Is the Threat of Regulation Enough?
First let me apologize for the slowdown in content from some of us bloggers here at Warren Reports. It's that time of the year (final exams) when we stop worrying as much about things like credit cards and instead start worrying about little frustrations like trying to graduate...
But back to credit cards for the moment. Here's an interesting story about the power of regulation to restructure a market -- without any regulation actually occurring. The idea is that industry would rather appear to be consumer-friendly by fixing itself, so once the spotlight is turned on abusive practices even the threat of regulation can start to result in positive effects.
I'll be the first to say that I worry about slippage once the spotlight again turns away, and I would insist that governmental regulatory reform actually take place. This, however, is a start, and Senator Dodd is showing Congress that even when members' hands are tied legislatively they can still play an important role in shaping public policy.
The problem with self regulation is that people can't appeal to anyone for help when the regulation fails. Yes, it's better than nothing. But you wind up with secretive, unaccountable, quasi-regulatory bodies like the MPAA in Hollywood.
Also, it will be very easy in the credit markets for subprime lenders to simply ignore what would essentially be voluntary regulations. Since those lenders will be going after a part of the market that will be more desperate for credit, abuses will continue unabated.
thosethingswesay.blogspot.com
May 1, 2007 12:34 PM | Reply | Permalink
May 1, 2007 4:51 PM | Reply | Permalink
No, NO, and hell no!
May 1, 2007 5:40 PM | Reply | Permalink
I have some voluntarily regulated wheat gluten (from China) that I can let you have cheap.
How come we need referees in sports, but not in business? Why don't the teams just settle the disputes themselves? Or perhaps they could appoint one of the team members on the bench to decide things.
History has proven time and time again (try reading "the Jungle") that strong regulations are needed along with strong enforcement. Human nature hasn't changed.
--- Policies not Politics
Daily Landscape
May 2, 2007 3:52 PM | Reply | Permalink
Having followed the interchange fee issue in my work with www.unfaircreditcardfees.com I share your skepticism that once the spotlight is turned somewhere else the credit card companies will go back to business as usual.
However, reform based merely on the potential for legislative action can be effective. We saw this also in the UK as the Office of Fair Trading got MasterCard to lower its interchange rates just by opening an investigation.
Congresswoman Allyson Schwartz (D-PA) had a great op-ed in the Hill yesterday noting the effect of Congressional attention on the credit card industry and issues such as interchange fees. It's worth a read.
Hopefully, the shots fired across the bow of Visa and MasterCard by Senator Dodd with the continued pressure of others in Congress will result in meaningful reform in the US as well.
May 3, 2007 11:35 AM | Reply | Permalink