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.
But maybe the people who can't get credit cards are better off because they couldn't handle credit wisely?
"Just to say they don't have a credit card doesn't mean that they don't have credit," Zywicki retorts. "They'll just go to more expensive places—the local payday lender or the local pawn shop."
And pay a lot for credit. Payday lenders make small short-term loans, sometimes just till payday. But the annual interest is nasty—often more than 500 percent. Several states have outlawed payday lenders. The politicians say they do it to help low-income people. But again, their "help" harms. The lenders' former customers complain that the payday lenders were their only way to avoid missing a bill payment—and maybe having the lights shut off.
"It's not just a matter sometimes of saving money," one borrower told us. "It's a matter of saving yourself grief."
Maybe they should get a credit card. Then they'd have lower interest payments. But of course Congress just made that tougher.
"People who have limited choices when it comes to credit are not likely to have their situations improved by taking away some of those limited options that they have," Zywicki says.