Credit Card Reform may Have Unintended Consequences for the Financial Sector (Rep. Scott Garrett)

Next week, the House will consider legislation on credit card reform. I believe that this legislation, while well-intentioned, may have unintended consequences for the financial sector. This bill has the potential to reduce investment in the marketplace, increase rates and fees for all credit card holders, and restrict credit availability. In our current economic climate, as we are trying to resuscitate our markets with pro-growth initiatives, we must be mindful of the effect interventionist legislation can have on the financial sector. Additionally, the Federal Reserve already has consumer protection rules that are on the verge of being implemented. Codifying these rules limits the flexibility of the Fed to make changes to the regulations if needed.

The concern over this bill’s potential to reduce investment in the marketplace is valid. Fewer funds available for lending may contribute to a greater tightening in marketplace liquidity. In addition, the legislation has the potential to increase rates and fees for all credit card holders. As a result of restricting risk-based pricing, the risk will likely be spread to all cardholders, regardless of their level of credit risk.

This bill also has the potential to restrict the overall availability of credit to all consumers, rather than empower people to take advantage of the benefits of using credit. Ironically, the bill is touted as a protection for people with imperfect credit histories, but rather than offer protection, this legislation has the potential to make it more difficult for everyone to obtain credit cards after its enactment.

I am a strong advocate for Access to Credit Reform, and I believe we need to ensure that government actions don’t cause greater problems in the marketplace and result in the restriction of credit availability for all consumers.