From the Editor: Looking at the CARD Act

Financial regulatory reform has swung into high gear. Last Wednesday President Obama introduced his sweeping plan for reforming how the financial services industry is regulated. Highlights of the plan include creating a council of eight regulators to worry about systemic risk, with broad new powers for regulating financial concerns that create significant systemic risk and to deal with failing institutions, and a new consumer protection agency for regulating financial products.

The Obama Plan will shape the debate over regulatory reform in Congress for at least the rest of this year. And it will shape much of the focus of Lombard Street as our contributors discuss the pros and cons of different parts of the plan and suggest alternative ways forward when they see weaknesses in what has been proposed.

The Consumer Financial Protection Agency proposed by the Obama Administration would regulate credit cards, among other financial products, which is one reason why credit cards are the subject of this issue.

Always on the radar screen of Congress, credit cards have been under increased scrutiny following the financial crisis. That led Congress to pass the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 which President Obama signed on May 22nd. The Credit Card Act imposes new rules and regulations on sellers of credit cards—ones that presumably the proposed consumer protection agency would build upon.

Three more of less skeptical authors take a look at the CARD Act. Lawyer Thomas Brown and economist Lacey Plache, both of whom have worked on behalf of Visa, argue that the enactment of its provisions will actually harm consumers and possibly even push up the interest rate that consumers pay.

Law professor Ronald Mann has his doubts as well. He contends that Congress missed an opportunity to deal effectively with “shrouded terms” on credit cards which lure consumers into taking new cards that they wouldn’t take it they really understand the long-run costs. At the same time he criticizes the bill for making it hard for issuers to charge for taking on risk.

Both articles are provocative and we’re looking forward to publishing comments on them as the debate over regulating financial services products -- including cards -- heats up.