Now, of course, as we all economists know, when you cannot tell the difference, you charge everybody the same risk and hope that the risks will cover defaults. The problem with that system is that you are scared of somebody willing to accept a higher rate because he is more desperate.
Therefore, you are left with the guy that nobody wants, and the risks are even higher. Maybe, I should charge even more than what is being charged. I think, the credit card business is littered with such examples. The less-skilled players get the "dregs." Despite the fact that they are charging more, they are losing more money.