WSJ Editorial Page on Credit Cards: Lend less and charge more. No, lend more and charge less!

Political Credit Cards. WSJ Editorial
Lend less and charge more. No, lend more and charge less!
WSJ, Apr 23, 2009

If you use credit cards -- and actually read your mail -- you don't need anyone to tell you that card issuers have been raising fees and interest rates while often cutting credit limits too.

The political class has also noticed. Yesterday the House Financial Services Committee passed a so-called cardholders bill of rights. Chris Dodd, desperately looking for a chance to appear tough on the banks he used to succor, has written an even more draconian bill in the Senate. And today President Obama is meeting with the heads of several large banks in what the White House has advertised as a little friendly arm-twisting session over their rates and billing practices.

Credit card issuers are the companies that consumers love to hate, which makes them an easy populist target. But despite our conflicted relationship with the card companies, Americans enjoy some of the best and easiest access to consumer credit anywhere in the world. Or did enjoy.

This past weekend, Presidential adviser Larry Summers berated the card companies, saying consumers were being "deceived into paying extraordinarily high rates" of interest on the debt they've accumulated by, well, buying things they want. No one disputes that rates have been going up this year, which may seem unfair with the fed funds rate pegged at near-zero and the prime rate at an all-time low of 3.25%. But card issuer greed doesn't begin to explain what's happening.

Far more important, credit-card delinquencies are rising and will continue to rise as long as the economy keeps bleeding jobs. Many credit-card issuers, having seen in housing what happens when you lend people money they can't pay back, don't want to repeat the experience. So they're pulling back or increasing the cost of credit, or both.

The once-booming market for securitizing and selling credit-card receivables has also dried up along with most of the rest of the securitized debt market, forcing banks to keep that debt on their balance sheets.

And in December the Federal Reserve approved regulations that impose most of what Barney Frank and Caroline Maloney want in their bill anyway -- effective July 2010. These columns warned at the time that the new rules would restrict consumer access to credit and increase interest rates and fees. This wasn't soothsaying, merely judgment based on price-control experience. Q.E.D.

Faced with mounting charge-offs and looming restrictions on their prices, card issuers have been raising prices now, in advance of the Fed hangman. Banks are also closing accounts and raising rates now to recalibrate their risk levels before the new restrictions take effect. But that is exactly what the Fed expected them to do, and it's one of the reasons it gave them a year and a half to prepare. Even the House bill, for the most part, wouldn't take effect for a year.

But then this week's credit-card dog-and-pony show isn't about helping consumers. It's about once again blaming the bankers for what ails the economy, even if the political class is partly responsible. Our politicians spend half of their time berating banks for offering too much credit on too easy terms, and the other half berating banks for handing out too little credit at too high a price. The bankers should tell the President that they'll start doing more lending when Washington stops changing the rules.