Right up until 1842, it was commonplace for girls and boys as young as eight to work 12-hour+ shifts in British coal mines. When “do-gooders” campaigned to end the practice, colliery owners argued that the state should have no role in free enterprise, and that the proposed legislation would directly lead to:

  • the collapse of the mining industry
  • shortages
  • dramatically increased prices

Replace the phrase “colliery owners” with “credit card companies“, and “mining” with “credit card”, and you pretty much have the brief that industry lobbyists were spinning when the Credit CARD Act of 2009 was passing through congress.

Credit card regulation beneficial?

As it turned out, the 1842 Mines Act had little effect either on the U.K. coal industry or the nation’s burgeoning growth. And now it seems that the 2009 Credit CARD Act too may have had few detrimental impacts. Indeed, it might even–as intended–have worked in the interests of consumers.

That, at least, is the view of the Center for Responsible Lending (CRL), which published a report on Wednesday that examined how the regulations that flowed from that legislation affected credit card users.

Credit card companies embrace clarity

The CRL examined the spread between the credit card rates actually paid by customers and those advertised by card issuers. It found that a wide gap emerged in the summer of 2004, and that that only narrowed at around the time the legislation (with its strict disclosure rules) was implemented.

The Center argues that a lack of transparency over credit card rates had previously stifled competition between card companies because obfuscation had prevented consumers making informed choices. Why bother to compete on price when it’s much cheaper to compete on the basis of who can most effectively mislead prospective customers?

Credit card use not more expensive?

The CRL goes on to make claims that many in the financial services sector are likely to dismiss. It says:

Contrary to credit card industry claims, the new rules have not caused prices to increase or access to credit to fall. Instead, they have benefited the public by making credit card pricing significantly more transparent. Price transparency is likely to lower costs long term by spurring competition and making it harder for issuers to manipulate or arbitrarily raise prices.

Some of that is highly counter-intuitive. Most of us know that our credit card rates have gone up, and millions have found that their cards have been cancelled or their credit limits lowered. However, the CRL uses hard data from the Federal Reserve and the big credit card companies themselves to support its assertion that those changes are accounted for entirely by the credit crunch and downturn. It says that none are a result of regulation.

Whether or not the CRL’s claims stand up to scrutiny, there seems little doubt that government regulation in general often brings with it unintended consequences that are sometimes damaging. Equally, it’s hard to argue (at least to those young British children who were working in coal mines up until 1842) that totally unconstrained capitalism doesn’t ever have harmful effects. Perhaps, as is so often the case, some middle path is the way forward.

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