Wednesday, 29 Dec 2010 10:04 AM
By John Stossel
Last year, Congress passed the Credit Card
Accountability, Responsibility, and Disclosure (CARD)
Act. It was supposed to really end the alleged abuses
perpetrated by the credit card companies. The law
forbids some penalties and interest-rate increases on
existing balances.
It is one of President Barack Obama's proudest
achievements.
"Enough's enough," he said. "It's time for strong,
reliable protection for our consumers."
Reform, he said, would not come at the expense of honest
businesses. "Unless your business model depends on
cutting corners or bilking your customers, you've got
nothing to fear."
Finally! Protection! A new bureaucracy will stop greedy
credit card companies from unfairly penalizing you. And
it won't threaten the credit business. Yippie!
How has it worked out?
Not so well. George Mason University Law Professor Todd
Zywicki points out that the new restrictions hurt more
consumers than they help.
Since the CARD Act passed, mortgage and Treasury bill
rates have dropped a little, but credit card interest
went up — from 13 percent to nearly 15 percent. Some
banks also stopped offering credit to some people.
JPMorgan Chase cut off 15 percent of its customers.
So the real result of this "consumer" regulation?
"Hundreds of thousands of people can't get cards who
used to be able to have cards, and all the rest of us
now have to pay more," Zywicki said.
But maybe the people who can't get credit cards are
better off because they couldn't handle credit wisely?
"Just to say they don't have a credit card doesn't mean
that they don't have credit," Zywicki retorts. "They'll
just go to more expensive places — the local payday
lender or the local pawn shop."
And pay a lot for credit. Payday lenders make small
short-term loans, sometimes just till payday. But the
annual interest is nasty — often more than 500 percent.
Several states have outlawed payday lenders.
The politicians say they do it to help low-income
people. But again, their "help" harms. The lenders'
former customers complain that the payday lenders were
their only way to avoid missing a bill payment — and
maybe having the lights shut off.
"It's not just a matter sometimes of saving money," one
borrower told us. "It's a matter of saving yourself
grief."
Maybe they should get a credit card. Then they'd have
lower interest payments. But of course Congress just
made that tougher.
"People who have limited choices when it comes to credit
are not likely to have their situations improved by
taking away some of those limited options that they
have," Zywicki says.
This is a lesson the elitist reformers are determined
never to learn. Or maybe the elite like creating new
problems. It gives them new chances to ride to the
rescue and pose as great humanitarians. Someone likened
this to breaking people's kneecaps, then compassionately
providing crutches.
Without regulation, wouldn't banks charge monster fees
and high interest?
"Certainly they would," Zywicki said. "The problem is
they can't. I've got four credit cards in my wallet. As
I sit here talking to you, my credit cards are competing
for my business. If one tries to rip me off, or charge
me too much, I'll switch to another."
The law of unintended consequences is never more clear
than in the capping of interest — so-called usury laws.
Arkansas once capped interest rates at 10 percent.
"Very few people could get a credit card in Arkansas as
a result," Zywicki said.
Arkansas then became known as the pawn shop capital of
America.
Pawn shop interest can be 250 percent.
To Sen. Chris Dodd, President Obama and all the credit
"reformers," Zywicki says the following.
"In the 1960s, the second biggest revenue source of
organized crime was illegal lending. Is that the world
we want to go back to, where we get rid of payday
lending, and we're so morally outraged that we're going
to put people in the hands of the leg-breakers and the
loan sharks? They charged an interest rate that was well
over 1,000 percent, and their collection techniques were
a lot tougher than your local pawn shops."
When will the political do-gooders realize that the most
vulnerable people in society can't take any more of
their kindness?
John Stossel is host of "Stossel" on the Fox
Business Network. He's the author of "Give Me a Break"
and of "Myth, Lies, and Downright Stupidity." To find
out more about John Stossel, visit his site at
www.johnstossel.com.
© Creators Syndicate Inc.