Support
Supporters of the concept argue that lenders should use all available information at all times in order to avoid adverse selection. These supporters argue that the continuing practice of charging higher prices reflective of risk will allow lenders to charge lower prices reflective of non-risk, or, to extend credit to those previously thought to be too risky in the past, giving benefits to those potential borrowers. These supporters argue that the increased rates reflect the risk and are not price gouging, as proven by the steady or diminishing profit margins of the credit card business.
Still others, while admitting that the increased default rate more than compensates for the risk, argue that competitive pressure makes that so (i.e. because lenders who do not charge the default rate can possibly offer lower normal rates, while lenders who don't would seemingly have to try and advertise that the lack of a default rate is a competitive advantage (opening them up to adverse selection), or adopt the practice themselves.
Read more about this topic: Universal Default
Famous quotes containing the word support:
“The community and family networks which helped sustain earlier generations have become scarcer for growing numbers of young parents. Those who lack links to these traditional sources of support are hard-pressed to find other resources, given the emphasis in our society on providing treatment services, rather than preventive services and support for health maintenance and well-being.”
—Bernice Weissbourd (20th century)
“[They] hired a large house as a receptacle for gentlewomen, who either had no fortunes, or so little that it would not support them. For these they made the most comfortable institution [and] provided [them] with all conveniences for rural amusements, a library, musical instruments, and implements for various works.”
—Sarah Fielding (1710–1768)
“Every winter the liquid and trembling surface of the pond, which was so sensitive to every breath, and reflected every light and shadow, becomes solid to the depth of a foot or a foot and a half, so that it will support the heaviest teams, and perchance the snow covers it to an equal depth, and it is not to be distinguished from any level field. Like the marmots in the surrounding hills, it closes its eyelids and becomes dormant for three months or more.”
—Henry David Thoreau (1817–1862)