Lending Reform: From Reasonable to Wacky in a Week

Last week, I pegged off of Jeff’s post at Credit/Debt Recovery about lending reform ideas, particularly relating to credit cards, that might have a reasonable chance of passing because of the change in Congressional control. Of the five major ideas, I applauded three (banning retroactive rate increases, banning universal default, and banning abusive fees, particularly most over-the-limit fees), and was neutral on two. I noted that reform is overdue, and really should have occurred when Bankruptcy “Reform” passed in April 2005.

Leave it to the “progressive” community to take some good ideas and go off the deep end beyond what will be acceptable (link requires subscription; para breaks added for readability):

(Michigan Senator Carl) Levin was the keynote speaker at a nonpartisan program aimed at creating an incentive-based system of disclosures for the credit card industry. The Center for American Progress, a Washington, D.C.-based think tank, organized the program.

Derek Douglas, the center’s associate director, called on Congress to give the Federal Trade Commission the authority to rate credit cards on their “risk” to consumers, and for issuers to display the rating on the card’s face. The center proposes, for example, that the FTC consider whether a card program applies universal default provisions when changing the cardholder’s APR.

The FTC would award the card a red, yellow, or green rating that would be stamped on the card. Issuers would not be required to submit their cards for review but it might be advantageous to earn a top rating, Douglas tells CardLine. “The incentive to produce safer cards is entirely self-imposed, as companies reasonably might expect that consumers will be more inclined to sign up for a green-rated card rather than a red-rated card.”

Douglas says he hasn’t begun lobbying members of Congress on his idea, but notes the shift from Republican to Democratic leadership opens a world of possibilities.

Mr. Douglas ought to acknowledge two things, the first which I believe he knows and won’t admit, and the second which I believe he doesn’t seem to understand:

• The red-yellow-green idea, never minds its merits, will soon face heavy pressure to go from optional to mandatory once it is “voluntarily” put into place (never mind the insufferable haggling that will ensue over what color code a given card deserves).
• The more over-the-top ideas get tacked on to the reasonable ones, the greater the chance that either a bill won’t come out of Congress at all, or that the president will veto it, and come out of the veto looking good.

Earth to those controlling the 110th Congress: Not that you want advice from me, but the less loony you seem, the more likely you are to stay where you are.

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UPDATE: It doesn’t take too much imagination to see Leno, Letterman, Stewart or Colbert having fun with the red-yellow-green credit-card ratings.

UPDATE 2, Dec. 8: Jeff — “…. this is what government thinks of you; they think you’re a stone imbecile who needs a simple color-coded scheme to tell you how to borrow money. One day they’ll make Garanimals mandatory.”