I always assumed banks made money on credit cards from the transaction fees. I think the interest rates are mostly there to scare you into paying your bill. It seems like once a CC balance gets out of control the bank's ability to recapture that money is limited since the card is unsecured.

I guess they make more money off the people that use a CC as as a temporary loan and always repay but customers with that risk profile are generally one step away from never paying it off.