Why Credit Card Regulations Simply Don't Work

by Pejman Yousefzadeh on February 22, 2010


Because credit card companies simply find ways to circumvent them. Port-siders who are in love with regulation believe that this is proof positive that credit card companies are evil, and that this is the end of the story. But Nick Gillespie points out that the narrative is just a bit more complicated than that:

. . . the best way to ensure access to credit and decent treatment is by market competition, not by top-down regulation that stymies the development of many different types of credit instruments. No financial crisis is created by access to credit per se; it’s created by real and presumed government bailouts of bad decisions made by folks with access to credit. I floated a decade of my life as a grad student and an underearning worker on easy credit. Without access to a ridiculous amount of revolving credit (thank you, interest-free balance transfers!), I would have not been able to take advantage of any number of educational and work-related opportunities (including covering moving expenses from Buffalo to Los Angeles to start working at Reason back in 1993).

Access to credit doesn’t stem from card issuers beneficence but from their self-interest, which coincides pretty well with borrowers. Sure, lots of people get into credit-card and other forms of debt that cause problems. But it doesn’t help the far-larger majority of people to limit what can be offered.

Maybe–just maybe–this piece of wisdom might be borne in mind the next time the Obama Administration and Congress want to regulate some portion of the economy.

And there you have it. My naïve hope for the day.

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