Please Stop 'Helping' Us

Townhall.com ^ | December 29, 2010 | John Stossel

[Kaslin]

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 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 this:

"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?

[Jim W N]

“The ten most terrifying words in the English language are, ‘Hi, I’m from the government and I’m here to help.’” Ronald Reagan, July 28, 1988.

[packrat35]

Not saying I agree with this bill, but credit cards do rip off most people and they act in collusion with each other. He says to go to another card but they just do the same.

I gave up credit cards altogether 8 years ago and since then they have only gotten worse with their rip offs.

[YankeeReb]

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."

As bad as credit cards can be, no matter how bad they get I always have the choice of not using them. If only these do-gooder politicians were as worried about reigning the most vicious creditor on the planet. I'm talking, of course, about the IRS.

I have no choice there. I can't decide I don't feel like doing business with the IRS anymore.

[neocon1984]

Credit cards are only a rip-off for people too stupid and/or impulsive to manage their finances.

If you pay your monthly balance, it’s a great and free convenience. If you can’t afford to pay your balance, you should not have bought the items you couldn’t afford, in the first place.

[DannyTN]

A 2% increase in Credit Card rates after the legislation hardly proves it was bad legislation.

• The credit card companies were already dramatically raising rates prior to the legislation.
• You're in a recession where the banks are scared to loan money anyway, so the rates probably reflect that, not the legislation.

[Montanabound]

I use my credit cards for everything. I get free airline tickets and free gift cards for restaurants and stores with my points. It takes some time and effort to manage them, but I think my credit cards are great, too.

[LomanBill]

Speaking of irresponsible "credit" usage...

[jagusafr]

If you can’t afford to pay your balance, you should not have bought the items you couldn’t afford, in the first place.

Heresy!! No credit for you!

Colonel, USAFR

[3niner]

...but credit cards do rip off most people...

Really? What do they do, force you to use them, then carry a balance from month to month?

[Graybeard58]

I have a Visa through my C.U. that I use a lot and pay off monthly. Even they raised my rates from 7.9% to 8.9%, which effects me, not at all.

I have a Discover card that I haven’t used in at least 3 years, I know I’ve gotten at least two new ones from them and haven’t bothered to activate them. The same with American Express, they both raised my rates to around 20%, I don’t remember the exact figure.

I have perfect credit, screw all of them, they will never make a nickle off me through interest.

My Visa provider makes money when I make purchases with it, I use it because they are the only one of the three mentioned who didn’t raise my rates outrageously, plus I do get points, I’m up to about 70,000 now and don’t have a clue what that might be worth but do know those points roll over from year to year.

[I see my hands]

"credit cards do rip off most people"

Is that 51%? 99%? What? Citation please.

[wbill]

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.

So here's a question.

First of all, I've not heard of 500% rates at paycheck lenders'. I think that in NC, 31.99% is the highest rate, which is still ridiculous, but far from loansharking.

But...that aside....what's more expensive? "Protection" from exorbitant CC fees? Protection from unscrupulous "paycheck-to-paycheck" loans? Or getting your utilities turned off, then back on again?

I'd bet the latter, particularly if it happens more than once a year.

None of the three options are good, but it's always a good thing to be able to pick the "Least Worst" option.

Pols are meddling idiots.

[wbill]

those points roll over from year to year

I think that mine expire after 5 years. Just saying.

I can use mine to "purchase" gift cards. Santa went shopping at Target this year, more-or-less for free. Makes for a nice Christmas CLub type-thing, especially this time of year when money is tight.

As an aside, my CC program usually runs a "deal" at the holidays. This year's deal was Target (ergo, that's where I went shopping). $25 gift cards were about 20% off the points that they usually require.

Good luck.

[WorldviewDad]

“I gave up credit cards altogether 8 years ago”

It was 24 years ago for me. I was told for years that a person could not function in the modern system without a credit card. After 24 years I think I have done very well with out them.

[Quiller]

What wonderful irony -- the federal government thinks it is wise enough to protect people who have problems managing credit, from businesses who take advantage of such people.

Honestly, WHO THE HELL IS THE FEDERAL GOVERNMENT TO TALK ABOUT RESPONSIBLE CREDIT?

Simply more nanny-state, protect the clueless, instill victimhood mentality cr@p from the same people who haven't yet gotten a clue that THEIR SOLUTIONS ARE THE BIGGEST PROBLEMS!