Credit Cards – Regulation for Regulation’s Sake

Today, President Obama is meeting with the CEOs of credit card companies, in an effort to protect consumers from rising rates and high fees.  Both the House and Senate are currently working on versions of such a bill.

I agree that a simple law, stating that credit card companies have to inform you when your rate increases and a chart showing the fees you could incur if you missed a payment or went over your limit, should be welcomed by consumers.  Right now, all you get is a little “average daily rate” table but it doesn’t tell you if your rate went up or down.  

However, the need for the government to enact laws to “protect” us are insane, and another example of the government meddling too much in private affairs.

Really, who’s fault was it that we ran up so much credit card debt?  Part of the blame has to fall on the card companies for giving cards with high limits to just about everyone.  The problem was that they were able to securitize their loans and sell them on Wall Street.  So the card companies were just intermediaries between the consumer and Wall Street.  They bore almost no risk.

A large portion of the blame has to fall on the Federal Reserve as well because their easy money policies allowed the card companies to just keep giving away money.  To stave off a recession after 9/11, the Fed kept rates too low for too long, pumping up a huge spending/debt fueled bubble.

However, to act like consumers were just taken advantage of is absolute nonsense.   Even the most uneducated person knows what credit cards are and how they operate.   The card companies did not take advantage of them and did not force them to spend.  Consumers wanted instant gratification and put items on their credit cards they could not afford, with the intent to pay it off later.  Rather than saving, they took out a loan for all sorts of purchases.

Instead of putting regulations on the credit card companies for the sake of regulation, the government should put simple laws in place to inform consumers, and then back away.  By placing all of these restrictions on the companies, we are not solving the problem, which was too many unqualified people having high limit credit cards.  

Obama needs to let the markets work, and let the companies set limits and interest rates in line with the risk of lending people the money.  Until the government stops propping up the securitized credit card debt and meddling in the credit markets, no one will have a clear picture of who should be able to lend and borrow.  The longer the government distorts the markets and meddles in private business, the longer the recession will last.

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