Is Credit rationing in our future?

First we had the Democratic presidential candidates promising interest rate regulations now Democrats in congress are on to regulating credit card rates:

Targeting "wild interest rate hikes," "extreme penalties" and other practices, Sen. Robert Menendez, D-N.J., introduced a credit-card reform proposal on Wednesday that he said would protect consumers from abuses. . . . .

Consumer advocates are widely in favor of proposals in the Senate bill, as well as similar legislation in the House. However, there's been concern from some industry participants and regulators about issuing new rules that could end up restricting access to credit. . . . .

A credit-card agreement is supposed to be a contract, but what good is a contract when only one party has any power to make decisions? We need to level the playing field, and the balanced reforms in this legislation will help do just that."

These guys don't seem to understand that this increased flexibility on the part of consumers comes at a cost. If customers want to be able to change their agreements, they will have to pay more money. Credit cards are competitive. If you don't want to pay the interest rate for one card company, switch. If the interest rates are regulated, they will be a shortage of credit. That is what happens when you have price controls.



Anonymous Anonymous said...

If Credit is rationed, then the loan sharks will proffit, while the rest of us loose.

3/14/2008 12:15 PM  

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