AMERICAN EXPRESS CO (AXP) 40.93 -$0.21 (-0.51%) 03:01AM (15 mins delay)

Ok, Washington crowd, here is a quick lesson on how credit card rates should work. Looking at rates and knowing the Fed Target Rate is not merely an oversimplification, it ignores the reality of the business. Sure there are villains to be exposed, incarcerated or fined. Unfortunately, our elected officials are once again leaning towards throwing the baby out with the bath water.

Step one is factoring the cost of money which is quite low right now. Step two is calculating a fair profit (yes, I will come back to this topic). Step three is the administration of lending. This includes the time value of money paid to merchants until the credit card company collects. Step four is client acquisition costs such as advertising, mailings etc and maintenance such as statements and customer service. You get the picture.