Todd Zywicki
Wall Street Journal
January 4, 2011
The least surprising event of 2010 was that, in the wake of new federal limits on how credit-card issuers can price risk and adjust interest rates, more Americans had to go to payday lenders, pawn shops and local loan sharks in order to get credit. It’s simply the latest installment in the old story of regulators thinking they can wish away the unintended consequences of consumer credit regulation.
Proponents of the 2009 Credit CARD (Card Accountability Responsibility and Disclosure) Act argued that it would protect Americans from exploitative credit-card companies by limiting penalty fees and interest-rate adjustments. For many Americans, though, the law meant higher interest rates, an increase in other fees, and reduced credit limits.
The impact was even worse for lower-income Americans, who have lost access to credit cards and were dumped in the laps of payday lenders that charge interest rates 10 times higher than credit-card companies. As the chief financial officer of a national payday-lending chain, Advance America, put it: “We believe that we’re starting to see a benefit of a general reduction in consumer credit, particularly . . . subprime credit cards.”
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