May 08, 2008
Thursday

The Bush administration has been notoriously regulation-averse, preferring to let "the market" work its will, but the sub-prime-mortgage crisis seems to have taught the administration that it can't sit on the sidelines while unhealthy business practices grow out of control.

Thus, Federal Reserve Board Chairman Ben Bernanke has proposed new regulations for the credit-card industry that "are intended to establish a new baseline for fairness in how credit-card plans operate."

Credit-card companies have had a generally free hand in how they operate, but in a sense they've become victims of their own success. Credit cards are essential to modern commerce; they really are electronic cash. But between consumer and company, it's hardly a level playing field. The cards are easily obtained -- perhaps too easily -- and come with acres of tiny print that only a bank lawyer could plow through.

The proposed regulations should curb some of the more egregious unfair practices and, if effective, may even stave off the stricter regulation that some in Congress are lobbying for.

Among the proposals that could become binding by the start of the year:

Lenders could not unilaterally raise interest rates on a cardholder because the borrower has a problem with another lender.

Nor could lenders allocate payments to balances with the lowest rates so the cardholder continues to pay on balances with higher rates.

The borrower must be given a reasonable amount of time before a payment is deemed late, and the lender could not retroactively raise interest rates on pre-existing balances.

The proposals would also place limits on security deposits and certain account fees.

None of this sounds particularly onerous. Nonetheless, a spokesman for the banking industry fretted that "regulatory intervention" would result in higher rates and less credit.

Another way to look at it is that it's too bad the Bush administration came to see the benefits of warranted regulation so late in this presidency.

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