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RSS FeedShould the government regulate the credit card industry?
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| No | 28% | 64 votes | Total: 229 votes | |
| Yes | 72% | 165 votes |
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Add to FavoritesThe truth is, there is no industry that does not have some sort of government control over it. The credit company is no exception. Granted, a large part of the sector does remained "unregulated," however, there is government regulation is some respects. For example, the law states that a credit card cannot be denied based upon discriminatory reasons, credit card companies have to pay taxes and abide by other state and federal financial laws, and if you have a grievance, you can sue a credit card company. All of those examples show that there exists some level of government control over the credit card industry. However, many people believe that the government should regulate who gets a credit card, how many credit cards one should have, the maximum amount of credit one can have, and the maximum interest rate a credit card company can charge. Doing so would effectively cause the government to take over, and not regulate, the credit card industry.
It is important to note that nobody is forced to obtain a credit card. A credit card can be a powerful financial tool, but this does not mean that it is mandatory for a person to get one. Additionally, each individual person makes the decision on how to use or abuse his/her credit card privileges. As such, the credit card company is not to blame when somebody defaults on a payment.
Some argue that the credit card companies raise your credit limit so that you will spend more money. This is absolutely true, but it does not change the fact that each human has free will. Therefore, just because your credit limit is raised does not mean that you have to use the additional amount of available credit.
Another argument pressed by proponents of government regulation is that the interest rate on credit cards is too high because there is no limit on the amount of interest a credit card company can charge. Theoretically, this is true (however, I find it hard to believe that if a credit card company charged a 60% interest rate that lawsuits would not rain down upon that particular credit card company), but once again this argument negates a person's ability to choose. A person does not have to apply for, or accept a credit card offer that charges a high interest rate. Therefore, it is again not the fault of the credit card company if the person applies for and obtains such a card.
The bottom line is that credit cards are a privilege and not a right. As such, there is no need for government regulation as to the practices of credit card companies. Every person has the right to choose the card he/she wants and whether or not he/she wants a credit card in the first place. The answer is to educate people about responsible credit card use. Credit cards, like all privileges, can be abused, and as such, sometimes a person needs to learn a tough lesson before they figure out the proper use of such a privilege. If the government intervenes and "bails out" these people every time they get into trouble, no lesson will have been learned and the irresponsible behavior will continue.
Learn more about this author, Marco Angioni II.
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Yes
Credit card debt in the United States approaches one trillion dollars. There are more than two credit cards for every person in the country. In 2004 banks and other credit card companies earned $43 billion in income from late payment, over-limit and balance transfer fees. These same companies spent over $100 million lobbying for the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which seriously raised the level of protection credit card companies enjoy when individuals file for bankruptcy.
The first two sentences above indicate just how prevalent credit card use has become in our country; the third indicates how profitable this method of payment is for the companies involved, while the last sentence shows just how successful these companies have been in protecting their source of income.
Companies that issue credit cards are, for the most part, for-profit entities whose primary responsibility is to their shareholders, not to the consumers they serve. The most successful of these companies will strike a balance between profitability and customer service, with the balance falling somewhere else along the spectrum. The largest of these companies control tens of billions of dollars in debt, and set policies largely without oversight.
In 1980, and again in 1982, Congress deregulated certain aspects of the credit card industry, including eliminating state usury limits. As a direct result, open-ended credit skyrocketed, and innovation in the industry has led to more options for consumers, and more sophisticated methods of profitability and risk management for companies.
Overall, credit card interest rates are lower than before deregulation, but credit card companies are much more profitable regardless. How they maintain that profitability is the reason that further regulation is needed.
Company policies and procedures have tipped the complexity scale to such a point that an average consumer could not be expected to understand the nature of the contract they are entering when they sign up for a new credit card. The relationship between the issuer and card-user is so complex and the document that defines it so esoteric that basic consumer protection is forfeited under our current system. Add to this situation the increased protections credit card companies were granted by a business-friendly congress in 2005 and we have an untenable credit crisis waiting.
If this crisis ever becomes critical, the damage to our economy will make the dot-com bust and the more recent housing bust seem petty by comparison. Moderate regulation, applied slowly and judiciously, can defuse this situation, and begin to help close the economic gap in this country.
The key to any new regulation will be to protect the profitability of the industry while buttressing consumer protection. The industry will fiercely fight any change, and many consumer groups will push for unrealistic sweeping changes. A good first step would be to roll back the protections enacted in 2005 (which place credit card debt higher in precedence for bankruptcy payment than either alimony or child support). After that, defining a credit card bill of rights would establish a foundation upon which credit card companies could build profitable businesses.
Regulating the industry now would seem only to protect consumers, but by establishing a balanced and healthy relationship standard, credit card companies will benefit in the long term. They will, of course, fight any regulation, but that is the nature of capitalism. By way of example, note that mortgage brokers fought regulation on their industry, to the detriment of the both themselves and their consumers. We, as a nation of consumers, need to recognize the nature of our corporate institutions, and take appropriate action.
Sources
http://thomas.loc.go v/cgi-bin/bdquery/z? d109:SN00256:
http://www.cardratin gs.com/creditcardsta tistics.html
http://www.truthabou tcredit.org/truth.as p?id2=6153&id3=credi ttruth&
http://matthewyglesi as.theatlantic.com/a rchives/2008/02/obam a_on_the
Learn more about this author, Terry Mahoney.
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