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Monday, May 18, 2009

Usurers Cloud Governor's Vision on Credit Regulation

Governor M. Michael Rounds is at it again, repeating the scare tactics he and Senator John Thune trotted out last December. He says that H.R. 627, the Credit Cardholders Bill of Rights, will cost 3000 to 5000 South Dakotans their jobs.

I'm sure similar arguments can be heard when folks suggest outlawing all brothels in Nevada. As I've suggested previously, if our economy depends on deceptive marketing, surprise interest rate changes, and extending credit to risky borrowers, then we need a new economy.

I will give the Governor rhetorical credit: he is able to argue that he opposes increasing protection for credit cardholders because he wants to protect credit cardholders. Read that sentence again, then read the governor's words:

Rounds agrees with most of the bill but is against the section that would crack down on high interest credit cards for consumers with bad credit scores. Rounds says the law will put South Dakota card companies in a crunch and lead many customers to other high-interest loans.

"There's 70 million of those cards in America today that will probably become extinct, and they will have only pay-day lending, which is marginally regulated, as a place to go," Rounds said [Ben Dunsmoor, "Credit Card Bill Costly for South Dakota," KELOLand.com, 2009.05.14].

Governor Rounds is in so deep with protecting his usurer pals at Citigroup and Premier Bankcard that he misses the obvious solution: listen to Rep. Joni Cutler and regulate the payday lenders! But no, that would make too much sense, wouldn't it?

The Governor admits to Dunsmoor that Premier BankCard and the other subprime credit card outfits can't compete without their current deceptive, predatory practices. So let's put them out of business. We see what happens when we let lenders (and borrowers) go crazy with money they don't have. Stiff credit card regulations may cost jobs, but they are jobs we can do without.

More notes on HR 627:
  • Senate Amendment 1062 from Vermont Independent/Socialist Bernie Sanders would have established a national usury rate and capped credit card interest at 15% [Update 18:35 CDT: Hey! That's the same usury limit that credit unions must obey, and they're staying in business just fine!]. As Senator Sanders said, “When banks are charging 30 percent interest rates, they are not making credit available.... They are engaged in loan sharking.” The amendment failed 33–60, with Senators Johnson and Thune voting Nay.
  • The Durbin-Bond amendment could check the power of credit cards companies in another way: it would allow merchants to give you and me a discount for using cash, check, or debit card. (I didn't know merchants needed permission.) Remember, each time you swipe your card, you cost the merchant 1.5% to 3% in "interchange fees," the price the business pays for Visa et al. to process the transaction. Bankers hate the idea; the National Retail Federation loves it. NRF says interchange fees cost $48 billion a year, a cost passed on to us to the tune of $427 per household. I'll trade my cashback percentage from Citibank for a 2% cash discount straight from Dan Roemen at Sunshine. Do pass!

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