REGULATION AND CREDIT INDUSTRY BLACKMAIL.

Get ready. Every time the government threatens to regulate any kind of industry in the financial sector, whether the big banks, mortgage lenders, or, in today's case, credit card companies, you can expect a claim along these lines:

The industry says that the proposals will force banks to issue fewer credit cards at greater cost to the current cardholders.

You want to regulate us? Well, credit will 'dry up.' The article reports that the credit card industry will be unable to profit from hidden fees and near-usurious interest rates when the government bans them in new regulations currently under debate in the Senate (and other new regulations that will be implemented by the Fed in 2010). Now, this is factually true, but akin to a thief complaining that it's going to be so much harder to make money now that he can't just steal things anymore. White House economic adviser Austan Goolsbee gets how credit card lenders are eliding responsibility of their actions:

“The card industry is giving the argument that if you didn’t want to be carjacked, why weren’t you locking your doors or taking a different road?” Mr. Goolsbee said.

So how much will the credit cards change under the new regime? Unclear, although it is possible interest rates will rise slightly and perhaps more or higher annual fees will be charged for people who have good credit. But even if they can't retroactively raise your interest rate on past balance or charge hidden fees for any number of ridiculous reasons (credit card companies once attempted to charge a fee for paying your balance on time), they will still be competing for customers, and it's hard to see how someone with a solid credit score won't benefit from that situation. Meanwhile, people without solid credit scores won't be victimized, and maybe some people (like college students, for instance) won't be able to get credit cards they don't need and shouldn't have. This is still going to be a very lucrative industry, and I'm not sympathetic to the idea that they need to maintain their pre-crash profit margins. Oh, you say, but they're facing $82 billion worth of defaults? Maybe they shouldn't have designed their business model around harshly penalizing failing customers instead of creating viable lines of credit.

-- Tim Fernholz

Photo courtesy Flickr user JudeanPeoplesFront.