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:
“What has been the effect of [religious] coercion? To make one half the world fools, and the other half hypocrites. To support roguery and error all over the earth.”
—Thomas Jefferson (1743–1826)
“Can you support the expense of a husband, hussy, in gaming, drinking and whoring? Have you money enough to carry on the daily quarrels of man and wife about who shall squander most?”
—John Gay (1685–1732)
“The sceptics assert, though absurdly, that the origin of all religious worship was derived from the utility of inanimate objects, as the sun and moon, to the support and well-being of mankind.”
—David Hume (1711–1776)