How much more consumer protection can credit-card customers stand? If President Obama selects activist law professor Elizabeth Warren to head the new Bureau of Consumer Financial Protection, we will soon have an answer. Meantime, thanks to a recent flurry of federal rule-making and legislating, consumers are already learning that "consumer protection" means higher interest rates and fewer card options.
It was among our safest predictions that reduced credit to consumers would result when the Federal Reserve announced new credit-card rules in 2008, and then Congress followed up with the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. By limiting the ability of banks to increase rates on delinquent borrowers and to charge fees on unprofitable customers, Washington encouraged card issuers to be more selective in advancing credit and to demand higher rates when they do.
It's a simple equation. If politicians make it more difficult and expensive for banks to lend, customers will find it more difficult and expensive to borrow.
This week the Journal reports that the average interest rate on credit-card customers surged to 14.7% in the second quarter, the highest rate since 2001. This is particularly remarkable given that other borrowers such as corporations and home buyers are enjoying historically low rates. In relative terms, the average credit-card rate is now at its highest level in more than two decades—11% above the benchmark prime rate, according to research firm Synovate.