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Tuesday, February 24, 2009

Congress and Credit Card Regulations

All government regulation comes with costs. The businesses being regulated have to deal with those costs one way or another, and eventually, consumers pay, such as through increased prices, reduced service, fewer choices and/or less innovation.

That goes for credit cards as well.

In December, the Federal Reserve, along with the Office of Thrift Supervision and the National Credit Union Administration, proposed various rules and regulations on the credit card industry. Those restrictions might sound good or even boost consumer protections, but again, it must be understood that any new rules and regulations come with costs. On the credit front, that can mean that an already tight credit market just grows tighter, with consequences for consumers, small businesses and the overall economy.

The Federal Reserve’s rules would take effect in mid-2010. But that’s just not quick enough for many members of Congress. That came through in a congressional hearing last week. Many are pushing an accelerated implementation of these rules and regulations on the credit card industry.

But that would just make a bad situation even worse. At least by giving the industry some time to adjust to new rules, the negative impact might be softened to some degree. Rushing through new regulations – and the commensurate costs – can only be a negative for credit markets, consumers, and the economy in general.

It also would mean higher costs and reduced access to credit for many small business owners who have become dependent on credit cards to help start up and run their businesses.

Is that what the economy needs, especially now?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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