The Credit Education Series, Part 4 of 4

In this, the culminating segment in the 4-part Personal Credit Education Series, we explore legislation on credit cards passed by Congress in early 2009.

On May 22, 2009, President Barack Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act. The Act was created to strengthen consumer protection in the credit card market.

Economic commentary can be either positive or normative in nature. Positive economics is "testable" meaning some data exists, we can make hypotheses and we can run social experiments. Normative economics is a personal opinion of how an individual "feels" things "should" be.

Let's put it into practice! The White House issued a press release last Spring that listed several Principles for Long-Term Credit Card Reform. Among them:

1. There must be strong, reliable protections for consumers. We can test (Positive) the reliability (Normative...who determines what is reliable? In this case, the Government does.) & the severity (Normative) of penalty enforcement when card issuers overstep the legal boundaries. How? What data do we have as proof that this measure is Positive economics? Specifically, the Act calls for a ban on unfair rate increases and folks under the age of 21 must have proof of verifiable income or a co-signer...who is older than 21. Going forward we should see a lower (of not zero!) incidence of reports of unfair rate increases and predatory lending if this proves successful.

2. All correspondence sent to cardholders must be in plain language and plain sight. We can check this and compare changes in statements before the Act and after its inception (Positive). Gone are the days of hunting and squinting for the terms of your agreement. Card issuers are required to make it plain and keep it moving, and Congress tells us what "plain" is defined as (Normative) in their policy.

3. Ensure that consumers can shop for a credit card without fear of being taken advantage of. Debatable; this has Normative origins. People shouldn't have to feel as though they are being played. The Act continues on to explain that issuers are required to show consumers the consequences to consumers of their credit decisions; this testable and therefore, Positive.

4. The Act will ensure Accountability from both card issuers and regulators. Again, what is deemed "accountable" varies from person to person (Normative), but for purposes of implementing national policy (a Positive), the Act specifies that issuers must post credit card contracts Publicly (e.g., on the Internet) and among others, requires that issuers must request public input (Positive) on trends in the credit card market and potential protection issues.

Earlier this year the NY Times online posted a Positive blog with Normative comments about the Act. Check it out here.

Given the size of the U.S. economy - the Gross Domestic Product is over $14 trillion! - we will periodically check in with the progress of the Credit Accountability Act. It will take time for these regulations to trickle down to ECONtrepreneurs like you.

Go forth and borrow wisely and better informed than yesterday.