The cost of regulating credit

Regulating interest rates and terms and conditions for credit cards is a real disaster. This piece in the Washington Times is correct that while some high risk borrowers will benefit, everyone else will end up paying higher interest rates.

No credit is worse than costly credit. That's a lesson American consumers will learn soon when Congress regulates credit cards.

The House of Representatives recently passed a bill to set a ceiling on credit-card interest rates. The Senate's Banking Committee reached agreement on a similar measure this past week. Sen. Chris Dodd, the Connecticut Democrat who got below-market mortgage rates from Countrywide, promises "strict new rules." The Senate is likely to vote this week.

While tapped out credit-card holders might welcome some relief, we invite them as well as their senators to think about the long-term effects of price controls. If barred from charging high interest rates, prudent credit-card issuers will try to cut their losses by denying credit to high-risk groups. The result? Fewer people will have access to consumer credit. As for the rest of us, expect credit card companies to boost interest rates up to the legal maximum.

Don't blame greed. The credit-card issuers won't have a choice. They too have investors looking for a fair return. Planning to lose money is not a good career move for any executive. . . . . .

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