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 purpose of punishment is to improve those who do the punishing—that is the final recourse of those who support punishment.”
—Friedrich Nietzsche (1844–1900)
“He uses statistics as a drunken man uses lamp-posts—for support rather than illumination.”
—Andrew Lang (1844–1912)
“There is much to support the view that it is clothes that wear us, and not we, them; we may make them take the mould of arm or breast, but they mould our hearts, our brains, our tongues to their liking.”
—Virginia Woolf (1882–1941)