I hate to say it, but Washington, D.C., has a pretty terrible record of helping the little guy, even when they try the hardest.
It seems like a never-ending saga. Our representatives have lengthy monthlong arguments about the exact details of any bill in consideration, and then sometimes they give us Americans a piece of garbage bill we’re supposed to be happy about.
A perfect case and point is the Credit Act of 2009. The idea behind the Credit Act was good in nature, but like most government ideas, the people the government was trying to protect actually got hurt. Washington was trying to regulate credit card companies that were suddenly raising interest rates on their most risky customers.
Those same companies were also swindling their customers by putting shady rules into the often overlooked contracts that it had each of its applicants sign.
However, since the inception of the Credit Card Accountability and Responsibility and Disclosure Act of 2009, we have only seen interest rates on credit cards go higher; completely the opposite of what Washington’s original intention was.
Since the passage of the Credit Act, Americans have seen the spread between the prime rate and their credit card interest rates climb to new 22-year highs: 11.45 percent. Ouch. On average, Americans are now paying 14.7 percent on their consumer credit cards, a rate which is only expected to grow in the future.
Business leaders tend to be much smarter than their Washington counterparts when it comes to looking out for their constituents.
The original intent of the Credit Act was to give card issuers less flexibility to raise interest rates in a snap of the finger. Those who were hit with the stark increasing rates were almost always people who were missing payments.
Nowadays, credit card companies are just giving new card applicant’s higher starting rates and not worrying about the potential default of individuals, as the default risk is already figured into the higher initial rates.
Overall, everyone is paying for the mismanagement of a select few due to the passage of the 2009 Act. As we experience one of the greatest credit freezes ever seen, credit card companies are now earning more profit and taking fewer risks thanks to Washington’s attempt at helping the little guy.
I have always been convinced that businesses employ some of the brightest individuals on Earth, not Washington, and laws like this give me confidence in my thinking. I don’t blame them either. Why make $140,000 a year working for Washington when you could be making millions upon millions working as an executive for a big firm. The intelligent characters at these credit card companies are becoming much more innovative as Washington puts small obstacles like the Credit Act in their way.
Spurring credit card innovation has almost never resulted as a benefit for normal Americans.
Companies like Citi and J.P Morgan have realized that the rules in the Credit Act don’t apply to “professional” credit cards that are normally intended for small business owners. Incidentally, companies like Citi sent out 256 percent more applications in the first quarter of 2010 for the professional cards than they sent out before the passage of the Credit Act.
Now professional card applications only ask you to check that you are “a business professional with business expertise,” not if you are an actual business owner.
According to the credit card executive’s, they have “simplified” their application process. Beware of these professional cards, even if you have “business expertise.”
Washington gets an A for effort, but unfortunately we Americans who rely on lines of personal credit are bearing the brunt of Washington’s failed attempt. Hold on to your wallets, folks, because credit card companies are now working even harder to trick us into paying outrageous interest rates and fees due to the Credit Act.Sometimes governments do their best work by not doing anything at all. And they think that they have the solutions to solve our unemployment crisis.
Marley Hughes works with Central Florida Future
