Blogs & Comment

What's missing from the ongoing U.S. debate over consumer credit

Recall back in May , when the Obama administration and Congress announced they were introducing new credit card reform? (Canada followed suit with similar proposals, albeit more moderate ones.) The goal was to reinstate an economy in which people only borrow what they can afford. The problem: such regulations will curtain American consumers’ access to creditat precisely the moment economic policymakers hope said consumers will start spending again.
Those regulations on credit card suppliers kicked in Stateside today, much to the applause of consumer protection groups across the country. But one Washington, D.C.-based group, Americans for Financial Reform (AFR) , says even these new laws are not enough to protect the vulnerable. According to AFR, what’s actually needed is a new Consumer Financial Protection Agency, whose sole mandate is to keep banks’ and card issuers’ fee-happy ways reined in.
According to Heather Booth,the director of AFR, the extra protections on rate-jacking and fee-hiking “are a major step forward along the long path toward restoring basic fairness in our financial system.” But, says Ms. Booth, there is still much work to be done. “Almost immediately after this landmark legislation was signed,” she says, “banks began figuring out how to get around it, racing to increase fees and alter rates without notice ahead of these changes and proving that a piecemeal approach to protecting financial consumers wont work.”
What Americans really need, Ms. Booth believes, is a “watchdog agency that is paying as close attention as the credit card companies are to the regulations and possible ways to skirt them. As we wait for the rest of the new regulations to be phased in next year, Congress must also take a broader look at how to prevent future abuses from hitting our wallets.
Unfortunately, preventing such abuses also means the American consumer will have considerably less access to creditin what is currently shaping up to be a jobless recovery Stateside. But that’s just an aside. What’s most interesting here is the thinking underpinning her argument: that somehow, those consumers ultimately werent responsible for their actions. Such thinking has been widespread in American analyses of what’s gone wrong with their economy over the past year. And in light of what needs to be done before America regains anything resembling fiscal health, that’s a major problem.
I am the last person to play apologist for credit card companies. I know too many people mostly young people who unfortunately need credit cards in order to survive, as a form of supplementary income to underpaid jobs. Such people get caught in a cycle of debt that is fiendishly difficult to escape.
What’s more, it’s fairly obvious that credit card practices are out of whack, if the strategic goal of many card suppliers was not to have a customer pay off the balance, but rather to hook unreliable credit risks willing to rack up big debts, from which banks and card companies made millions in fees. The hope is that the new laws on both sides of the border will help rein in such behaviour.
All that said, the notion that many of the people involved in this super-consuming society, those racking up all this debt, were somehow not responsible for their actions, is ridiculous. It’s the same kind of thinking that implies that somehow those making a killing flipping properties during the housing boom are now wayward victims of a greedy financial system that enabled their behaviour, or, for that matter, that crowds roaring approval at Nazi rallies were somehow disengaged from what happened next.
Surveys such as this one from non-profit human resources organization WorldAtWorkshow that many on this continent have had their finances gouged in recent years by a triple whammy of stagnant wages, rising inflation and rising credit card fees. For such people, the new regulations brought in today are not just good they’re necessary. But what’s absurd is to try and argue that, when faced with a variety of credit options, most moderate-to-affluent American, and, let’s be honest, Canadian consumers had no other option butto live beyond their means.
Much of the superconsuming North American economy was driven by economically unsustainable consumption patterns that represent large numbers of people all deciding to consume in the same way. It’s those personal habits that need to change, if said consumer society is to regain fiscal health. In that light, it’s doubtful another regulator is going to be the best way to achieve that goal.
Unfortunately, the last time North Americans were in an economic hole this deep, what it ultimately took to get us out of it was a massive economic stimulus program called the Second World War. Let’s hope we won’t have to go quite so far this time.