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ALL BUSINESS: Financial Reform For The Masses


NEW YORK (AP) â¿¿ The battle over financial regulation is finally over. Now comes the harder part: kicking Americans' love of credit.

The financial crisis didn't happen just because banks, credit-card companies and mortgage lenders forced consumers to take on massive debt. We willingly gobbled up the easy credit they offered and used it to buy cars and houses, take vacations and go shopping.

Then came the blowup. All that debt, matched with one in 10 Americans unemployed and plunging home prices, strangled our finances and ultimately, the overall economy.

New regulations, which President Barack Obama signed into law on Wednesday, can only go so far to prevent future financial crises like the one we are living through. Banks will still lend. And many of us will borrow too much.

"You can't legislate diligence," says Robert Lawless, an expert on consumer credit at the University of Illinois College of Law and a contributor to the blog Credit Slips. "You can't pass laws that make people be careful when they take out loans."

There are already signs that lenders are eager to lure us back. Credit-card solicitations jumped 45 percent during the first half of this year to 884 million, according to estimates from research firm Synovate.

And all that talk about limiting lending to consumers with risky credit profiles seems to be fading. Issuers mailed nearly 85 million credit-card offers to subprime borrowers during the first six months of 2010, double year-ago levels, Synovate estimates.

That kind of growth has to do with one thing: The card issuers know they can make more money off of riskier borrowers because they can charge higher interest rates and annual fees, says Synovate's Anuj Shahani.

More evidence of credit expansion came Thursday when General Motors said it would buy subprime lender AmeriCredit Corp. for $3.5 billion in a deal that will let the automaker increase lending to customers with poor credit.

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