Why is the Fed Attacking Credit Cards Now?

This morning the Washington Post reports that the Federal Reserve, which has previously been reluctant to regulate the credit card industry, has announced plans to eliminate many abuses, such as universal default. Credit card bills have been introduced in both houses of congress and hearings were recently conducted in the House of Representatives. So now federal-level attacks on the industry are coming from three directions.

Why is the Fed taking action (or promising to take action) now? First, consumer anger about credit cards has been building for some time, and the subprime lending crisis has drawn attention to the problem of predatory lending generally. Second, I suspect the Fed is also responding to criticisms that its recent bailout of Bear Stearns was a big, expensive move that served the upper end of the economy—Wall Street investors—and did little for consumers who happen to be really hurting as real estate values plummet, gas prices skyrocket, and a recession looms. So here was an issue that has suddenly become rather uncontroversial, and the promise of action now might polish the Fed’s image with consumers. They might have waited to make this announcement until the end of the year, when the details of the regulations “could be” finalized, but the Fed needs some image enhancement now.

Rep. Carolyn Mahoney (D-NY) expresses considerable skepticism about the seriousness of the Fed’s resolve. She has recently introduced a Credit Card Holders’ Bill of Rights in the House, and she is undoubtedly concerned that the Fed’s actions will take votes away from her bill. Worst case scenario: regulatory bills do not pass through congress, and the Fed’s actions end up being an inadequate response to the problem. A reasonable concern.

What is the least surprising aspect of this story? You guessed it, the credit card companies object.