I believe the twist on this is the saying “he who has the gold, makes the rules.” There was a segment on the NBC Nightly News yesterday about what I consider to be a criminal practice some banks employ: raising rates on existing cardholders due to changes in their (the cardholders) credit score. An example: You have a credit card and the interest you pay on purchases is 14%. Something (and credit scores are way too arbitrary for my taste) causes your credit score to drop, so the bank raises not only your interest rate to 24% for future purchases, but raises it as well on the balance you currently carry. On the street, this is known as the “vig”, and any reputable loan shark (ha. Lets ignore THAT contradiction) who tried this would be considered dishonorable and untrustworthy. In the segment, representatives of the banks actually tried to say that they have found that when interest rates are raised, people pay off their balances faster. Sure they do, but almost always do it by taking out another card with a low teaser rate and transferring balances. Never mind that this practice can and does further lower your credit score.
So, heres my question for you “free market” gurus out there. Without regulation, what protection does the consumer have? It might be different if there were hundreds of competing banks out there, but the reality is that mergers have eliminated most real competition. You can make the argument that people who can’t pay their balances in full every month should not take out a credit card, but thats more than a little disingenuous since we would see a staggering drop in consumer spending if people only spent when they could pay cash. The restaurant and travel industries would suffer immediately. I doubt there would be a Black Friday at all. Don’t even get me started about the car business.
It was regulation that forced some transparency into the consumer loan process. Simple interest loans were not the brain child of an unfettered market economy. Where is the regulatory equivalent for the credit card industry? If thats a bad idea, I’m ready to learn why.