Thinner Wallets

The government is preparing to overhaul another segment of the American financial system: the credit card industry. Some of the changes will help consumers better understand the costs and risks of using their cards. Requiring companies to give sufficient notice to customers when terms change also qualifies as a reasonable requirement.

But restrictions on fees, interest rates, and the way payments are calculated are a double-edged sword. Thankfully, Congress pulled back from enacting a hard cap on the interest rates companies can charge on balances that are not paid off at the end of the month. Our populist legislators are, however, planning to enact a long list of restrictions and requirements that will make it more difficult for lenders to make a profit. The changes will please those who owe money on their credit cards. The debtor is king these days.

Someone needs to point out the downside of limiting the ability of lenders to determine the compensation they require for making unsecured loans through credit cards -- which are always riskier than loans backed by collateral, such as home mortgages. The certain outcome of these reforms will be less credit offered. After the crisis created by too much debt throughout the system, this is not an entirely unwelcome change.

But families with lower incomes and less-than-perfect credit scores will find it difficult -- if not impossible -- to obtain credit cards. Minorities and young people will be especially hard hit. Unsecured credit will become a more elite product, dispensed primarily to middleand upper-income Americans. This will close a path to credit that has helped more than a few successful entrepreneurs launch their businesses. It will slow consumer spending and make economic recovery that much more difficult.

For even those with good credit, the cost of having a card is almost certain to increase. The days of no-fee credit cards for good customers are probably over.

We are confident that the congressional credit card reforms will soon lead to congressional hearings about why credit card companies are refusing to lend to so many good and worthy Americans. Barney Frank and Chris Dodd have years of experience berating businesses they've helped to destroy.

There's an important local angle, too. Many credit card companies already have seen profits decline. The congressional reforms are likely to exacerbate those problems. Companies with declining profits do not create new jobs. That's true even for very well-run companies, such as Capital One, a top employer in the Richmond area.

Washington's popular and populist credit card reform bill is more feel-good legislation, hailed as another dose of salvation by the minions in the media. It's not quite that simple.