Overspending, Not Credit Card Fine Print, Is The Problem

Here’s Megan McArdle at The Atlantic responding to an interview up with Nick Gillespie of Reason on the proposed Consumer Financial Protection Agency:

A consumer financial protection agency is not going to do much to help consumers. It is true that people don’t always understand all the terms in their credit card contracts or mortgages.

The problem is, it is almost never the tricky hidden terms of those loans that get people into trouble. People get into trouble because hyperbolic discounting, or an insurmountable crisis, leads them to borrow more money than they can reasonably pay back. By the time a 5% increase in your credit card interest rate spells financial ruin, you’ve been in deep trouble for several years.

So if the CFPA confines itself to ensuring full disclosure, this will not much help consumers, because the terms that matter are already disclosed, i.e. that you are borrowing money and will have to pay it back with a high rate of interest.

Too many people look for somebody to blame for their inability to control their own spending. Yes, credit cards and banks maintain usurious policies to snag the unsuspecting. So, don’t be unsuspecting. Get a no-fee card, limit your spending, and pay the full balance each month. If you do that, you get an interest-free loan each billing cycle, and the joke’s on the bank.

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