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Keeping debt profitable

Consumers don't like interest rates in the high teens and beyond, but the industry argues (no proof offered) that they're needed to balance losses from defaulters, so that, as with the home-mortgage industry, the good risks end up subsidizing the poor risks. We know that banking is profitable -nearly a 20 percent return on sales, more than twice the 8 percent for the oil-and-gas industry, marginally less than the 22 percent for Big Pharma-but we aren't allowed to see numbers for Big Plastic specifically. We can reasonably expect that government won't convert the credit-card industry into a regulated public utility -after all, no one really "needs" a charge card-and cut the lenders' rates to, say, a CD return of 3 percent; and we can reasonably expect that government won't set minimum prices for consumer credit as it has set them for milk in various places, or prescribed prices per unit as it has set them for power and communications of various types.

In a parallel universe, government might have chosen to reduce and not increase credit-card-industry regulation to encourage competition, just as the Grange, starting in the 1880's, might have chosen to compete, price-wise, with the grain elevators, instead of suing them. Then, if one card issuer got too abusive of its customers, new credit-issuers would spring up, and consumers could take their borrowing elsewhere, and competition would regulate for service-quality in a cost-effective way that government never can.

Actually, in this universe, the Grange did just that, albeit in a half-hearted way. There's still a handful of grain storage facilities, with the Grange logo clearly painted on each of them, here and there in farm country. And the Grange, historically, urged its members to invest in private, on-farm storage, so as to gain better control over farm-gate commodity prices. But it did so far less aggressively than the National Farmers Organization; which, I suggest, explains why the NFO is today a far more serious and effective force for farm prosperity than the Grange.

Maybe the loudly complaining, forever lobbying, and regulation-demanding Consumer Federation of America ought to get into the credit-card business, to show those rascally bank-based lenders how it should ideally be done?

Former Vermonter Martin Harris lives in Tennessee.

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