Economics

Please Stop "Helping" Us

How consumer protection laws harm consumers

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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.

This is a lesson the elitist reformers are determined never to learn. Or maybe the elite like creating new problems. It gives them new chances to ride to the rescue and pose as great humanitarians. Someone likened this to breaking people's kneecaps, then compassionately providing crutches.

Without regulation, wouldn't banks charge monster fees and high interest?

"Certainly they would," Zywicki said. "The problem is they can't. I've got four credit cards in my wallet. As I sit here talking to you, my credit cards are competing for my business. If one tries to rip me off, or charge me too much, I'll switch to another."

The law of unintended consequences is never more clear than in the capping of interest—so-called usury laws. Arkansas once capped interest rates at 10 percent.

"Very few people could get a credit card in Arkansas as a result," Zywicki said.

Arkansas then became known as the pawn shop capital of America. Pawn shop interest can be 250 percent.

To Sen. Chris Dodd, President Obama and all the credit "reformers," Zywicki says this:

"In the 1960s, the second biggest revenue source of organized crime was illegal lending. Is that the world we want to go back to, where we get rid of payday lending, and we're so morally outraged that we're going to put people in the hands of the leg-breakers and the loan sharks? They charged an interest rate that was well over 1,000 percent, and their collection techniques were a lot tougher than your local pawn shops."

When will the political do-gooders realize that the most vulnerable people in society can't take any more of their kindness?

John Stossel is host of Stossel on the Fox Business Network. He's the author of Give Me a Break and of Myth, Lies, and Downright Stupidity. To find out more about John Stossel, visit his site at johnstossel.com.

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199 responses to “Please Stop "Helping" Us

  1. This is a lesson the elitist reformers are determined never to learn.

    Reformers live in model worlds. They don’t see people as individuals but problems to be solved on paper. They take the human element out of all of their calculations, thinking if they simply manipulate all the pieces juuuust right, the perfect balance of resources will come and glory will be achieved.

    Reformers like Barack Obama are too arrogant and too ignorant to recognize that they can’t possibly know the individual wants and needs of 300 million (otherwise) free persons.

    1. People are just the eggs that need to be broken to make an omelet.

    2. Exactly. When someone doesn’t fit their model then they have to eliminate that person’s freedom. They will make the trains run on time one way or the other.

  2. Wait – let me get this straight. When a product is illegal other actors step in and offer that product at a huge premium to reflect the risk in their offerings? And they resort to violence to enforce contracts instead of courts? I’ve never heard of this phenomena in any other instances.

  3. Carpetbaggers!!!

  4. I want to like Stossel, I really do. But I just can’t get past the 4th grade writing style. Do you know what I mean? Of course you do!

    Is there somewhere I can go, authors I can read, that write beyond the Libertarian 101 level?

    1. Well.. when those who don’t get it think at a 4th grade level, it’s the only way to get through to them.

    2. I suggest Homer Simpson and for more advanced reading, Bullwinkle.

      1. I don’t have a link, but I really enjoyed his Economic Sophisms… Completely destroys the protectionists’ argument and does it with a great sense of humor.

    3. Your problem is not the content or point, but that he doesn’t use big words to get it across?

      That’s pretty lame.

      I suppose you could go here http://mises.org/ or here http://www.cato.org/ but I really don’t think it would matter.

      My impression is that you will always find some fault with the messenger and use it as an excuse to ignore the message.

      1. ”My impression is that you will always find some fault with the messenger and use it as an excuse to ignore the message.”

        I bet it’s really the “I wanted to be John Bolton” mustache thing he’s been trying to get going. Though I suppose in this John’s world El Obama should have preemptively frozen all rates and fees — then announced changes/protections that favored the consumer. I know I’ll take Stossel [more] seriously when he suggest that CC solicitation by mail offers have to carry 1.5x the cost of a Forever stamp instead of the subsidized rate they get now… but only a little more.

    4. Stossel is Libertarian 101. And it’s a good thing, too. No offense to the Reason regulars, but Stossel has probably pushed more people towards libertarianism than all of them combined.

      1. ^^This

        It was watching Stossel on 20/20 back when i was like 12 that started me down the path to reading Reason.

      2. To reinforce your point, in ~2003 HS students in our district were all force fed Fahrenheit 911 and The Big One in History and Econ class. Stossel’s “Greed” was miraculously allowed into the Econ classes as an alternative PoV, and it really connected with the kids.

        It may not be Hayek or even Sowell but he makes a difference with the general population.

    5. Well, I look at Stossel as the link between devoted libertarians and regular folk who are inclined to need to be led by the nose. I think serves an important need as the intermediate between us – those who have worked in order to arrive at their libertarian political views and those who need to be spoon fed.

      1. Those people would do well to pay more attention to The Judge.

    6. Maybe when you get to 4th grade you’ll understand better…

    7. Other places on this website. Don’t forget, Stossel has been in the mainstream for years now. His articles are aimed more toward the ignorant masses that simply don’t understand basic economics. It’s not that he is a bad writer, he just tailors his articles to a lesser informed crowd.

    8. That’s Stossel’s schtick, though. He’s Libertarian 101 – from his articles, that link to his show, to whatever else.

      I’m wondering when he’s going to run out of material because every single show is about some fundamental idea brought by any of the usual suspect, Friedman, Hayek, etc.

      I’m a little bored with him at this point. I also think this particular article is a reach – credit card companies are loan sharks in suits and a lot of their tactics over the last few years have been nothing short of predatory. This is one piece of Obama legislation I’m actually down with.

      1. Not me. Before CARD passed I had four credit cards with APRs between 4.99% and 8.99%. I kept the balance on each card below 50% of my credit limit.

        Once CARD was passed, all my cards lowered my limit to about $100 above the current balance and raised my rate to between 18.99% and 27.99%. These are not penalty APRs; I have never missed a payment or been over the limit.

        What CARD has done for me is it has taken me from being being nowhere near my limit with manageable monthly payments to being completely maxed-out on four different cards with monthly payments that barely cover the monthly interest charge. I stay maxed-out, because everytime I start to put a dent in the balance on one of my cards, they just reduce my limit again. It was much easier to pay off my debts at 5% interest than it is at 28%.

  5. The reformers were going to loan some money to these poor unfortunate “high risk borrowers” themselves, but darn it if their wallets weren’t all in their other pants.

    1. I once had a similar conversation with a “community activist.” He was railing on and on about the high prices a check cashing agency was imposing on the neighborhood poor.
      I asked him why didn’t he strike a real blow against the capitalist exploiters and get some of the other activists together and set up a cash checking agency with fairer rates.
      He thought it was a good idea, and when I next talked to him he said his friends “didn’t think they knew how to run a business and it was the government’s job to impose a maximum fee on such transactions.”

      1. Perfect.

        Reminds me of the billionaires who complain that the government isn’t taking enough of their money.

        Well? What’s stopping them from just sending it in? Shut up and just do it.

        1. We are socialists. We don’t pretend to be Christians.

  6. Socialists look upon people as raw material to be formed into social combinations. This is so true that, if by chance, the socialists have any doubts about the success of these combinations, they will demand that a small portion of mankind be set aside to experiment upon. The popular idea of trying all systems is well known. And one socialist leader has been known seriously to demand that the Constituent Assembly give him a small district with all its inhabitants, to try his experiments upon.

    In the same manner, an inventor makes a model before he constructs the full-sized machine; the chemist wastes some chemicals ? the farmer wastes some seeds and land ? to try out an idea.

    But what a difference there is between the gardener and his trees, between the inventor and his machine, between the chemist and his elements, between the farmer and his seeds! And in all sincerity, the socialist thinks that there is the same difference between him and mankind!

    It is no wonder that the writers of the nineteenth century look upon society as an artificial creation of the legislator’s genius. This idea ? the fruit of classical education ? has taken possession of all the intellectuals and famous writers of our country. To these intellectuals and writers, the relationship between persons and the legislator appears to be the same as the relationship between the clay and the potter.

    Moreover, even where they have consented to recognize a principle of action in the heart of man ? and a principle of discernment in man’s intellect ? they have considered these gifts from God to be fatal gifts. They have thought that persons, under the impulse of these two gifts, would fatally tend to ruin themselves. They assume that if the legislators left persons free to follow their own inclinations, they would arrive at atheism instead of religion, ignorance instead of knowledge, poverty instead of production and exchange.

    1. Isn’t this a bit too much? I think it more likely people just looked at practices like raising interest rates on existing balances and thought that was really unfair. It does sound pretty f*cked up to me.

      A lot of Stossel’s reasoning sounds like “if we don’t give companies a free hand to screw us then their profits will be lower and if their profits are lower they will offer us less opportunties to make money off of us.” This is the kind of reasoning that makes Marxists out of reformers (they say, well, the problem is something inherent in capitalism itself which can’t be ameliorated through tinkering around the edges but through some more massive regime of regulation/redistribution).

      1. if we don’t give companies a free hand to screw us

        Can you give a specific example of a credit card company “screwing” people? The bank’s policy on interest rates, penalties for late payments and going over the credit limit are all very nicely spelled out in the contract that comes with the card before you charge the first dollar. If people either choose to ignore the document or cannot understand it how is that the fault of the bank?

        Forget Marxism and capitalism, this is about contracts between consenting, emancipated adults. The fact that you believe you know someone’s particular financial needs better than they do and that the state has any business interfering in these transactions is your problem.

        1. ” all very nicely spelled out in the contract that comes with the card”

          You mean that little folded piece of paper with as many words as Moby Dick in font 2.5? Very nicely spelled out indeed….

          1. It’s probably not the most enjoyable way to read something. That doesn’t mean it can be ignored and discarded, legal and financial information be damned.

            Is there any point at which you should be responsible for knowing the terms of loans you sign up for? It’s BS to say you couldn’t find out the terms of a credit agreement you’re accepting if you cared to. And if you don’t want to read that tiny document, don’t you think you can get on the phone and have it explained?

            The point still remains that it’s your responsibility to know what terms you are agreeing to, and that no amount of rewriting the guidelines will make irresponsible debtors suddenly responsible. Loaning money to irresponsible parties is a costly business, and the higher interest rates are justified.

            1. Actually I think there is an onus on the lender to make those kind of terms obvious. Once that is done if someone still signs then yes, they can’t complain.

              1. What fucking part of “if you don’t make your payments on time, we’re gonna charge you big, fat late fees and we might raise your interest rate as well” did people not understand?

                For that matter, what part of, “if you don’t pay at all, we’re gonna apply the full force of the law to collect what you owe us” do they not get?

            2. Lets be frank. Reading current legal contracts is only slightly less painful than a root canal.

              I think both of us probably know most of the reasons they are the way.

              I also think that it is in both the company and users’ best interests to have an straightforward contract.

              Finally, it’s possible that if the contract is easy enough to understand, a portion of people will understand better what they are exchanging.

              1. Bruno the Enforcer does a particularly good job in this department. But then the government doesn’t edit his messages.

          2. Very nicely spelled out indeed….

            It is also extremely easy to find the document online in a nice big readable type size.

            If you are in the slightest bit uncomfortable with the terms of a contract you are about to enter in to then scuttle the deal. That should be understood before you are even out of the 8th grade.

            Feel free to make yourself available as a volunteer to help explain the vagaries and downsides to consumer credit to the uneducated masses but for you to suggest that other people should not be allowed to enter into a deal you wouldn’t is unconscionable.

            1. It may not be as easy as you suppose to find it online in nice big type. Not only do a great many people have less access to online services as you think but another significant amount of people are essentially internet illiterate.

              I also submit that a contract which reserves the right to essentially change material terms at the whim of one party is not much of a contract.

              1. I also submit that a contract which reserves the right to essentially change material terms at the whim of one party is not much of a contract.

                We are in complete agreement. Which is why I would give the matter serious consideration before entering into a contract like that. The fact that my bank can change the interest rates and penalties only helps me make sure I never carry a balance.

              2. If only there were a way to compare credit cards and find the interest rates they charge.

                Oh, wait:

                https://www.google.com/comparisonads/uscredit?s=1&kw=credit cards&cat=6&sort=0&c=us_gn&q=credit cards#ti=0

                Gosh, with all this large, bolded type disclosing the range of variable APRs, I can hardly see the far less important details.

              3. Kind of just goes to show that you can only go so far in helping the illiterate doesn’t it?

                I’m still wondering why people who bother to take responsibility are the ones who constantly have to make adjustments in their lives to accommodate a few losers who can’t be bothered to even try to be informed.

                I, for one, am really fed up with phony bleeding hearts like you.

          3. MNG|12.30.10 @ 9:50AM|#
            ” all very nicely spelled out in the contract that comes with the card”

            You mean that little folded piece of paper with as many words as Moby Dick in font 2.5? Very nicely spelled out indeed….”

            Will you e happy when the government sends someone who can read to your home to spell it out for you?
            Inexcusable you should actually have to know what you sign, isn’t it?
            What a sorry excuse for a supposed moral agent; go home to your mommy.

          4. part of the reason contracts are so long and dense in the first place is because they are trying to cover all the bases. companies know they can easily be legally liable if they don’t spell out every little thing, especially things that are covered by statute. in some ways, it’s probably another symptom of over regulation.

            1. EXACTLY! If company didn’t cover its bases in contracts, it would leave itself exposed to more unscrupulous people looking to exploit any “loophole”. Excellent point, ojj

          5. No one is arguing that the borrower should be required to know the meaningless details of the entire document. But the interest rate is not hard to find. In most offerings it is in big letters. Plus, only a complete moron would not know that CC interest is outrageous.

            Ditto the fact that the rate can change, even on an existing balance. It’s called variable rate interest. Hardly a new concept. Guess what, if you take out an ARM, they will charge you more on the existing balance! Who knew?

            I find it flat-out amazing that people complain about credit cards. What other industry offers so much for nothing? There is no requirement to carry a balance, and if you don’t, you pay the CC company nothing (save Am Ex annuals fees), and in return get ease of payment, fraud protection, and a bevy of reward opportunities (miles, hotel points, cash back, etc). Personally, I have had a B of A mastercard for years. They give me 1% cash back on all purchases. I have never paid B of A a dime for this.

            1. Actually, these days there is a de-facto requirement to carry a balance. Those who didn’t have been charged inactivity fees for daring to not use them, and people who pay off the balance every month are also being penalized. This was all BEFORE the wonderful new card-act regulations, just for reference.

              1. News to me. I have not carried a balance on my CC for years, and have never been charged any sort of fee or penalty for, you know, paying my account in accordance with its terms. If they do try to charge me, I’ll just switch over to using my debit card full time.

              2. The minute any card charged me a fee for non-use in the past, I have cancelled the card forthwith.

          6. “You mean that little folded piece of paper with as many words as Moby Dick in font 2.5?”

            You mean like the tens of thousands of federal felony laws on the books and the new ones they pass every day that most people don’t even hear about? Laws for which I could go to jail for years without realizing I was even breaking a law because ignorance of the law is no excuse.

            I’ll take voluntary contracts any day. Fine print and all.

            Fine print, by the way, is still just words. They’re not magic. If you can read big words, you can read little words.

            1. By reading this, you have concented to giving me your firstborn so I can suck all his or her blood.

              Yay! I’m a credit card company.

              1. You enter into an agreement with a credit card company by reading an offer they send you? I’m pretty sure you have to apply.

        2. It does annoy me when they unilaterally change some clause in the contract and then tell me that if I don’t pay up, cut up the card, and cancel it, I’ve consented to the terms. Maybe I should send them a similar contract change to my benefit and say that if they don’t close my account with an ‘paid and in good standing’ notice to the credit agencies, they’ve accepted my terms.

          1. That IS pretty annoying. I think it’s only fair that if they can change the terms of the contract in their favor, and at any time of their choosing, I should be able to submit to them in writing that my credit line has now been doubled.

        3. “Can you give a specific example of a credit card company “screwing” people? The bank’s policy on interest rates, penalties for late payments and going over the credit limit are all very nicely spelled out in the contract that comes with the card before you charge the first dollar.”

          That contract ALWAYS says somewhere (usually in 1.5 point font) that the company reserves the right to change any part of the contract they want to at any time including rates, fees, policies, and anything else whether you like it or not.

          Dictionary definition of “contract” is “an agreement between two or more parties for the doing or not doing of something specified.” So a credit card contract is an agreement between two parties for the doing of something specified which is not really specified because one party can change the specification at any time.

          When people manage to write a contract that legally counts as a contract but is not a contract by the definition of the word “contract” then you know we have a problem. Not surprisingly, the problem is caused by and involves a whole lot of lawyers and leagalisms.

          1. True, however you do not like the changes you can keep your current contract until it expires.
            For example right after this legislation was passed I received a letter telling me my interest rate was going up by three percent. So I called them up to let them know I did not agree with this change, and kept my rate until the card expired. At that point any remaining balance stays at the previous rate.

            It is your responsibility to read the fine print. It is not the government’s responsibility to tell them what to put in that print because you do choose not to read it.

            1. It’s the government’s responsibility to create rules by which everyone must follow. So yeah, they should be able to tell companies that they have to disclose things in print…otherwise the contract would read “we’ll let you know when we feel like it and you agree whether you like it or not.”

              I will say that the card act went a bit too far. But to say no regulation is the best regulation is simplistic at best and harmful at worst. Government’s job is to create and maintain a free marketplace where consumers can freely decide where to take their business. Government should do no more than what is necessary to achieve this goal, but also no less, because a market where customers can freely choose where their business goes is the ultimate in self-regulation: if a company is naughty we put it out of business ourselves provided we can take our business somewhere else. DIY is always cheaper.

              Which is why companies spend so much money avoiding competition, to the point of encouraging regulations to be passed (typically with convenient prefabricated loopholes).

              1. “It’s the government’s responsibility to create rules by which everyone must follow.”

                It’s the government’s responsibility to react to force and/or fraud.

                “Government’s job is to create and maintain a free marketplace where consumers can freely decide where to take their business.”

                All government needs to do with regards to a free marketplace is enforce property rights and contracts, as well as the reacting to force and fraud.

                Anything else creates an unfree marketplace.

                1. But isn’t a contract where one party can change the terms at any given time not, by definition, a contract? And if that is the case, doesn’t the gov’t have the obligation to intervene on behalf of consumers?

                  1. But isn’t a contract where one party can change the terms at any given time not, by definition, a contract?

                    It depends if the contract states a right to change terms, and the method and remedies when doing so.

                    And if that is the case, doesn’t the gov’t have the obligation to intervene on behalf of consumers?

                    Yes, the government should enforce contracts. That is different, however, than having the government change the terms of a contract that you later decided you didn’t like.

                  2. It’s not one sided. The consumer can (and they do!) easily find a better competing offer, transfer the balance, and close the old card, at any time – without breaking the contract. It’s not government regulation that makes this consumer action possible, by the way. Said non-government feature also happens to be the reason behind easy to obtain 10-12% rate cards with no annual fees and rewards as enticements. At least, before the CARD act.

                2. “It’s the government’s responsibility to react to force and/or fraud.”

                  I’d contend that the writing of contracts that are unlikely to be understood by those signing up for them for no other apparent reason than to deliberately obfuscate the terms of the agreement is a form of fraud. I remember voting once and coming across a proposal that was so convoluted that I couldn’t understand what it meant. I literally couldn’t tell what I’d be voting for or against, so I left that unchecked. Turns out the proposal language had been deliberately written so that citizens would have no idea what they were voting for and thus the measure would have a greater chance of success.

              2. It’s the government’s responsibility to create rules by which everyone must follow. So yeah, they should be able to tell companies that they have to disclose things in print…

                And so the government did. Where do you think the little card with all the 1.5pt type came from?

              3. Another thing. An absence of rules enforced by government is not an absence of rules.

                1. Correct sarcasmic. There will always be rules. The question is, who makes them? I guarantee it won’t be you. Or me. Or anyone other than the biggest most powerful company around. You think that will be good for competition and make for a free market? Not on your life. If Company A makes the rules, rule #1 is that Company A is the only company allowed.

                  1. The world was not created with pre-existing big powerful companies. Companies get big by their actions–and usually those actions are beneficial to their consumers….or some little company will come and steal those consumers away.

                    1. They exist now. And if they have their way, no little companies will be allowed to come and steal away customers. I work for one of those little companies, and our major-league-sized competitor has thrown every sort of legal document at us to try and keep us from doing business so they won’t have to actually compete. So I know how honest and competitive large established companies generally AREN’T.

                      That’s a result of a combination of too little regulation, and too much bad regulation, which is generally written by the “regulated” companies.

            2. “Or anyone other than the biggest most powerful company around.”

              Tell me, how does this big powerful company enforce rules? Why, through government! You are confusing crony capitalism and the free market.

              In absence of government interference in the market, the only way a company can get big and powerful is by providing some product at a better quality and lower price than anyone else. Otherwise someone else will and that big and powerful company will lose business. That’s the free market in action, and it’s you the consumer who benefits.

              The other way a company gets big and powerful is by having friends in government institute rules (for the good of the consumer of course, wink wink) that hamper competition. By using the government to create barriers to competition, the company can get away with providing inferior products at exorbitant prices because you the consumer have no other choice. That’s crony capitalism in action, and it’s the cronies who benefit.

        4. Sure, my credit card company tried to screw me earlier this year.

          I accidently clicked on the wrong bank when I went to pay a ~$30 credit card bill. The payment bounced, because the account had only $5 in it, as I was in the process of closing it. I was charged $35 by both the credit card company AND the bank for this mistake.

          Over the course of next couple weeks, the credit card company tried three more times to withdraw funds from the account, racking up $70 in fees every time. Of course, they never informed me of this, and I only found out when I got my next bill. Of course, it included a $35 late fee as well.

          So my original $30 charge had bloomed to over $300, all because I clicked the wrong button on a terrible user interface which only identifies the banks by the last four digits of the account number, with no bank name. All charges but the first two were highly preventable, and would have been avoided with a simple email informing me that the payment had bounced.

          It is obvious that the system is DESIGNED so people make such mistakes, and can rack up outrageous fees without being informed about them until it is too late.

        5. Those contracts can be changed at any time…and are (or were). They are not worth the cost of the paper they are printed on.

          Just above you, someone is quoting Bastiat, which is excellent. But then everyone ignores the fact that the card companies rely on the protectionist government courts to enforce their oligopoly. Ours is not a free market, with or without this Obama law.

          Even if you get rid of all regulations on credit card companies (which would be the libertarian ideal) the companies would still retain all the government protections they have lobbied for [or that previous generations lobbied for].

          Who was the lone blue teamer that opposed this bill? Biden, since he’s from Delaware, where his lobbying bread is buttered by credit card companies daily. Why Delaware? Because the government has passed a ton of laws shielding credit card companies there.

          Also, talking about pawn shops and rates of 250% is sophist, at best. There is no such thing as a credit spiral with a pawned item. You can’t pawn your TV, miss a payment, and owe them another TV.

      2. I guess if you only see “evil” in business then you might think that way.

      3. Re: MNG,

        A lot of Stossel’s reasoning sounds like “if we don’t give companies a free hand to screw us then their profits will be lower and if their profits are lower they will offer us less opportunties to make money off of us.”

        You spun this one so hard it looked like a pulsar from where I am standing, MNG.

        So instead of debating through cogent argumentation, you resort to intellectual dishonesty?

        This is the kind of reasoning that makes Marxists out of reformers[…]

        Ain’t that the truth – YOUR brand of reasoning.

      4. I think it more likely people just looked at practices like raising interest rates on existing balances and thought that was really unfair. It does sound pretty f*cked up to me.

        I would agree that this shouldn’t be legal in the sense that you have said it, but it’s a misrepresentation of the facts. Card companies always had to give you an option to pay it off at the current rate over a certain amount of time – and close the account. I see no reason for the law to prevent you from having the option of taking a higher rate and keeping it open (which is effectively what the law did.)

        There are little tidbits of the law that I was fine with like making it illegal to invent non-existent overdrafts by reordering transactions (though I don’t know how common that was) but that’s more along the lines of fraud. Simply changing terms of an ongoing mutually agreed upon credit line with sufficient notice is not anywhere in the same ballpark.

    2. Yes, “they” are simple lumps of clay waiting for the hands of the Artiste to form them, instead of mere sacks of shite and shekles. It’s all so clear now. Thanks!

  7. “I’ve got four credit cards in my wallet. As I sit here talking to you, my credit cards are competing for my business. If one tries to rip me off, or charge me too much, I’ll switch to another”

    I see the point here, but in my experience the competition between two, three or even four big companies often doesn’t offer much more than the admittedly imperfect responsiveness of government to elections…

    1. Well, when we decided to carry only one card, we invited the four card companies we were using at the time to bidding war. We cut our interest rate by over 40%. I voted Republican last November and I REALLY don’t expect to see government improve by 40%.

    2. Well, when we decided to carry only one card, we invited the four card companies we were using at the time to bidding war. We cut our interest rate by over 40%. I voted Republican last November and I REALLY don’t expect to see government improve by 40%.

    3. Well, when we decided to carry only one card, we invited the four card companies we were using at the time to bidding war. We cut our interest rate by over 40%. I voted Republican last November and I REALLY don’t expect to see government improve by 40%.

      1. GEEEZ!! Sorry about the duplicate submissions! btw “to A bidding war”

    4. Come on. Right now you can get — as just one example — a Delta Am Ex card that will give you 40,000 skymiles just to sign up, plus miles on purchases to boot. For this, you pay next to nothing, unless you carry a CC balance. Further examples of credit card freebies are legion. They do this to compete for customers.

      Now, if you are carrying a large balance and paying tons of interest, the problem is not Visa. It’s you.

  8. It’s interesting that Stossel et al., seem to acknowledge that being in need puts one in a bind so to speak, in a position to make bargains the rest of us would not. Let’s all remember that point: need undercuts voluntariness, in some cases as surely as force could.

    1. So clearly the solution is to further limit their already limited options.

      1. That’s right.
        Freedom means having your choices made for you by government. This way you bear no responsibility for your actions as long as you do what you are told. The only time there are consequences are when you deviate from the rules that are set forth by your betters, otherwise known as experts.

        When you have been relieved of all choice and responsibility will you be free to pursue a higher plane of existence.

        You see, legislation and regulation are the path to true freedom.

        1. No, you did it wrong. It goes like this:

          “Freedom is about authority. Freedom is about the willingness of every single human being to cede to lawful authority a great deal of discretion about what you do.”

          (–Rudy Guiliani, for those who didn’t know.)

    2. MNG, you keep going back to the first impression of your argument instead of following it through to the end. In what world are you living where the consequences of the actions taken are actually better than the original problem?

      It has nothing to do with “giving companies a free hand to screw us”, it’s that by giving government a free hand to meddle in business, we are screwed even worse, with our own money, and with no options. Zero. Zilch. None. I’d rather be faced with 4 or 5 undesirable options than none at all.

      1. I don’t thin it is that simple. Some benefit, some don’t. Some people will be dropped by the credit card companies, but a person like me will not be, and now I don’t have to pay or worry about any higher interest rates on existing balances. As with anything, the real question is does the benefits of the latter add up to more than the costs to the former?

        1. If you are making an entirely utilitarian argument about this, I’d say that the costs of government intervention are almost always greater than the benefits, even if they’re not realized immediately. Stossel isn’t even scratching the surface of the ancillary costs that will come from this. More bureaucracy, tighter movement of investment capital, black market creation…

          But the utilitarian argument completely misses the point that you are taking away freedoms that our government is not supposed to be allowed to take away. The government should be there to enforce (and I would even allow for recommendations on) the contract that was made between two parties, not to dictate the terms.

        2. Oh and it’s not “some benefit, some don’t”, it’s “some benefit, some are HURT” and everyone has to cover the costs.

      2. Of course he isn’t following his line of thought to the end.

        If he did then he would cease to be a liberal/progressive.

    3. Re: MNG,

      Let’s all remember that point: need undercuts voluntariness, in some cases as surely as force could.

      You subcribe to hedonistic ethics, MNG?

    4. As if the “victims” of Visa and Mastercard are charging 20lb sacks of brown rice to feed a starving family. Here in reality, the vast majority of them are charging flat panel TVs and iPhones they can’t afford, but apparently “need” such that Apple has a figurative gun to their heads.

  9. What is the source of this data:

    “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.”

    If the source is Dimon’s letter, what follow up was performed to see whether that was actually done, or to determine to what extent Dimon was simply blowing smoke?

    Michael

    1. I just received a letter from Wells Fargo indicating that my CC interest rate will be increased from 12.50% to 15.25%, even though financially, nothing on my end has changed. Additionally, the number of unsolicited CC offers I receive has all but fallen off (well, some of that is due to proactive blocking on my part).

      1. You will protect your privacy and eliminate most of those offers when you Opt-out.

        Tune in, Turn on, Opt-out.

    2. Do you receive credit card applications is the mail?
      Do you open them and read them?
      If so, have you noticed a change in their offered interest rates?

      Do you trust your own judgment, or do you require a government funded study to confirm what you see with your own eyes?

      1. But “my own judgment” is based on a very small sample, and we know people suck at evaluating mixed data sets like this.

        1. “we know”

          Speak for yourself. I trust my own mind before I trust some government asshole who cares about nothing except sucking up to his superiors so he can advance and gain more power in his position as an unelected and unaccountable bureaucrat.

    3. They can’t raise your rate without offering you the opportunity to opt-out of the new rate.

      They will then punish you by not allowing new charges, but you shouldn’t be paying for anything with a credit card anyway, so opt-out and pay the goddamn thing off as soon as realistic, and then live as a free individual without financial obligations (debt), and not as a consumer/bond-servant.

  10. OT: Regarding the brickbat about Columbus, Ohio schools, I’m pretty sure that was actually Columbus, GA.

  11. I’d like to see Mr. Stossel’s cost benefit analysis: a few poor people can’t get a card vs. the majority of cardholders can’t get screwed once they have a balance. Unfortunately, Stossel gives us a rant against “elitists” instead of quality argument on why private companies denying people credit who can’t afford it is the worst thing in the world.

    1. Oh I see, so as long as you gain some personal benefit, you don’t care that the government is inflicting injury upon a minority? Nice.

      1. I mean this is the real point right. This bill was all about throwing a nice little bone to the greedy upper classes and punching the poor in the nuts. The progressive values for you i guess…

    2. Stossel isn’t saying that. The apparent bank shill he interviewed is saying that.

  12. So cheap and easy credit is destroying the economy, but government interventions that cause credit to become more expensive or more difficult to obtain are terrible.

    1. Juice|12.30.10 @ 10:46AM|#
      “So cheap and easy credit is destroying the economy, but government interventions that cause credit to become more expensive or more difficult to obtain are terrible.”

      Nice try, but some of us can read. Credit card money has never been cheap.

  13. “Is that the world we want to go back to, where we get rid of payday lending, and we’re so morally outraged that we’re going to put people in the hands of the leg-breakers and the loan sharks?”

    Yes, because leg-breakers and loan sharks are overall nicer and more honest that many large bankers. Personally I’d rather have my leg broken as opposed to having a bank attack me with lawyers, prevent me from getting credit with anyone else by blacklisting me through credit reporting agencies, and then skim my paycheck for the rest of my life.

    Compared to all that, what’s a few months in a cast? Particularly when you can get it at the emergency room and stick someone else with the bill. 🙂

    1. You realize that your debt isn’t paid once your leg is broken, and that the juice is still running, right?

      There are other limbs that can be broken, as well as dismembered, or organs mutilated. But fuck it, what’s a little torture and mutilation when it comes to repaying debts?

      1. Exactly. Besides, it’s much more honest and straightforward. And best of all, it gets the lawyers out of the equation.

  14. I generally agree with Reason writers, but this is just wacky. Sorry, but banks are cutting people off for good reason — they are not creditworthy and should never have been given cards in the first place. Tightening up lending standards is just common sense. The banks shouldn’t be handing out cards left and right and expecting taxpayer bailouts when — SHOCK — people with credit scores in the 400s don’t pay their bills. Sorry, but until we get rid of bailouts, we need to tighten up lending standards. Of course if we eliminated bailouts, the banks would tighten standards voluntarily. That would be ideal, but it’ll never happen. Bailouts are a fact of life as long as American workers are employed by these companies.

    1. Geez, what’s with this today??

      So then until we can get better immigration laws, we need to increase civil-liberty-destruction.

      Until we can eliminate terrorism, we need to perform rectal exams on anyone wanting to travel.

      Until we can stop the drug war, we need to increase fido-killing invasions…

      Are you even thinking this out? Government creates a problem and then you expect more government to solve it? Instead of trying to fix the symptoms of the problems they’re creating, why not understand how they’re causing them in the first place?! And if your answer to government screw-ups is to give government more power, then what incentive does government have to stop screwing up?

    2. “The banks shouldn’t be handing out cards left and right and expecting taxpayer bailouts…”
      So instead of cutting the bailouts, let’s just add one more layer of government intervention! What a……………
      lame idea.

      1. Cutting the bailouts would be the right thing to do, and what all of us want. However, it is politically infeasible to ditch bailouts because all of those large companies heavily subsidize both the Republican and Democratic parties and expect a certain return-on-investment.

        This is why money isn’t speech, incidentally. I love free speech but money is wealth and a resource, not speech.

      2. Finish reading before you reply. I said ideally we would eliminate bailouts and the banks would police themselves. BUT THAT AIN’T GONNA HAPPEN! So our only option is to tell banks what to do. I agree it sucks.

    3. You can’t ditch “bailouts” unless you ban all of the following:

      1: Limited liability corporations
      2: Bankruptcy
      3: Marriage

      All three of these allow one to stick part or all of your gambling risk onto someone else. If the market cannot handle “bailouts” without wilting like a little flower in the hot desert sun, then it can’t handle any of these three, either.

      Too bad conservatives are too stupid to realize that marriage is a form of communism. Friends and family are just socialism, I guess.

      lol

      1. Re: Chad,

        You can’t ditch “bailouts” unless you ban all of the following:

        1: Limited liability corporations
        2: Bankruptcy
        3: Marriage

        How about just not giving away money that does not belong to you, like the government does when they bailout somebody? Because you can do all of the above, but while the government can still rob from everybody to give it to someone else, you would never ever get rid of bailouts.

        In other words, you’re flying off a tangent.

        1. If limited liability business entities are bad, how much worse are limited/no liability governments and government officials?

          1. LLC’s are bad. They are a straight-out bailout for bad business creators. Here’s a little example.

            Let’s say I have $200,000, and I use it to borrow $900,000 for each of two businesses, founding each with $1,000,000 total. I promise to repay the bank $1,900,000 at the end of the year, the original 1.8 million plus $100,000 interest.

            After one year, Business A, called “PutitallonRed” is worth $2,000,000. Yay! I am so kick ass! Rock on! I’ve “earned” a million bucks. Libertarians, bow before me and all my glory! I cash out the business, pay back the bank the $950,000 the business owes them, and roll in my $1,050,000 in cash.

            However, Business B, called “PutitallonBlack” is an epic fail, and wipes out completely. Not only do I blow through the million, but I owe $100,000 to some suppliers even after I liquidate everything. The business declares bankruptcy, and I move on.

            So, how much value did I “create” last year? Less than zero. I actually destroyed $100,000 in wealth. Yet somehow, my net worth increased by $950,000.

            Wow. How simple can it be that LCC’s create situations where the “value” you create and the money that you get your fat grubby hands on do not necessarily equal each other.

            Q.E.D.

            1. Spoof Chad is getting better! He may soon become ChadBot!

            2. And then no bank would ever lend to you again. The system works.

              1. MFC

                A: Yes, banks would lend to me again.

                B: I really wouldn’t need them to, now would I?

                Any way you cut it, LLCs are a form of bailout. And by your logic, markets completely melt down when confronted with bailouts. Ergo, we must eliminate llc’s or markets can never work.

                1. “I’m going to loan my money to someone who will blow it all” is not a bailout in the same sense that “I’m going to loan your money to someone who will blow it all” is a bailout. One of those gets stopped by reality when the stupid person runs out of money; the other only gets stopped when everybody runs out of money.

                  1. The bailout comes from a government-created legal fiction, limited liability, which forbids the people whom I owe money from claiming money that I actually have.

                    In Libertopia, there can be no such thing. My creditors should be able to throw me in a slave pit until I pay them back, with interest. Right?

                    1. An LLC can’t owe someone money unless that someone chose to do business with an LLC. It’s a risk some people are willing to take. Nobody who’s in the business of loaning money is unfamiliar with what they are agreeing to when they loan to an LLC. If it’s not worth the risk, don’t do business with them.

                      In Chadtopia, there can be no such thing. Everyone should be forced to do everything Chad thinks they should be willing to do and prevented from doing anything Chad thinks they should prefer not to do.

                    2. You would like the slave pit too much you crazy little man!

                2. A: Yes, banks would lend to me again.
                  B: I really wouldn’t need them to, now would I?

                  You mean that once you’d earned some money, you’d invest it?

                  Apart from your zero-sum ignorance (and the fact that you equate business with gambling), you can’t seem to grasp that most businesses turning a profit have provided some service to consumers, as well as provided jobs for employees. Those people benefit from that business – it isn’t just a bottom line dollar figure in your wallet (but you’re apparently incapable of seeing anything other than the monocled top-hat characterization from Monopoly)

                  As for your other business failure: the only banks that could continue to loan money to idiots who crash and burn the investment money and not go belly up are those who know that they will be bailed out by the government.

                  It’s not bankruptcy protection or LLC’s that are the underlying problem, it’s the fact that poor business decisions are backed up by political hacks who never earn the money that they lavish on their perennially failing cronies.

                  Next time, try to follow your feverish mutterings to their logical end point.

      2. Too bad we don’t have a free market for fuckwads like you to blame.

    4. Re: Reader,

      Sorry, but banks are cutting people off for good reason — they are not creditworthy and should never have been given cards in the first place.

      If that was the sole reason, what was then the point of the CARD act?

      Bailouts are a fact of life as long as American workers are employed by these companies.

      They’re not a fact of life. They are the children of the Fed.

      1. Children of the Fe-e-ed.
        Children of the Fed.

  15. …responsibility, isn’t that really what we’re talking about?
    and the gub’mint is not where i look to for guidance.
    …heard 80% of senate is made up of attorneys and the congress seems to be full of miscreants, ner’do wells, fools, and gold-diggers — another font of knowledge where i look to for direction on personal financial matters…

  16. If someone really wanted to help they would make compound interest illegal.

    1. Just to clarify, here’s a definition of fraud.

  17. Tune in, Turn on, Opt-out.

  18. The Stashe is wrong this time!

    Compound interest is a type of FRAUD. Should we be so laissez-faire that we don’t have laws to regulate fraud? In my view compound interest is as gross a violation of our rights as the Income Tax, and causes similar consequences.

    The problem with Obama’s bill is it compromises away the real issues with credit.

    Also, Zywicki is ignorant of the fact that when a credit card company is going to raise your rate, they have to send you a notice and offer you the opportunity to Opt-out of the new rate. READ THE FINE PRINT when the bank sends you a letter!

    But don’t get the idea that I’m Anti-Stossel, that would be an instance of “Falsum in uno, falsum in ominbus.” I will watch tonight’s show, and take my hypertension meds.

    1. Compound interest is a mathematical fact. Your argument is like saying that gravity is criminally liable when you slip and land face down in the mud. I doubt seriously you’d contend that compounding, when working in your favor, is fraud. I doubt you’d voluntarily surrender to the authorities for the interest your bank had paid you on your savings account.

      1. Charging compound interest on a loan is fraud. You are confusing mathematics with law.

        1. Should read: You are confusing mathematics with contract law.

        2. You mean I am defrauding ING every month when they pay me interest on the interest they paid me the month before? I had no idea they were so gullible. Or maybe it’s that they pay interest in month 1, and by not withdrawing that money in month 2, I have loaned them more money. Since I don’t money for free (except to the IRS), they have to pay me the evil compound interest.

          1. The “Law” of Compounding Interest is not the same as contract “Law.”

            Follow the link on Equivocation and read it.

            Also, are you sure you understand your Credit contract with ING, and can you verify mathematically that it works in your favor?

      2. Contrarian P’s response is an example of Equivocation for those of you following along at home.

    2. Why is compound interest fraud? You borrow money for a month from the CC company. At the end of the month you can’t pay it all back. Therefore they charge you interest on that months payment. You have the option of either paying off that interest (hence no compounding) or borrowing it again from the CC company (your compounding).

      1. The lender hides the real cost of the loan from the consumer, and in effect lies about the terms of the loan. The consumer has no idea what the total cost of borrowing will be, or when the loan will terminate.

        It is possible to only contract and charge simple interest, at a fairly determined rate of interest, this clearly specifies the cost of the loan and a date for termination of a loan. A car loan would be an example of this type of loan.

        1. So then isn’t it really a question of the time horizon of the loan? Is a CC loan month to month or a long term loan? The best argument I can think of is that it must be a short term loan because you can cancel the credit card at anytime.

          The car loan has a specified duration and the CC loan does not.

          1. Here’s an example. Someone is in a store and wants to make a purchase. All they are aware of, if anything, is their available credit on the card. They do not know the total cost of the purchase because that depends on compounded interest, minimum payments, actual payments, interest rate increases, late fees, etc. It is in fact impossible for them to know.

            They have been mislead.

            If they pay by cash they know exactly. If they pay by simple interest they know how much they will pay in total, how much is principle, how much is interest, how much they will pay per month, and what the date of their final payment will be.

            1. “Someone” should have learned how credit cards (or really, loans) work before they got one. Or I suppose we could just outlaw anything more complicated than two plus two.

              What if I don’t understand how percentages work? Let’s outlaw interest of any sort.

              I hope this is a troll, because otherwise I need to be alone for a while and think about the fate of humanity.

              1. Let me restate. It should be illegal for a bank or credit card company to CONTRACT to charge compound interest on a loan or Credit Card.

                So far, everyone who has objected to my idea, has confused CONTRACT LAW with MATH. This proves my point that people do not understand their credit card terms.

                To advertise one price for something but charge another is deception, that is FRAUD. Legal fraud perhaps, but still fraud.

                1. First of all, you can stop linking us to Wiktionary. We get it.

                  Secondly, we understand your opinion. And no, even if we didn’t, that would not “prove your point” about people not understanding their credit card terms. I’m not sure what logic system you used to equate those two things.

                  My point is that the problem isn’t with the contract or the math.

                  If you just outlaw compound interest for credit cards, that will throw the market out of whack. Maybe banks will stop compounding interest on your loans to them (savings account, CD’s, etc). Maybe they’ll try to regain their profit margin with other, more predatory methods. Then we’ll outlaw those, and then less people will get credit cards.

                  Or we could just educate people on basic financial responsibility, and on the ramifications of debt. Personal finance should be taught in every high school in this country. Then, people would be able to watch out for themselves.

                  Which method is better?

        2. Where by “lies” you mean “tells the exact, objective, mathematically calculable truth”.

          Disallowing all contracts that cover a range of uncertain future contingencies would be insane.

          1. I meant exactly what I said. You do not get to argue to what you say I said, that I in fact did not say.

            1. You must think you’re being damn clever, huh?

  19. Furthermore, taking some idiot who can’t pay their bills on time or balance a checkbook and giving them CREDIT is like handing an alcoholic a bottle of Black Jack!

    If you don’t believe in extending unemployment insurance checks, and making welfare payments and WIC checks, then why the sudden change of heart over credit cards and loans? Think a guy who’s dodging his child support is going to be good for the money?

    1. How do you equate the government taking my money by force to give it to someone else, with a private company lending money to at risk creditors?

      1. I don’t equate those two things.

        I meant to express my outrage at both with an equal level of vehemence.

        Automatic withholding of Income Tax and Credit Card lending terms do have one feature in common though, they both create misdirection which prevents most people from recognizing the true expense of either one.

    2. The difference is obvious to everyone except you. Welfare is funded by the government, which is funded by the working public. Credit cards are voluntarily funded by private companies that are in business for that purpose.

      Personal freedom is the difference.

      1. Credit Cards are funded by the suckers who use them.

        1. Which is also voluntary. Do you see what I mean, here?

  20. I can’t tell if this is a repeat episode.

  21. Don’t give to donorschoose.org, John. Give to my charity, http://www.thehumanfund.org.

  22. Why are all these charity-runners former teachers?

  23. I hope Charles can prove he’s not a teacher molester.

  24. Ha! Drugfree.org advertises during Stossel.

  25. Stossel went into de Rugy’s office and stole one of her charts.

  26. Stossel is being told that the poor and helpless will be left behind if government is shrunk? He should stop listening to Mike Seaver.

  27. Ouch. John talking about racism during a Ron Paul interview.

  28. Those two Times Square welfare-dissers are racist.

  29. Maybe the immigrants had PhD’s in chicken plucking.

  30. SHOW US YOUR PLUMBER’S LICENSE!

  31. Government should tax businesses based on their social goodwill.

  32. As long as the green opportunists’ revenue distribution is equal and fair amongst their staff, Joe will be happy.

  33. Catholic schools??? Stossel subsidizes ruler-wielding nuns. I bet he makes money off of knuckle transplants.

  34. haha and then people wonder why things are so expensive!

  35. Weren’t you idiots blaming the financial crisis on uppity poor people with too much access to credit?

  36. I mainly agree with the good professor but this is totally wrong: “Certainly they would,” Zywicki said. “The problem is they can’t. I’ve got four credit cards in my wallet. As I sit here talking to you, my credit cards are competing for my business. If one tries to rip me off, or charge me too much, I’ll switch to another.”

    There is very little competition of this sort in our economy today…it’s almost quaint…many markets, such as credit, are so closed that only a few can afford to operate in them, and those few collude to keep interest rates as they are. If a small competitor would try to undercut them they would use their superior power in the market to drive that competitor out of business.

    1. “…many markets, such as credit, are so closed that only a few can afford to operate in them…”
      Yep, and more regs will certainly help open those markets, won’t they?
      For added credit, why do you think those markets are ‘closed’?

  37. For the most part, libertarians in these [Stossel] comment sections want to remove the regulations on large businesses while maintaining the protections of same. They are really more “corporatarian” than libertarian, or something. I don’t even know what Stossel is. Contrarian, for the most part. Whatever gets him paid.

    If you ever want to graduate from this sophist Stossel crap, look into something like anarcho-capitalism which doesn’t just pay lip service to free markets.

    1. “For the most part, libertarians in these [Stossel] comment sections want to remove the regulations on large businesses while maintaining the protections of same.”
      Jeeze, it’s so nice to see the same old strawman after the new year.

  38. Because payday loans are two-week loans, they cannot be offered at the same annual rates as annual credit products such as credit cards, auto loans and home mortgages.

    That said, the only way to reach 500% APR is to take out one advance and continue to renew the same advance every two weeks for an entire year. State laws and industry best practices do not allow this to happen.

    The payday advance industry exists because we offer our customers a product that is more desirable than the alternatives.

  39. This law is good because reading contracts and using common sense is hard.

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