President Obama, flitting from crisis to crisis without ever quite managing to solve one, has alighted upon credit cards. He summoned a dozen credit-card executives to Washington and dressed them down. Finding credit-card statements difficult to read, Obama proposes to put the wordsmiths of the federal government in charge of reforming them. He also proposes to manage interest rates and fees, the size of the type on bills, the content of card issuers’ websites, and the ease of comparison-shopping among competing cards. As the commercial says, there’s a card that’s right for you — and the president believes he knows which it is: “Every credit-card issuer has to issue a plain-vanilla, easy-to-understand, simplest-possible credit card that would be the default credit card that the average user can feel comfortable with.”
Default may be a poor word choice in the context of credit, but the message is clear: You yahoos are going to eat your plain vanilla, and you’re going to like it.
The credit-card companies are not America’s most sympathetic businesses, it is true, and President Obama is, in his cynical fashion, exploiting that fact. Some issuers charge usurious interest and fees, some engage in sneaky billing practices and marketing shenanigans. And some don’t. We already have interest-rate controls and laws against fraud. If the president has reason to believe these laws are being broken, then the proper remedy is prosecution of the offenders. Making a political campaign out of it will only muddy the waters.
As silly as we find the spectacle of the president’s criticizing the typography on our Mastercard bills, there is a serious side to this. The government does not have an especially inspiring record when it comes to intervening in consumer credit markets. Its efforts toward expanding and cheapening credit in the real-estate market set the course for our arrival in these present economic straits. Will government management of credit cards be any more resistant to narrow political demands? A clumsy intervention in the credit-card markets could quite easily produce another wave of bank failures. The credit-card executives Obama lectured in Washington last week represented companies that are household names for bailout-watchers: Citi, JPMorgan Chase & Co., Bank of America.
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It is unsurprising that a Chicago pol specializing in socioeconomic resentment would be attracted to this subject. Affluent people with good credit get really good credit cards that sometimes buy them airline tickets, and people without much income or credit get relatively bad ones that charge them lots of fees. But for the less well-off, credit cards, used judiciously, can be an important source of short-term lending, as well as a great convenience when traveling or renting a car. If Obama clamps down on credit-card companies in a way that threatens their profitability, it is the customers at the lower end of the spectrum who will pay the price. And even among people of modest means who have high-fee, high-interest credit cards, a bank-issued Visa is still likely to be a much, much better deal than their next likely sources of credit: payday loans.
Credit is a product, and product prices are best set by the market, not by Barack Obama. We sense that the president is here more engaged in populist theater than in serious consideration of lending practices.
But if the president feels he must do something about the credit-card industry, we have a proposal of our own. The U.S. Postal Service in effect underwrites junk mail, jacking up first-class postal rates (and rates for small-circulation magazines, we might add) to subsidize commercial bulk mailers, of which the credit-card companies are a prime example. Credit-card junk mail, indirectly subsidized by the American taxpayer through the tax-exempt postal monopoly, is a blight. We should at least make them pay their own freight. There’s an idea we can pre-approve.
