Tuesday, November 10, 2009

Selling Credit

An article in the New York Times yesterday starts with the sad tale of a 91 year-old woman whose credit card interest rate was raised to 29.99%.  This is an excessive rate in my mind, so I would dump the card – unless I decided to use it.  What the article seems to gloss over is that the woman, or indeed, anyone, does not have a right to the credit card services at any price.  The risk of loaning money and expecting it to get repaid has become much greater, in no small part due to government regulations and the ideas both espoused and dismissed in the bailouts.
So what is the result of the credit card companies’ adjusting to the reality of increased risk and the new credit card regulations which take effect in February?
The Senate Banking Committee chairman, Christopher J. Dodd, Democrat of Connecticut, meanwhile, is pushing legislation that would freeze interest rates on existing credit card balances until the law takes effect.*
That’s right. The same folks who accused the greedy predatory practices of lending institutions but ignored the role of mandated easy-lending practices in the mortgage fiasco are insisting that the credit card companies not act in their own best interest, but keep the bad risks at a price the government deems acceptable while they wait to be further manacled by more regulation!  
Kenneth J. Clayton, senior vice president for card policy at the American Bankers Association importantly reminds the reader:  “We sell credit; we don’t sell sweaters.”  Think about that.  They are in the business of selling credit. 
Just because people have come to rely on the convenience of credit cards doesn’t mean that the companies are no longer businesses.  They sell the convenience of credit, not a right to their money. You don’t like their product? Return it, unused, for a full refund.  If you use it, you’re going to have to pay for it.  That’s how it works – or should.    
The premise that the new regulations are needed to prevent fraud is false. Fraud is already illegal and should be fully prosecuted.  More regulations decrease our choices, inspire more creative loopholes, and further remove the consumer from what he chooses to consume.
*Fun with Gravity posts on how his Senator seeks the same.

No comments: