The Credit Card Regulation Debate

When JPMorgan Chase revealed a $7 billion hole in one of its trading accounts, American Banker magazine noted: "The losses at JPMorgan, caused in part by a derivatives trader in London, have reignited debate about Dodd-Frank, which banks have been pushing back against since the law was passed in 2010."

Even before the JP Morgan bombshell, most Americans were distinctly hostile to the idea that the country's biggest financial institutions are over-regulated. On May 10, The Harris Poll published the results of a survey that revealed that 82 percent of respondents thought that "Wall Street should be subject to tougher regulation." Just 15 percent disagreed with that proposition.

We may live in a democracy, but that doesn't mean that the majority is always right. And, while it's undeniable that those who advocate lighter regulation have suffered a serious blow as a result of JPMorgan's problems, they're far from down, let alone out. Indeed, some commentators are already arguing that the bank's difficulties are a result of too much -- rather than too little -- regulation.

Credit card regulation not necessarily a model

Of course, the Dodd-Frank Act mostly relates to big issues in the banking sector. But can we learn anything about financial regulation in general from one small corner of the banking industry: credit cards? Well, it may be unwise to draw too many conclusions. After all, it proved impossible for the drafters of the Credit CARD Act of 2009 just to cap card fees in the way Congress intended (see Credit card watchdog dozes through daylight robbery).

The problem is, bad regulation can be worse than none. A couple of years ago, Robert L. Bradley, Jr. and Richard W. Fulmer wrote about how counterproductive it often is: "Any time government regulators try to do much more than lay out the basic rules of the game, unintended consequences and moral hazards rear their ugly heads."

But credit card regulation works. Well, mostly.

And yet, many believe that credit card regulation is working well for consumers and credit card companies alike. Here are a selection of comments previously quoted on IndexCreditCards.com: