Right Thinking From The Left Coast
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No Debt Left Behind

The latest effort to turn us into a nation of children?  Credit card reform, specifically a Bill of Rights (PDF).  Stossel lets fly:

A little context first: No one has a natural right to a credit card. Someone has to be willing to undertake the risk in issuing it. Banks issue cards in their quest for profits. Nothing wrong with that.

Think about what a credit card is. It’s convenient access to unsecured loans, permitting consumers to buy things large and small—not to mention emergency services—without cash. Pay the bill promptly, and you enjoy a fantastic service for virtually nothing. If circumstances prevent you from paying the bill in full, you can set your own payment schedule, realizing there is a minimum payment and that you will be charged interest on the unpaid balance. No surprise there.

To appreciate credit cards, it is worth recalling that before they came along, people got personal loans from banks, finance companies, pawnshops and loan sharks. Such loans were less convenient, and repayment was less flexible. Some people bought things on layaway, which meant they didn’t take the goods home until they were paid for. Loan sharks sometimes broke people’s legs.

Credit cards didn’t create consumer debt—they are merely a superior alternative to older methods.

Here’s the thing—most of what’s in the “Bill Of Rights” I have no problem with.  Companies shouldn’t change interest rates with little notice and they should let someone set a hard limit on their card.  I get angry when a company offers a 0% interest rate for six months and only lets you know in the micetype that they can change that at any time.

The difference is that I don’t want the Feds mandating this behavior.  If for no other reason than the credit card companies will find some other way to make money.  Or worse, people who have a sudden need for credit—because of medical emergencies or job loss or whatever—will borrow money from worse sources.

We’re seeing something similar with the bans on payday loans—the practice of borrowing small amounts of money against the lendee’s next paycheck.  Payday loans are impossible to make on any reasonable interest rate.  Even a $15 charge on a $100 paycheck loan is going to add up to 390% annual interest. I hate payday loans with a passion and do think the industry needs regulation as well as limits on what people can borrow for. But banning them can lead to worse options, such as loan sharks, pawn shops, late fees on credit cards or utilities, foreclosures, crime, etc.  And in some places, they already are.

What are these limitations on credit cards going to lead to?  Does anyone care?  Or do they simply believe in their own divine ability to make the universe better by passing laws?

Posted by Hal_10000 on 04/30/09 at 07:16 AM in Politics • Permalink

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