There’s a simple solution here that doesn’t require banning credit cards: requiring borrowers to demonstrate ability to pay before signing off on a loan. Most creditors do this, it’s usually only the ethically challenged lenders that ignore this.
The previous administration passed regulations requiring payday lenders to verify ability to pay before handing out loans, which was promptly crushed by the current admin at the request of the payday loan lobby.
Another solution is to cap the max interest rate far below current thresholds. The problem with these loans is that lenders are hoping you’ll get into debt, they’re in no way trying to create a mutually beneficial relationship with their borrowers.
I'm partial to an even simpler solution: Make it easier to go into bankruptcy, and discharge the loan in bankruptcy.
If your debt load is unsustainable, such that your interest payments are more than XX% of your income, then you effectively already are bankrupt. We can either try to get people back on their feet, or let their debtors grind them into the dirt for a while longer.
In reality, credit card companies will already settle for a fraction of owed principal if they believe you're seriously considering bankruptcy --- I've personally watched them come down to less than 20%, and my understanding is that people who are good at these negotiations can get them much lower still.
Can confirm. Remember, a) if they sell it to a debt collector, they're probably selling at 3 to 5 cents on the dollar [+] and b) they can't sell it, at all, if your bankruptcy notification gets to them before the Big Ponderous Corporate Process pulls your account into their package being sold to a debt collector.
[+] More if they haven't worked it a lot internally or if it is sold while fresh or if you look like someone who is extremely collectible but let's say "Typical case for people who are on verge of bankruptcy" pushes you waaaaay down the stack on all possible ways to price debt.
The previous administration passed regulations requiring payday lenders to verify ability to pay before handing out loans, which was promptly crushed by the current admin at the request of the payday loan lobby.
Another solution is to cap the max interest rate far below current thresholds. The problem with these loans is that lenders are hoping you’ll get into debt, they’re in no way trying to create a mutually beneficial relationship with their borrowers.