Spring Break
Credit card companies need regulation, period
Sanjai Tripathi
Issue date: 5/19/09 Section: Forum
It's almost too easy for a politician, or a newspaper columnist, to bash the credit card companies.
It's like bashing subprime mortgage brokers, people who talk on their cell phones while driving, Simon Cowell or al-Qaida - they are major jerks and everyone knows it.
Talking trash about them is easy because it plays into popular sentiment.
So when we hear now that President Obama and Congress are considering various measures to protect consumers from abusive credit card company practices, we should be suspicious.
In the end, we will find that those protective measures are a net benefit, but prudence dictates we be suspicious of populist rhetoric and give the counter-arguments a fair hearing.
Various bills are bouncing around Congress this week. The House passed a version, and the Senate likely will have one also by the time you read this, as President Obama has requested they send him a "Credit Cardholders' Bill of Rights" bill by Memorial Day.
Provisions include limits on the ability of card issuers to increase rates suddenly or retroactively, to apply payments to only the low-interest portion of balances and limit how companies can calculate finance charges in screwball ways and to use their dirty tricks to get you to pay late and over-the-limit fees.
At first glance, these seem like very reasonable provisions, but let's consider the argument against.
There are those who believe the free market is always best at sorting these things out.
The marketplace is optimally efficient at allocating value. People are free to choose the terms under which they enter into a card-member agreement, and if they don't like it, they don't have to do it. In this way, each individual decides how to get the most value: which card to use, how to use it and whether to get one at all.
From this viewpoint, government regulation is just an interference with an efficient market, bound to produce unexpected negative outcomes by impinging free choice.
It's like bashing subprime mortgage brokers, people who talk on their cell phones while driving, Simon Cowell or al-Qaida - they are major jerks and everyone knows it.
Talking trash about them is easy because it plays into popular sentiment.
So when we hear now that President Obama and Congress are considering various measures to protect consumers from abusive credit card company practices, we should be suspicious.
In the end, we will find that those protective measures are a net benefit, but prudence dictates we be suspicious of populist rhetoric and give the counter-arguments a fair hearing.
Various bills are bouncing around Congress this week. The House passed a version, and the Senate likely will have one also by the time you read this, as President Obama has requested they send him a "Credit Cardholders' Bill of Rights" bill by Memorial Day.
Provisions include limits on the ability of card issuers to increase rates suddenly or retroactively, to apply payments to only the low-interest portion of balances and limit how companies can calculate finance charges in screwball ways and to use their dirty tricks to get you to pay late and over-the-limit fees.
At first glance, these seem like very reasonable provisions, but let's consider the argument against.
There are those who believe the free market is always best at sorting these things out.
The marketplace is optimally efficient at allocating value. People are free to choose the terms under which they enter into a card-member agreement, and if they don't like it, they don't have to do it. In this way, each individual decides how to get the most value: which card to use, how to use it and whether to get one at all.
From this viewpoint, government regulation is just an interference with an efficient market, bound to produce unexpected negative outcomes by impinging free choice.
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