I recognize that the following excerpt is a long one, but it is worth emphasizing just how easy it is for policymakers to craft absolutely horrible legislation, even when they mean well:
Last year, Congress passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. It was supposed to really end the alleged abuses perpetrated by the credit card companies. The law forbids some penalties and interest-rate increases on existing balances.
It is one of President Obama’s proudest achievements.
“Enough’s enough,” he said. “It’s time for strong, reliable protection for our consumers.”
Reform, he said, would not come at the expense of honest businesses. “Unless your business model depends on cutting corners or bilking your customers, you’ve got nothing to fear.”
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.
There is a lot more, so read it all. Perhaps the next time we have an election, we ought to ask whether candidates will acknowledge–assuming that they are aware in the first place–that many of their noble-sounding legislative proposals would bring about terrible consequences if actually implemented. Sometimes, the best legislative action involves no legislative action.