The Issue

The U.S. Senate on Tuesday approved a bill with tougher rules for the credit card industry, sending it to the House of Representatives, where prompt passage was likely. President Barack Obama was expected to sign it into law by the end of May. It would curb sudden interest rate increases on credit card accounts and curtail hidden fees. Much of the measure was opposed by the banking industry, which warned that the bill would reduce the availability of credit to consumers. Political risk exposure: American Express (AXP.N), Bank of America (BAC.N), JPMorgan Chase (JPM.N), Capital One (COF.N), Citigroup (C.N), Discover Financial (DFS.N).

—- Reuters.com, May 19, 2009

While it may be considered a mercy to the people to force the credit card companies to lower their rates, it may very well be the opposite.  Yes, there are some people out there who are spending hundreds of dollars on their credit cards and not paying the money back at the speed desired by the credit card companies, but it is no fault of the credit card companies that these people have trouble managing their money.  A credit card is called a credit card because it is just that.  It gives a person access to a certain amount of money beyond what the person has in cash to be borrowed on credit.  The problem is, when somebody has bad credit, that person cannot be trusted to always pay back his debt.

A credit card company accounts for this by raising interest rates. If the government stops the company from raising the interest rates, the company can lose money that it would receive from unreliable credit cardholders.

As a result of this, the credit card company would become more conservative, using lower interest rates, but only giving these rates to a select crowd of people who have good credit and will pay back on almost all occasions. In this case, the government has caused the credit card companies to stop lending to the people whom the government is trying to protect: those with bad credit.

That’s not to say it is a bad thing to allow less people to use credit cards. If certain people cannot get credit cards, they will save more money and thus increase their credit ratings. In any case, a person expecting less than $100,000.00 to come in the next year should not do a great deal of deficit spending in the home. The debt can be crippling.

Perhaps rather than the regulation of the credit card companies, the government should invest in the education of the cardholders and the advance of fiscal conservatism in the management of a personal budget.

— Henry Lochney