Positivism on Credit Regulation

Yesterday, the New York Times ran an editorial calling for major reforms in U.S. credit card regulation. Today, I noticed that editorial is number four on the list of most e-mailed NYT stories. The NYT supports passage of the Levin bill (see here for my summary of that bill) but calls that only a "good start." This editorial and the reaction to it just add to the evidence that the stage is set for significant changes to consumer credit regulation.

If you read my posts, you probably can guess that I would welcome more stringent consumer credit regulation. Many of you may disagree, but switching from the normative to the positivist, there seems to be little doubt about the prevailing atmosphere in Washington. Regardless of how one feels about the need for changes, we are likely to see a major push for consumer credit legislation. Especially with an election year coming up, getting tough on consumer credit will be an easy way for legislators to score points with their constituents. There are always lots of issues clamoring for attention in Washington, DC, and it looks like it is consumer credit's turn.

Although I think there will be a major push, it is not clear to me that we will actually see legislation pass. There are at least two major obstacles. First, the Bush Administration has not been receptive to increased regulation generally and displayed a marked hostility to consumer debtors in its support of the 2005 bankruptcy law. It might be impossible to for the pro-regulation forces to find legislation the president would sign. Depending on who is sitting in the White House in 2009, the prospects for consumer credit legislation might brighten. Second, consumer credit legislation could get hung up in the U.S. Senate if senators from big consumer financial centers such as Delaware, New York, and South Dakota (yes, South Dakota) take advantage of Senate procedures to kill the legislation.

Comments

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Put me down as someone who agrees there should be more regulation to protect the consumer. I also consult for a merchant group that's battling the card companies over the interchange fee -- the website is UnfairCreditCardFees.com if you're interested -- which is ultimately paid by the consumer. Bring those fees down to a reasonable level, price hikes should slow, and some retailers may even compete by lowering prices on some goods. Not to mention, it would put an end to the minimum purchase amounts.

I follow you on the worry that the Bush administration won't do anything. That may be true. In the meantime though, simply applying pressure is starting to have an effect. So keep blogging on it. You're on the right track.