Congress is about to pass “sweeping credit card legislation.” I don’t think it’s all that sweeping, and although overall I don’t particularly object to it, there are aspects of it that bother me.
Reassuringly for us curmudgeons, the bill is hardly revolutionary, largely a collection of modestly worthwhile reforms and regulations. There are rules about how interest rates can be raised and late fees charged. Most people will not notice any effects, and even those that do will probably forget about it in a year or two.
However, there is one aspect of the would-be law that is significant both in its impact on a small slice of the public and as a sign of the times. The just-passed Senate version of the bill outlaws credit cards issued to those under 21. The House version set the minimum age at 18. That’s a big difference in my book.
American laws are ambiguous about when adulthood starts. For many purposes, 18 is the magic number. At that at age you can vote, get married, join the armed forces, and, with the looming exception of credit cards, enter into binding contracts including a car loan or a mortgage. There are still a few age limits that are lower. In most places you can work full time and drive a car before 18, but those minimums have been creeping up. The Insurance Institute for Highway Safety has endorsed raising the driving age to 18.
And then there is the small but growing list of things you have to be 21 to do. Buying alcohol is an obvious example. In most places you need to be 21 to buy a handgun, although other firearms are available if you are 18. (Cigarettes, incidentally, can be purchased at 19 in 4 states and at 18 elsewhere.) You must be 21 to enter a casino. In some jurisdictions the (pretty notional) minimum age for buying pornography is 21, although, as I understand it, everywhere in America you can legally perform in it at 18. (I will bet money that somewhere in our great nation is a strip club where the only under-21s allowed inside are the strippers.)
This inconsistency bothers me, but not as much as the worrying general trend of increasing the age at which we consider people to be grown-ups. And that is just part of an even larger trend, the growing reluctance to treat anybody as a grown-up.
There was a time in which somebody would have stood up and made the argument that consumers knew that interest rates on credit cards could be changed at any time and freely decided to borrow the money anyway. It is not as if this feature is new or unique to a few cards. It is a basic premise of short term borrowing and lending. Perhaps some brave soul said this in the recent debate. I didn’t hear him. The credit card bill passed the Senate 90 to 5.
The problem with legislation such as this, and there are many examples, is that, to paraphrase Robert Nozick, it prohibits economic acts between consenting adults. Put another way, it attempts to stop people from making foolish choices by removing those choices as options. It is what we parents do for our children all the time, but what governments should do for their citizens only very rarely.
I am not a radical libertarian. I think assault weapons should be illegal and I have no objection to seat belt laws. And with the exception of the age 21 bit, I don’t find the credit card bill to be all that objectionable. But the general principle and trend is troubling. Why can’t I agree to allow my credit card to change its rates or apply payments to lower interest rate balances first? I understand what I am doing and perhaps I think in the long run I will get a lower rate this way.
Why not a law forbidding mortgage types other than 30 year fixed? Or down payments of less than 20%? I am sure that there are members of Congress willing to sponsor that legislation right now. There are no doubt millions of people who acted very unwisely by taking out these sorts of mortgages and would have been better off if they had not been allowed to do so. But what of the millions who chose these mortgages appropriately and wisely and are better off because they were available?
When it comes to personal finance and public policy, banning certain economic acts is treating the symptoms rather than the disease. The problem is not that the various practices banned by the new credit card law should never have been legal. The problem is that so many people, adults all, lacked the knowledge and judgment to look out for their own best interests.
[Photo: Andres Rueda]