Last year, Congress passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act. It was supposed to really end the alleged abuses perpetrated by the credit card companies. The law forbids some penalties and interest-rate increases on existing balances.
It is one of President Obama's proudest achievements.
"Enough's enough," he said. "It's time for strong, reliable protection for our consumers."
Reform, he said, would not come at the expense of honest businesses. "Unless your business model depends on cutting corners or bilking your customers, you've got nothing to fear."
Finally! Protection! A new bureaucracy will stop greedy credit card companies from unfairly penalizing you. And it won't threaten the credit business. Yippie!
How has it worked out?
Not so well. George Mason University Law Professor Todd Zywicki points out that the new restrictions hurt more consumers than they help.
Since the Card Act passed, mortgage and Treasury bill rates have dropped a little, but credit card interest went up -- from 13 percent to nearly 15 percent. Some banks also stopped offering credit to some people. JPMorgan Chase cut off 15 percent of its customers.
So the real result of this "consumer" regulation? "Hundreds of thousands of people can't get cards who used to be able to have cards, and all the rest of us now have to pay more," Zywicki said.
But maybe the people who can't get credit cards are better off because they couldn't handle credit wisely?
"Just to say they don't have a credit card doesn't mean that they don't have credit," Zywicki retorts. "They'll just go to more expensive places -- the local payday lender or the local pawn shop."
And pay a lot for credit. Payday lenders make small short-term loans, sometimes just till payday. But the annual interest is nasty -- often more than 500 percent. Several states have outlawed payday lenders. The politicians say they do it to help low-income people. But again, their "help" harms. The lenders' former customers complain that the payday lenders were their only way to avoid missing a bill payment -- and maybe having the lights shut off.
"It's not just a matter sometimes of saving money," one borrower told us. "It's a matter of saving yourself grief."
Maybe they should get a credit card. Then they'd have lower interest payments. But of course Congress just made that tougher.
"People who have limited choices when it comes to credit are not likely to have their situations improved by taking away some of those limited options that they have," Zywicki says.
This is a lesson the elitist reformers are determined never to learn. Or maybe the elite like creating new problems. It gives them new chances to ride to the rescue and pose as great humanitarians. Someone likened this to breaking people's kneecaps, then compassionately providing crutches.
Without regulation, wouldn't banks charge monster fees and high interest?
"Certainly they would," Zywicki said. "The problem is they can't. I've got four credit cards in my wallet. As I sit here talking to you, my credit cards are competing for my business. If one tries to rip me off, or charge me too much, I'll switch to another."
The law of unintended consequences is never more clear than in the capping of interest -- so-called usury laws. Arkansas once capped interest rates at 10 percent.
"Very few people could get a credit card in Arkansas as a result," Zywicki said.
Arkansas then became known as the pawn shop capital of America. Pawn shop interest can be 250 percent.
To Sen. Chris Dodd, President Obama and all the credit "reformers," Zywicki says this:
"In the 1960s, the second biggest revenue source of organized crime was illegal lending. Is that the world we want to go back to, where we get rid of payday lending, and we're so morally outraged that we're going to put people in the hands of the leg-breakers and the loan sharks? They charged an interest rate that was well over 1,000 percent, and their collection techniques were a lot tougher than your local pawn shops."
When will the political do-gooders realize that the most vulnerable people in society can't take any more of their kindness?