The American Spectator : The Spectacle Blog : Wrecking the Credit Card Market to Win Votes

Text Size

The Spectacle Blog

Wrecking the Credit Card Market to Win Votes

By Doug Bandow on 5.20.09 @ 9:59AM

Let's stipulate that credit card companies wouldn't win any popularity contests these days. But let's also stipulate that this is chiefly the fault of cardholders: no corporation forced anyone to take or use a card, run up a balance, or keep on spending after higher rates were raised or extra charges imposed. People like their credit cards, despite the high cost.

But the facts never get in the way of Congress. Legislators, as usual, are coming to the rescue. Reports the Washington Post:

Treasury Secretary Timothy F. Geithner said the bill "will help create a more fair, transparent and simple consumer credit market."

Card executives said the changes will force them to charge higher rates and annual fees to delinquent customers and those in good standing.

"This bill fundamentally changes the entire business model of credit cards by restricting the ability to price credit for risk," said Edward L. Yingling, the chief executive of the American Bankers Association. He said that lending would become more risky and that, "It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate."

Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, an industry group, said available credit could be reduced by as much as $2 billion. Those with the weakest credit histories would be hardest hit.

When credit cards were introduced about 50 years ago, issuers practiced a one-size-fits-all approach of charging an annual fee and roughly the same interest rate of about 18 percent to everyone. As the industry became more deregulated in the 1980s, around the time that credit scores were introduced, issuers were able to separate the risky from the not-so-risky borrower and tailor the terms of card contracts.

Better disclosure makes sense. Micro-managing credit terms does not.

Consider: we have an economic crisis largely caused by too many people being too irresponsible with credit. Congress believes the solution is to restart consumer spending. So Congress plans to:

1) cut consumer credit;

2) reduce the ability of companies to sort customers by credit risk; and

3) punish people who carefully manage their accounts

Yup. That's right. As if we didn't need further evidence, Congress is full of idiots.

View all comments (8) | Leave a comment

lawrence stich| 5.20.09 @ 10:35AM

When credit cards were introduced, banks did NOT mail solicitations to family dogs, cats, and minor children, either.

When credit cards were introduced, banks did not seek "market share" at the expense of intelligent underwriting. And banks earned about 15% pretax on credit-card operations.

But when banks started chasing "market share" in the utterly irrational belief that more cards=more profits, DOH! Some people failed to repay!! DOH!!

Now we have bankers taking TARP funds for their salaries, benefits, and bonuses--the very same bankers who issued tens of millions of credit cards to risky risky risky credits.

And they convince you that it is NOT THEIR FAULT!!

Sucker.

Martin| 5.20.09 @ 11:53AM

There need to be tight restrictions on how credit cards are marketed, banning unsolicited mailings. Allowing mass credit card mailings is like allowing mass marketing of heroin; the product is equally addictive and damaging. There's no question the bottom end of the credit card industry is a massive value-subtracter from the US economy.

Real American| 5.20.09 @ 12:54PM

just because some people are too moronic to throw their junk mail away doesn't mean that the rest of us responsible people should pay for their mistakes. Regardless of all their mass mailings, no one forces anyone to sign up a new credit card and go on a spending spree that they can't afford to repay. NO ONE! If you idiots can't be responsible for your own actions, then fuck off. I'm not paying for it.

Pete| 5.20.09 @ 1:16PM

This is the same concept that was behind the mortgage mess (and subsequent recession) the Democrats caused. "Affordable housing for all, regardless of creditworthiness - Credit for everyone!" Oh, whoops, many of the risky loans defaulted, better get responsible people to pony up. I agree with RA above, this is BS - a big federal gov ponzi scheme and I want no part of it. The best thing to do is be aggressive with you interpretation of tax law, like the messiah's buddies in the ruling class.

Deborah D| 5.20.09 @ 3:05PM

Pete, you nailed it.

Also, those of us who are responsible credit card users will just stop using them...so the credit card companies will be stuck with the irresponsible credit card people. Makes a lot of sense, right?

This is what happens when those who know nothing about business (Congress and the president) make decisions that affect business. Bunch of idiots.