A little light at the end of the borrowing tunnel

24 December 2010

In the ongoing mini-series being produced by the Federal government that should be called, "To Catch a Predatory Lender", another victory for violated borrowers has been won. Before and after the recently passed Credit Card Reform Act, the purveyors of plastic were on the lookout for loopholes to funnel their earnings through. One such loophole was an increase in 'swipe' fees that were passed along to merchants which would naturally cut in on the profits of the businesses accepting those cards. Always the innovators, small businesses found a way around that by offering discounts to those using cards with lower swipe fees. Check. In turn, the big 3, Amex, Visa, and Mastercard enforced rules that prevented merchants from offering discounts, rewards, or information about card costs. Check. Thankfully though, the Justice Department has stepped in with a lawsuit against these anti-competitive practices and at least two of the big three, Visa and Mastercard, have settled out of court. Checkmate!

For the record I'm not usually a fan of government regulation as I wholeheartedly believe the free market can sort things out for itself. In this case however, the free market was not so free and it appears the proper hands have been slapped out of the cookie jar. Over the last few years the credit industry has been deserving of our anti-trust and needs oversight. That said it needs well-crafted, honest oversight not political grandstanding like the CCRA that was presented as a panacea for struggling borrowers.

While some of the laws the Feds have passed to reign in the lending industry's 'abusive' practices look like they may be of help over the long term to prevent debt, it is most important to remember that it's up to us to avoid debt through our own diligence. We need to remember to read the fine print and avoid 'easy money' offers that only lead to trouble in the long run.