Fair business practices and consumer rights in the credit card industry are being regulated by six different entities depending on the classification of the card issuer. This fragmented system exists despite the fact that the rules regarding business practices and consumer rights laws are the same for all credit card issuers.
Imagine you discover a burglar in your house and call the police. They arrive to make an arrest, but when they show up, they do nothing. They tell you you’ve called the wrong police. The police officers that arrived at your home only deal with criminals whose last name start with Q through S and this guy’s last name starts with a B. Moreover, the officers who are in your home tell you they won’t call the officers who deal with bad guys with last names beginning in B because they’re in competition with each other. Too bad too, because the guys who showed up are really good at prosecuting burglars but the guys you should have called are a little behind the times in that capacity. And of course, because of the competition, the two different police departments don’t share information.
This situation is laughable and ridiculous, and law enforcement would be completely ineffective if it were run this way. However, if you call a regulatory body with a complaint about your credit card, this is precisely the kind of policing structure you will find. Right now, and according to the Federal Reserve, the six different agencies that regulate U.S. credit cards are divided as follows:
- Federal Reserve: regulates credit cards issued by state banks that are members of the Federal Reserve System
- Comptroller of the Currency: regulates credit cards issued by banks with “national” in the name or “N.A.” after the name.
- Federal Deposit Insurance Corporation: regulates credit cards issued by state banks that are not members of the Federal Reserve System.
- Office of Thrift Supervision: regulates credit cards issued by federal savings and loan associations and federal savings banks.
- National Credit Union Administration: regulates credit cards associated with federal credit unions.
- Federal Trade Commission: regulates credit cards issued by finance companies or stores, and matters related to auto dealers, mortgage companies, and credit bureaus.
The obvious question here is why? Despite the differences in the companies issuing the cards, all credit cards do pretty much the same thing. Aside from extras like points and miles, you have an interest rate, you pay monthly bills, you have a line of credit, etc. They are all the same kind of product. Some may be better, some may be worse, but they’re all credit cards.
In terms of the laws concerning their regulation, the federal government sees all credit cards as the same too, and has one set of laws to govern them. They don’t, for instance, have a special set of laws for American Express credit cards and one for cards that come from Bank of America.
Why then, do we need all of these different regulatory agencies and why are they divided up in this manner? Do any consumers really think about whether their card has been issued by a state bank that is not a member of the Federal Reserve System rather than one that is? No, but of course, the credit card companies do think of these kinds of things, specifically because the lack of cooperation between these regulatory bodies makes some of them more lenient in certain areas of regulation than others. Therefore, it behooves a credit card company to shop around for the most lenient regulator.
In turn, this puts the regulators into competition in a race towards greater and greater leniency – exactly the opposite of what we, as consumers want from them. The result is that bad practices are allowed to continue without protest, ultimately endangering the entire credit card market. This isn’t a prediction; to a certain extent, it’s already happened. Despite this abundance of regulatory bodies, consumer and prudential protection have fallen through the cracks.
Perhaps this division of regulation seemed reasonable when it was created, or perhaps it grew out of a now obsolete system and simply remained. While we agree that Target is a different type of company than Chase Bank, the card you get from either of these issuers is pretty much the same and regulation should follow suit.
Given that there is one set of laws governing credit cards, and all credit cards are handled in the same way by consumers, we also need a single regulatory agency for ALL credit card issuers. It doesn’t matter if it’s a store, like Target, or a bank, like Wells Fargo, or a credit card issuer like American Express, any company that is issuing credit cards should be supervised by a single credit card regulatory agency that is responsible for both the financial health of the business and for protecting consumers from unfair and confusing practices.