Those Unintended Consequences Again

From Monday's Washington Post:

During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.

It wasn't supposed to be this way. The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.

But there was a catch. Card companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped.

As Reason's Nick Gillespie notes:

Consumer advocates, including politicians who have helped to created mega-gigundo deficits at the local, state, and national levels, have already started calling for the next round of regulations, in which villainous bankers, finally get their comeuppance. But sadly, just like Mr. Potter in It's a Wonderful Life, the people giving credit will always find a way to prosper.

"The credit card issuers can adjust their tactics faster than Congress can pass laws," said Joshua Frank, author of [a] report [for the Center for Responsible Lending].

Which is to say, 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.

(via Carpe Diem)