Chris Dodd's Call for Rate Freeze by Card Lenders Could Mess Up the Economy

I assume Sen. Chris Dodd knows how the free enterprise system works and that, with his new bill that would require credit card lenders to immediately freeze rates on existing balances, he’s simply playing to the pitchforks in my home State of Connecticut, where he’s having to scramble from behind in his 2010 reelection bid.

What other explanation can there be? Back in May, recall, Congress passed a law that will restrict the ability of card lenders to raise rates and impose fees on their customers. The card industry opposed the bill, but made no secret of the fact it can adapt to the bill’s new rules. Since then, understandably, lenders have selectively increased rates and imposed fees, in anticipation of their soon-to-be-restricted ability to dynamically price when the new law goes into effect in February. The people who voted for the law should have expected this to happen. The card lenders’ lobbyists must have promised them it would. This isn’t an instance of card companies putting an extra squeeze on their customers. They’re simply reacting to a changed regulatory environment.

And now Chris Dodd wants to force card lenders to freeze rates immediately? If Dodd were to get his wish, the first result would be to severely restrict the flow of consumer credit, which is precisely what the economy does not need at this point in the cycle.

Here’s a basic truth in banking: The more restrictions government places on lenders’ ability to extend credit, the more expensive credit will become. We’ve already seen how lenders have responded to the bill Congress passed in May: rates have risen and fees have proliferated. Now Dodd wants to impose even further restrictions. Guess what figures to happen next? Follow this process to its logical conclusion, and credit won’t simply become even more expensive, it will dry up altogether. As I say, this is just what the economy does not need.

If government changes the rules under which banks can extend credit, lawmakers shouldn’t be surprised that banks will in turn change the rules under which they extend credit. Any bank that’s interested in staying in business has no choice but to do that.

Chris Dodd’s bill is idiotic and dangerous. If Congress is even capable of acting even remotely rationally, it will never see the light of day.

What do you think?

Comments

[elated7:]

The interest rate spread is so wide that, YES, they should enact a law to freeze the credit card interest rate. It was a lot lower few years ago when the base rate was much higher.

I doubt there will be a restricted in credit flow.

In the name of free market and the less regulation, Credit Card companies have been raping consumers for higher rates for too long. Likewise, they have built an inefficient structures for themselves because of that easy money.

They are in the business of consumer lending and if and when they do restrict themselves from lending, the regulation will prompt some one else to replace them and take the business away from those lazy and greedy companies. I think, it's about time we should do away with Reaganomics mentality, and let Government regulation promote fair market economy. We have just learned and paid a heavy price that, unregulated Free Market is the source of all evil.

Oct 28 02:40 PM

[KirbyJF1:]

Is that you HUGO ?

Kirby


On Oct 28 02:40 PM elated7 wrote:

> The interest rate spread is so wide that, YES, they should enact
> a law to freeze the credit card interest rate. It was a lot lower
> few years ago when the base rate was much higher.
>
> I doubt there will be a restricted in credit flow.
>
> In the name of free market and the less regulation, Credit Card companies
> have been raping consumers for higher rates for too long. Likewise,
> they have built an inefficient structures for themselves because
> of that easy money.
>
> They are in the business of consumer lending and if and when they
> do restrict themselves from lending, the regulation will prompt some
> one else to replace them and take the business away from those lazy
> and greedy companies. I think, it's about time we should do away
> with Reaganomics mentality, and let Government regulation promote
> fair market economy. We have just learned and paid a heavy price
> that, unregulated Free Market is the source of all evil.

Oct 29 08:44 AM

[CLH:]

Cris is a commie as all democrats are. Isn't it interesting that the richest state in the nation is totally socialist. And the Democrats say they are for the poor?

Oct 29 04:54 PM

[c030193:]

What about the poor slob who has been a good standing customer for over 10 years and has a balance of $10,000. A balance he charged knowing the rate was 12%. He now gets a letter from his credit card bank saying that his rate will now be 29.96%. Whats next telling me my mortgage rate will go from 5% to 15%? This is wrong and should not be legal. Of course they offer him the option of opting out. Opting out keeps his rate down until he pays off his balance but cancels his credit card. This is absolutely insane. And you're saying that they're doing it simply because of a regulatory change. Correct me if I'm wrong but most regulations are put in place to protect the consumer. How's that happening here? I understand the point you are making but the credit card companies have a rersponsibility here as well. Why not go from 12% to 14%? Not to 29.96%.They are using this to rape & pillage and you have condoned it.
Mad as hell.

Nov 17 11:08 AM