Below The Beltway

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A Really Bad Idea Out Of Maryland

by @ 3:42 pm on February 8, 2008. Filed under Individual Liberty, Right to Contract

A Maryland Delegate is proposing legislation that would restrict the ability of banks and lenders to adjust lending practices based on changes in their exposure to risk:

Maryland could soon change the laws governing the credit industry by prohibiting companies from adjusting interest rates for what critics say are arbitrary reasons, such as a customer opening additional credit accounts.

When consumers open new lines of credit — for example, signing up for credit cards at retail stores to qualify for discounts — their other credit card companies are allowed to increase their interest rates without telling them.

A Montgomery County delegate is seeking to ban that practice in the state. Del. C. William Frick (D) will introduce legislation today that would prohibit credit companies from changing interest rates because of what he called “extraneous circumstances.”

“We can’t restrict the rates banks charge in Maryland,” Frick said. “But we can use our consumer protection laws to prevent them from making these kinds of arbitrary changes.”

Sir, these changes are only arbitrary because you are calling them arbitrary. In reality, the easier it is for lenders to adjust interest rates, credit limits and lending practices, the better off everyone is. Why ? Because, when lenders can focus their risk reduction on consumers that are, in fact, riskier, then they don’t have to raise everyone’s rates.

The only result we’re going to see from this is high interest rates for everyone.

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