by Gary O'Neill

Created on: January 02, 2009

Credit cards and other forms of debt are and should be regulated by both State governments and the federal government. Responsible use of credit can be a benefit to businesses and consumers if used well, and making sure that specific rules regarding lending on both the part of the lender and the consumer make sense. That is why there have been regulations regarding credit cards since they began to be used in large numbers after World War II.

The real question is: 'What type and depth of regulation is best?' Clearly understood terms and conditions regarding the credit card's use benefit both parties, unless one party is attempting to use confusion and mis-information as a tool to gain advantage. Credit card companies are famous for their use of fine print and confusing language to mislead consumers. But consumers have been all to willing to suspend their doubts and plunge ahead with the use of credit cards in spite of significantly unfavorable terms.

Credit card companies make money by loaning out the purchase cost to consumers and then gaining interest on unpaid balances. They also earn fees from merchants and companies that accept the cards in the belief that honoring the cards increases their sales. Each year hundreds of billions of dollars are transacted by credit card companies, resulting in billions in revenues for the companies just on merchant fees alone. Over time, consumers have allowed unpaid balances on their accounts to accrue even larger amounts of interest payments to the credit card companies. With their relentless marketing campaigns and the cultural messages about how we all 'need' to have the latest fashions and material goods, the credit card companies are controlling a vast portion of the national wealth.

With this much money in play, the opportunity for some companies and individuals to exploit the rules for even more gain is a real possibility, so common sense and enforceable regulation seems to be a good idea. Along with that regulation, however, should be a serious amount of education and self discipline to keep consumers from endangering themselves through unrestrained spending.

Clearly, credit card companies should be restrained from charging outrageous interest rates and late fees. Before the 1970s, credit cards were typically capped at 12% annual interest. When inflation was running in the range of 9-12% per year, the banks lobbied for and received legal approval to raise their rates. When inflation was tamed to the low levels we have

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