I was reading stories about the new laws that went into effect stiffening regulations on banks regarding how they treat their credit card customers.
Credit cards have of course long been hugely profitable for banks. If they weren't we wouldn't all be getting "offers" in the mail every day for the latest new card, offering airline miles or "points" or cash back "rewards". (Side note, I stupidly signed up for one of the "cash rewards" cards once. Just before it was time to collect on that cash reward, the bank rescinded the program. Learned my lesson.)
So basically the legislation was a Democrat-backed plan to "protect" consumers from predatory bank practices. Absurdly high interest rates, fees, etc.
But according to the stories, it seems to be hurting more people than it helps. Banks have responded with several actions that have been detrimental to their customers as a whole. Even I got a notice about 6 months ago that my interest rate was getting hiked on my card. The notice was actually pretty honest in letting me know the interest rate hike was being imposed to try to maintain profitability in the credit card business.
But let's get to the basic argument.
The reason Democrats wanted to pass these regulations on the banks was because the banks were unreasonably charging exhorbitant rates and unjustified fees to many of their customers. Who could argue with that, right? It does seem that banks are rather predatory and greedy when it comes to their credit card policies.
On the other side, a conservative would generally suggest that banks hike rates and fees in an attempt to insulate them from default by their higher-risk customers. Charging 23% interest is just protection against the highly possible event that the cardholder will stop making payments altogether, and the bank will lose all of the credit card balance. Otherwise, anyone who is credit-worthy and holding a balance on a 23% interest rate credit card only has himself to blame, because in 5 minutes he or she could find a great deal on another credit card out in the marketplace, cut up the old card, and problem solved.
All arguments basically valid, as far as they go.
I'm personally not opposed to usury laws, and tend to believe it's not in the country's best interest to be laissez-faire on all bank practices. I do happen to believe that a legitimate role of government is protection of citizens from theft. Just because it's legal to charge somebody loan-shark rates on loans doesn't mean it's not theft to do so.
Where my beef lies with the whole topic is more in line with the mega banks. I think the biggest fault of government was in allowing consolidation of banking institutions into a small number of mega banks that were "too big to fail", resulting in the economic disaster we're experiencing now.
It's OK to pass basic usury laws, capping the interest rate banks can charge their customers at some multiple of Prime. That will result in banks basically cutting off lots of marginal customers from access to credit; but don't those folks need the wake-up call anyway? Those who suffer the most from the highest abuse from bankers are, in fact, those who are least responsible in terms of their debts. No laws can change their behavior, so maybe having a change in behavior forced on them by losing their credit lines is a positive thing.
That reminds me, I should shop for a new card to replace this one. If there's another bank out there that wants my business, they'll offer me a more attractive rate. (I just won't mention they'll never collect any interest from me anyway, because I pay off the balance every month.)
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