Should Congress Regulate Credit Cards

Credit cards: for some they are the paths to financial freedom, for others they are a necessity for daily purchases. During the recent economic crisis, many have sought out to find the cause. One common suspect is the credit card industry, which is comprised of more than six thousand card issuers (Clayton 209). This issue is debated in the two-part article “Should Congress Regulate Credit Card Rates and Fees?” “Yes” and “No.” Tamara Draut, Director of Economic Opportunity, Demos, argues yes, claiming the credit card companies’ ability to adjust terms and interest rates traps cardholders in everlasting debt. On the contrary, Kenneth J. Clayton, Managing Director of Card Policy for the American Bankers Association, argues no, stating that

For example, Draut claims that the credit card companies’ large profits “are due in no small part to the lack of any real parameters guiding the consumer/issuer relationship” (209). However while it is true that credit card companies gross about thirty billion dollars each year, Draut provides no solid proof that these profits are directly related to a lack of regulations (206). With credit cards as popular as they are, it is possible that similar profits could still be achieved even without fluctuating interest rates and high penalty fees. Many people foolishly view credit cards as a form of supplemental income, making purchases on their cards without a predetermined plan to pay the balance. Even if they make the minimum payments on time each month, they will still end up paying significantly more in the end because they will have to pay interest on the card’s balance. Meanwhile, Clayton claims that most cardholders do not pay late fees on their cards (209). While it is certainly true that many cardholders do not pay late fees, stating that in fact the majority of cardholders do not is a bold claim and should have been supported by related research and statistics. If a financially responsible individual is forced to pay for a car repair or other emergency expense on their card and loses their job a week later, bills could quickly pile up and payments could be made

Draut explains that in 2006, the credit card companies made over ten billion dollars in late fees, an accomplishment she attributes to the current lack of regulations on the credit card industry (209). However, she does not acknowledge the fact that the cardholders would not have to pay a single late fee providing their payments were made on time. As mentioned previously, Clayton says, “Most cardholders do not pay late fees associated with being late or over their credit limit,” claiming that owing such fees is solely in the hands of the cardholder (209). He also argues that “risk-based pricing allows individuals who manage their debt obligations well to get the best and lowest price for loans.” While it is true that paying a bill on time eliminates the issue of late fees and should be rewarded, Clayton fails to admit that fees can quickly get out of hand when a credit card company is allowed to change the terms of the agreement at will. By failing to acknowledge clearly valid points by their opposition, both writers damage their credibility and their arguments at the same