Freedom to Act (like an idiot)
It seems to me that some of the biggest debates we see in government and politics is how much government needs to protect people from themselves. There are sound examples of problems where left to their own devices, people often make less than ideal choices for the group, which are often clear cases for government intervention, but where do we draw the line?
One recent issue is credit card consumer protection. Banks offered very complicated and confusing products, and some elements of recent legislation will improve things by getting rid of legalese and fine print. But banks didn’t charge people high interest rates just for the fun of it — credit cards are products, targeted at a specific market segments and designed to make a profit off the group as a whole. In a way it’s kind of like insurance — you need to charge the group enough to cover the losses you will have on similar individuals. Without a doubt, the limits on rates will prevent credit card companies from issuing credit to those with lower ratings.
Now, you could easily argue that most people in the lowest rating segment get themselves in a lot of trouble (and a lifetime of debt) by improperly using credit cards. Maybe those people are better of as a group without having access to the temptation to buy now and pay (plus interest) later. But used wisely, credit cards are incredibly valuable for personal finance:
- you can see exactly how much you spend and where (especially with services like mint)
- access to a free 30 day loan every month,
- make big irregular purchases (car repair, doctor visits) before a paycheck comes in
- earn between 1–5% back through points, miles, or cashback
If issuers can’t charge a profitable rate, they won’t provide the service. “The safest credit card is no credit card” — Consumer Protection has never looked so much like abstinence only sex education. Shouldn’t individuals have the right to make their own choices, even if they are bad? Is it the responsibility of government to protect people from corporate abuse, or does stupidity/ignorance count too. How much of a responsibility to educate consumers to issuers have? McDonalds has to warn you their coffee is served hot — should issuers have to warn you that they charge HIGH INTEREST on unpaid balances?
I think we have drawn the line too far on the side of corporate responsibility — they definitely have a role to educate people about the benefits and risks of their products, but at the end of the day, we should expect some common sense and responsibility out of consumers. Uncle Sam can’t be everywhere.
ps. This debate reminds me a lot about the issue of baby boomer parents being overbearing in their children’s lives. Did the same paternalism cross over into their politics?