Sky-high credit card interest rates do not reflect supply and demand. Instead, they mostly reflect business practices that victimize consumers. As research reported by the Federal Reserve Bank of New York documents, credit card companies spend vast sums on marketing. Once they have pulled customers in, they then use their market power to charge exorbitant interest rates.

So why don't businesses offer an alternative with far lower interest rates and why haven't they replaced high credit card interest rates? It seems like a slam dunk business case if Paul Krugman is right here. No one wants to pay 20% credit card interest rates if they have a viable alternative that charges 7%.

My sense is that it is driven by supply and demand. There's are probably reasons why no other mainstream business can offer lower rates. Credit card interest payers are likely very risky borrowers so credit card companies need to have high interest rates.