Tuesday, March 15, 2005

Regulating the Sale of Money

One of the reasons I have no problems tightening up the bankruptcy rules is that I don't think there is a lot the government can do to rein in the problem of people putting themselves into serious debt.

I agree that money lending of all kinds needs to be regulated, and there are additional steps that could be taken, but nothing that exists today or has been proposed will solve the problem of people spending themselves into oblivion. That problem will have to be solved by people taking personal responsibility and being held accountable for their actions, which I think the new bankruptcy bill will encourage. So the fact that none of these proposals is in the bankruptcy bill isn't a reason for me to be against it:
Interest Rate Caps - These exist today and are regulated by the states. Of course what the credit card companies do is move legal operations to the states with the highest cap, which the courts have held is okay. But, still, there is a cap. These caps regulate the credit card companies and others who bother to follow the law, but in several states there are loopholes for the real bottom feeders: rent-to-own places, car loan shops, payday loan stores, etc. This is a state issue, not a federal one, and the Attorneys General of several states have come down on these on a case by case basis, although there is a lot more that can be done in this area (for those guys, I would not have a problem making them darn near illegal, although that would just send their patrons to the loan sharks).

Interest Rate Disclosure - This law exists today and is followed by the credit card, auto loan and other legitimate establishments. The real scumbags mentioned above (rent-to-own, payday loans) are the ones who really abuse this statute, and like the above matter is something several state legislatures have or are looking to regulate better.

Fees - Since interest rates are capped, one of the things the credit card companies have done is jack up late fees, over-the-limit fees, etc. This is a legitimate beef, but I think the government coming into an industry and dictating prices is a very, very bad idea. Besides, consumers can avoid these fees altogether by paying on time (what a concept!) or managing their debt limits (if they can't, then bankruptcy - even the new harder one - is around the corner). Even when I was young and got myself into serious credit card debt, I might have paid a lot of interest, but I have never, ever paid a fee of any kind in the 20 years I have had credit cards.

Limit the Ease of Getting a Credit Card - One of the main complaints about credit cards is how easy they are to get - all those mailers people get all the time. So I assume the solution to this problem is to set a national limit on the ability to get a credit card, limit how many credit cards a person can carry, and the limit the amount of credit a person can get. Problem solved. So the basic premise here is that the government knows what's good for people since they can't figure this out for themselves. This comes under the "people are stupid" form of government, and a lot of people subscribe to it, but I am not one of them.

Disclosure of Payback - Another proposal that has been talked about a lot is putting a statement on credit cards that says "If you pay the minimum amount due, your loan will be paid off in x amount of time and cost you z amount of dollars." I don't have a problem with this, but the people who think it will help are being naively optimistic. The number of people who would send in more money because of this statement would probably amount to a fraction of a fraction of a percent. Go ahead and pass a law on this if this makes people feel better, but it will solve little to nothing of the problems people have with credit card companies today.
I think the only solution to the problem is education, not more laws. Citizens in a capitalistic society have to understand the nature of debt, interest rates and money management. They have to be taught to live within their means and to save for a rainy day. Considering the fact that our public school systems are barely teaching our kids to read, this is a tall order. Like myself, the lesson is usually learned through experience - the toughest teacher - but I think parents and other adults could take a more active role in teaching children personal finance, which is something I certainly plan to do.

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