If you suffer from edentulism, you have no teeth. And, if some lobbyists and legislators get their way, that could soon be precisely the condition of the new watchdog responsible for credit card regulation, the Consumer Financial Protection Bureau (CFPB).

Credit card regulation hotly debated

Whether you believe that credit card regulation is a good or bad thing is likely to depend on your general political outlook. There’s enough evidence to make the arguments on both sides credible.

On the one hand, there are plenty of examples of government interventions in markets having unintended–and sometimes seriously detrimental–consequences. On the other, there’s a growing consensus that the Credit CARD Act of 2009 was in totality a good thing (see Credit card law helps consumers, report says). Even some bankers see it that way. That blog quoted Peter Garuccio of the American Bankers Association, who told USA Today back in February: “…when you look at the regulations, it’s a net positive for consumers. But there have been some trade-offs.”

Credit card news not consumer-friendly?

If that support for past regulation was ever close to a consensus, it certainly doesn’t extend to future interventions. Last July, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law, and this required the setting up of the CFPB. However, the new watchdog was in some eyes neutered from the start, because it was, under pressure from lobbyists, established under the auspices of the Federal Reserve, an institution not noted for siding with consumers against the interests of banks and credit card companies.

Just yesterday, the Fed bowed to pressure, and executed a screeching U-turn over debit card interchange fees (a.k.a. swipe fees), increasing its own original proposal, published in December, for a 12-cent cap per transaction to a base of 21 cents. This, with added allowances, would bring the fee for an average transaction (which comes in at $38) to 24 cents, or twice what was originally proposed. Today’s Financial Times reports that, as a result, shares in Visa credit card company climbed by $11.29 (15 percent) to $86.57, while MasterCard  jumped $31.47 (11 percent) to $309.70.

National Retail Federation President and CEO Matthew Shay responded swiftly, saying in a statement:

We are extremely disappointed that the Federal Reserve chose to be influenced by special interests and ignored the will of Congress and American consumers. While the rate will provide modest relief, it does not go far enough… we take some comfort in knowing that we were able to shine a light on these deceptive practices and bring some relief to merchants and their customers. Even though this rule is specific to debit cards, we are hopeful that it leads to more transparency and relief from credit card swipe fees as well.

It’s unlikely that the executives who run credit card companies are losing much sleep over that distant prospect.

The watchdog loses its teeth

When the Fed estimated the budget that would be necessary for the CFPB to fulfill its role effectively, it calculated a figure of $500 million. Last week, the House Appropriations Committee met, and voted to slash that by 60 percent, reducing it to $200 million. The day after the vote, June 24, Center for Responsible Lending president Mike Calhoun issued an outraged statement that began:

The House Appropriations Committee yesterday voted for a return to policies that allowed predatory financial products to plunder our economy. Clearly some lawmakers have forgotten the lesson of today’s financial crisis, which continues at great cost to taxpayers, shareholders, retirees and, of course, tens of millions of families who have needlessly lost their homes or seen them plummet in value. Specifically, the committee voted to slash the Consumer Financial Protection Bureau’s budget and to subject the new agency to a politically charged funding process.

That budget cut must surely effectively remove the watchdog’s teeth. Of course, with the deficit the way it is, you could argue that such a cut is appropriate. But a toothless watchdog is little better than no watchdog at all, and it may have been more honest (and frugal) simply to euthanize the poor beast. Certainly, if you defanged your pooch in this way, your neighbor would call the ASPCA.

Published 06/30/11 (Modified 05/14/14)