Thursday, December 30, 2010

Please stop 'helping' us ~ By John Stossel

When will the political do-gooders realize that the most vulnerable people in society can't take any more of their kindness? (John Stossel, from this column)
John Stossel explains how the law of unintended consequences has affected lower income people with the passage of the CARD Act. When Congress passed the CARD Act, it made it more difficult for many people to get credit, and thus they turn to other sources for emergencies, and end up paying by far more in interest for their money. Todd Zywicki, law professor at George Mason University, says the following to the credit card reformers:
"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."

Please stop 'helping' us

By John Stossel

December 29, 2010 ~ 1:00 am Eastern

© 2010

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."


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