2 not render this proposal entirely toothless?

[WayNeacTia]

Does section 2 not render this proposal entirely toothless?

Seems that way to me. If Visa sets my minimum payment at 250 dollars, said payment must at least cover the interest according to section 1. Now if I only pay 200 dollars, Visa has to accept that as the minimum payment. So where does the other 50 dollars come from to cover the rest of the interest?

[Attempted Socialism]

Does section 2 not render this proposal entirely toothless?

Seems that way to me. If Visa sets my minimum payment at 250 dollars, said payment must at least cover the interest according to section 1. Now if I only pay 200 dollars, Visa has to accept that as the minimum payment. So where does the other 50 dollars come from to cover the rest of the interest?

It's the other way around.
Say the borrowed amount is 10.000, with 5% interest, so 500/yearly in interest payment. Anything below 500 would add the remainder to your debt, increasing it over time. If your Visa sets the minimum payment at, say, 250, that would ordinarily mean that paying the minimum would send you into a debt spiral (You'd have to increase the pay yourself to avoid adding to your debt). With this resolution in place it would instead treat that 250 minimum payment as enough to satisfy the interest, lowering the effective interest to 2,5%. Even if the real interest is 5%, paying the 250 that Visa set will be treated as the necessary interest payment. Of course what will happen in reality is that every lender will set the contractual standard minimum payment according to clause 1, but that means you should be able to get a clear view of what your credit account will cost you when you sign for it.

[Heidgaudr]

"Brevity is the soul of wit. Support."

[Imperium Anglorum]

Does section 2 not render this proposal entirely toothless?

Seems that way to me. If Visa sets my minimum payment at 250 dollars, said payment must at least cover the interest according to section 1. Now if I only pay 200 dollars, Visa has to accept that as the minimum payment. So where does the other 50 dollars come from to cover the rest of the interest?

Creditor has to treat it as if it were in the amount calculated in section 1. They eat the loss.