Should lenders maintain elevated rates exclusively for high-risk borrowers? The reality is more complicated. Take credit cards—even with pristine credit ratings, annual percentage rates typically sit between 17-23%. Why the gap? Card issuers layer substantial profit margins atop the prime rate, not just to boost returns but fundamentally to cushion losses from defaults elsewhere in their portfolio. Risk gets pooled. A borrower's individual creditworthiness only tells part of the story; issuers price in the collective default rate across their entire customer base. Those with perfect credit end up subsidizing those who default, creating a cross-subsidy mechanism built into every transaction.