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Credit to the Market
Posted By Don Boudreaux On November 23, 2004 @ 7:19 pm In Regulation | Comments Disabled
Fortunately, I teach tonight – so I’ll not be tempted to subject myself to the torture of watching mindless “reporting” that is passed off as serious investigative journalism.
How do I know it’s mindless reporting? A hint is something that Mr. Bergman said during his interview on WTOP. It went something like this: “There’s no limit on fees that credit-card companies can charge! In the past late fees and such were $5, $10; today they’re as high as $39.”
(I tried but failed to find the link to this interview at www.wtop.com . My quotation above is from memory.)
What Mr. Bergman no doubt means is that there is no government-enforced maximum limit to the fees that credit-card issuers can charge. But the absence of a government-enforced limit emphatically does not mean that there’s no limit to what credit-card companies can charge.
First, the law of fraud applies to credit-card companies no less than to anyone else. If a company defrauds you into paying a higher fee, it’s breaking the law. Legal remedy is available.
Second and more importantly is competition. Credit-card fees and rates are limited by competition. Indeed, Mr. Bergman ended his interview by admitting – actually, he sounded as if he were complaining about this fact – that “there’s a lot of competition” among credit-card issuers.
Competition and consumer choice are sources of market-defined and enforced limits on firm behaviors. It’s not a perfect system, of course, but for a supposedly high-brow reporter on a self-congratulatory high-brow network to treat constraints imposed by markets as if they are non-existent is mindless.
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 WTOP: http://www.wtop.com/
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