The Protection Racket
Sure, government's protecting you -- right out of your money and your ability to get credit, writes John Stossel:
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.
One of the failings of our founding fathers was to not include separation of economy and state in the constitution as they did for separation of church and state ... for similar reasons.
AllenS at December 30, 2010 7:37 AM
Hi. Your Consistency Conscience here.
Wasn't it more horrible to have Congress tell the banks to extend credit to people who could not understand it?
Now it's a bad thing to go the other way?
You can get in just as much trouble with a credit card as you can a mortgage!
Radwaste at December 30, 2010 8:08 AM
You can get in just as much trouble with a credit card as you can a mortgage!
Not really. A bank may choose to hand you several hundred thousand dollars at one fell swoop.
Initial credit cards offers are in the $500 to $2,000 range. And if you're a good customer (use the card, make enough payments to not be behind) your limit will be steadily bumped up. Mine got above my comfort limit, so I called and asked them to drop it back, and it hasn't gone up since.
You'll either need to be a good customer for a long time, or get a whole lot of credit cards in a short period of time, max them out and not pay them.
That said, pay-day loaners are vultures. Loan sharks don't even get that return on their loans.
I R A Darth Aggie at December 30, 2010 8:40 AM
Rad, there's no inconsistency here. The problem wasn't that the banks extended credit to risky borrowers, it was that they were forced to extend credit to these borrowers and that they had to come up with psycho terms to make it work.
What Stossel is saying, and what people who opposed the everybody-gets-a-mortgage! regulations are saying is essentially the same thing: Let the lenders decide how much risk to take and the borrowers decide how much interest they want to pay. Or even simpler: Let the free market do its job.
Also, payday lenders are vultures who often don't get paid. That's how they can justify the 125-500% annual interest (which isn't near as scary when it's actually a $35 fee for a $150 loan). They're taking a huge risk.
Jenny Had A Chance at December 30, 2010 10:04 AM
My credit cards all total have limits over our yearly income. We use them and pay them, lenders love us.
That said, when I was younger, and had no credit, I used these on occasion. What else are you going to do when the paycheck's gone, and you simply have to eat or pay a bill to keep the lights on? Oh yes, please protect me by making me starve as opposed to choosing to pay a fee for some money!
momof4 at December 30, 2010 2:21 PM
"the new restrictions hurt more consumers than they help."
can someone point me to a shining example when this wasn't true? Anyone? Bueller?
I mean, everytime I hear of a new law to protect people, I think "oh, it must be 'up is down' day..."
SwissArmyD at December 30, 2010 3:40 PM
More and more this country is starting to resemble 'Atlas Shrugged'. The government decides it knows best and creates a bunch of ridiculous laws. When those don't work, it creates more and more laws that are even worse. The lawmakers' answer is never to just butt the hell out.
Sadly, the sheeple just go along with it for the most part. I need to create my own Galt's Gulch.
KimberBlue at December 30, 2010 6:49 PM
Also, payday lenders are vultures who often don't get paid. That's how they can justify the 125-500% annual interest (which isn't near as scary when it's actually a $35 fee for a $150 loan). They're taking a huge risk.
Trust me -- when the wheel bearing went out went out on my truck the towing, rental car, and repair was about $400. No credit card, $93 in checking and seven days to payday -- I used that payday lender because if I walked into my bank and said I wanted a loan for $500 for six months -- they would have rolled on the floor laughing.
Jim P. at December 30, 2010 7:33 PM
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