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Credit to the Market

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Washington, DCs, WTOP [2] all-news radio station ran a short interview with Frontline reporter Lowell Bergman who does this story [3] tonight on PBS: “The Secret History of Credit Cards.”

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 [2].  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.