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.