As discussed before in “New Credit Card Reforms, Is the Worst Over?” it seems that the new reforms are not yet beneficial in terms of helping the consumers from deceptive practices by credit card companies. The new reforms instead opened the door for an unfair market where more fees and charges are being applied on us, consumers, which most of us can’t afford.
This led some consumers and other experts to believe that the Federal Reserve regulation of the credit market is much better and preferable than the Congress new reforms. In other words, they want the Fed to control the market as they do in the banking system and its operations, not just passing rules or “legislative actions”. They believe that giving the credit card companies the freedom in running the business would not end the abusive practices; this is because issuers will figure out a way to obtain profits as clearly shown nowadays having increasingly many fees being applied.
It might be good to have the credit card market controlled by the government in the view of consumers, but it probably will hurt the issuers, as well as consumers in the long run. Why? The history shows how the Fed control-
The Fed is desperately trying to stop the growing financial crisis.
ling the banking system has been good for a while. The Fed increases and lowers interest rates on bank loans so people can benefit from loans to spend and purchase stuff. The primary reason for this is to help the economy through having the spending of money flowing on the market when needed, by lowering the interest rates. However, after the over borrowing and overspending, and the fall down of houses’ prices, all these led to what is now considered a financial crisis or the economic crisis. Many banks have collapsed, other financial institutions are suffering, and the government has spent millions on bailing out these banks so the economy doesn’t go to worse. People started to lose jobs, they have started to worry, and the situation has not yet been resolved.
Therefore, it might not be a good idea to control the market of credit card, but it still important to eliminate the deceptive practices. The control might lead to the same situation as now. Many people might use the credit cards for purchases that they can’t afford, and that might lead these companies to collapse as well as consumers to a huge economic downturn. Since the risk-pricing method will be eliminated, then companies can’t determine which consumers are more risky of not paying back; therefore, they start to increase fees and charges on all consumers, which is unfair for some other consumers who pay on time. Even though it’s not good to have increasingly fees and charges on all of us, it sounds reasonable why issuers do increase fees.
So do you think Fed regulation will be good and why? Is there a way to eliminate the abusive practices without too much regulator actions? Can you suggest reforms that are fair for consumers and issuers? Or we just have to live with this?!
Moving Up the Deadline of CARD Act « Financial and Economic Issues said
[...] Even though the new act will restrict the increase in rates, it doesn’t have restrictions on imposing new fees; it only requires a disclosure of these fees to consumers 45 days in advance before they are applied. Therefore, as we see these companies increasing rates and fees, we’ve thought that the new act might not be enough for protecting consumers of abusive acts. Some people have suggested a regulation of the market by the Fed, but it might not be a good idea as discussed in “Credit Card Market: Reforms vs. Regulation.” [...]