Tying Financial Bailout to Credit Card Reform
Over the past month, I’ve expressed both disappointment that the government is funding our credit card issuers and optimism that the financial institution bailout through TARP funds and credit asset securitization might be conditioned on reforms in the credit card industry.
The USA Today had an article on Friday titled Support for consumer lending could curb predatory practices that essentially reiterates and supports my point with quotations from three industry experts.
I’ve pulled the quotations from the experts which support my points nicely:
- “Now, as low-rate public loans get made to buttress banks’ credit card portfolios, the federal government will enjoy unprecedented leverage to impose reforms, should it choose to do so.”
- “It makes no sense at all for the government to protect or increase the availability of credit card loans while allowing credit card issuers to continue to use unfair and deceptive practices.”
- “The American people won’t want to be co-owners of an industry that uses trickery to make money off the backs of the middle class.”
Read the full article from the USA Today for more information.
UPDATE:
The point was also made in a press release by the nonprofit group known as Consumers Union. Their press release said, among other things, “that the federal government should set detailed standards to ensure that consumers are protected before buying any securitized credit card debt from banks and other lenders.”
An article by Georgetown Law Professor Adam J. Levitin in the Detroit Free Press also critized the bailout of credit card companies but made a slightly different point. He compared the problem in the credit card industry to the problem of subprime mortgages. The consumer is provided access to easy credit while the complex system of rules and regulations governing interest rates, late fees, and contract terms on the credit cards benefits the credit card issuer at the expense of the debtor. The credit card company profits from its reckless lending but passes the risk of loss on the loans off to investors through debt securitization.
