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The Credit Card Regulation Debate

"The Act created a new equilibrium where interest rates have flattened, penalty charges have declined and a number of practices deemed "unfair or deceptive" have disappeared." -- Nick Bourke, director of The Pew Health Group's Safe Credit Cards Project (quoted in Credit card law helps consumers, report says).

"Contrary to credit card industry claims, the new rules have not caused prices to increase or access to credit to fall. Instead, they have benefited the public by making credit card pricing significantly more transparent. Price transparency is likely to lower costs long term by spurring competition and making it harder for issuers to manipulate or arbitrarily raise prices." -- Center for Responsible Lending press release (quoted in Is credit card regulation working?).

"New federal rules barring many abusive practices by credit-card issuers seem to be having an effect: Only 12 percent of Americans said their credit-card companies had generally treated them unfairly, according to Consumer Reports' nationwide survey, down from 15 percent in 2010, and 22 percent in 2009." -- (quoted in CARD Act a win-win for credit card companies and customers).

Even the banking lobby has been forced to agree. In February last year, this site quoted Peter Garuccio of the American Bankers Association, who had then recently told USA Today: "...when you look at the regulations, it's a net positive for consumers. But there have been some trade-offs."

High credit card interest rates benefit nobody

In May, the Center for Responsible Lending (CRL) published a new report: Predatory Credit Card Lending: Unsafe, Unsound for Consumers and Companies. It found something quite remarkable: the more predatory credit card companies' pricing policies - and the more aggressive their marketing strategies - were before the Great Recession, the greater their losses were during it. In other words, all those claims that high fees and credit card interest rates were supposed to mitigate risks were lies. According to the CRL's report: "That's because these fees and rates didn't mitigate risk, they were the risk."

So what may have looked during the good times as an effective way of milking consumers who might find themselves in extremis turned out to be the opposite. When faced with impossible credit card rates and fees, poor and desperate people had no choice but to default.

Credit card companies run by sentient beings?

There's not much evidence that all credit card companies are run by people who "get" this sort of reality. All too many still seem to strain at the leash of regulation in the hope of breaking free. But the Credit CARD Act largely stops them, and in doing so may well be protecting them -- as well as their customers -- from their own wilder impulses.

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