Dear Consumer Reports,
I have a better idea. Rather than relying on government regulation to set prices, interest rates, and fees, let's lower barriers to entry into the credit card market to encourage competition. I trust a competitive market process to protect consumers much more than I trust a government to do so.
Consumer Reports's naive view of regulation and wrongheaded policy advocacy is almost annoying enough to make me want to cancel my subscription, but your valuable product information is sufficient to change my mind. If only I could get one without supporting the other.
Mike HammockTwo things may deserve more explanation.
1) Why does competition protect consumers?
Because firms that are afraid of losing customers to competitors have an incentive to keep those customers happy. If that means keeping fees low, that's what they'll do. DVD players didn't go from $200 to $30 because Sony and Philips and Samsung like their customers; they got cheaper because these companies are trying to beat the hell out of each other in a competitive market. There are only five credit cards in common use: Mastercard, Visa, American Express, Discover, and Visa. Discover was the last new major card, and it was introduced back in 1985! Before the government starts trying to set prices and fees, it would make more sense to eliminate whatever barriers to entry exist in this market. I'm guessing they are primarily regulatory. There are probably some network effect problems (getting retailers to accept a new card may be difficult), but those shouldn't be insurmountable--especially if the new card charges lower fees to retailers than existing cards.
2) Why not just let government set all fees and prices?
Because it won't get them right. Prices can be too high, in the case of insufficient competition, but they can also be too low, resulting in shortages. In the credit card market, this would mean denial of credit to some consumers.
This has implications for other policy debates, too. If we want to make something cheaper--like, say, health care--we should look first to the way the market is structured, and look for a market mechanism that can push prices down.