Final answer:
Charging an interest rate above the legal limit is called usury, which is illegal. Usury laws, like a 35% cap, could reduce loan availability. Credit card companies justify higher rates as necessary for covering losses from defaults.
Step-by-step explanation:
A lender who charges a rate of interest over legal limits is guilty of usury, which is the practice of charging excessively high interest rates on loans, beyond the maximum legally permissible rate. In the context of credit cards, political pressures to set limits on interest rates come from the substantial amounts cardholders pay in interest and fees. Usury laws act as a form of price ceiling in financial markets to protect consumers from predatory lending practices.
If a usury law limits interest rates to no more than 35%, the availability of loans may decrease, as lenders might be less willing to offer credit, especially to higher-risk borrowers, if they feel that the capped interest rate does not adequately compensate them for the risk of default. Additionally, credit card companies argue that higher rates help cover the losses from cardholders who fail to repay their debts, suggesting that some increase in interest rates may be necessary to sustain lending practices.