John Stossel on Unintended Consequences of New Credit Card Rules

This is a RUSH transcript from "The O'Reilly Factor," August 24, 2010. This copy may not be in its final form and may be updated.

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LAURA INGRAHAM, GUEST HOST: In the "Factor Follow-up" segment tonight: Does the federal government actually hurt you by trying to help you?

Earlier this month, some new rules went into effect restricting what credit card companies can charge cardholders. Sounds like a good idea, right? Well, new limits have been placed on late fees and some interest rate raises, and they can't charge now for inactivity fees anymore. This will obviously help some customers, but what about the rest of us? The companies could lose as much as $50 billion because of the new rules. Of course, they're going to pass the cost on to the rest of us.

Joining us now from New York is Fox Business anchor John Stossel. Now, John, I remember when the president signed this into law last year with great fanfare and so many people who were told that this was a crisis because everything is a crisis in Washington, that the federal government needed to come in and needed to help us because we were being raped by these credit card companies, and it was all awful. Now what do we learn about the reality of the final effects of this?

JOHN STOSSEL, FOX BUSINESS ANCHOR: That there are trade-offs in life. And you show this picture, and there's Chris Dodd. It's like with the president signing this paper, we're going to solve all your problems. But when they do that, they create new problems. And, yes, some of the banks were pretty sleazy and ripping some people off. And when I was a young consumer reporter, and as naive as Chris Dodd, I thought government can step in and fix these things.

But what's the result? They limit some of these fees. Some of them were justified for people who paid late. And the result is that everybody will pay more in interest. Credit card interest rates have gone up now to an average 14.3 percent.


STOSSEL: Up from 13 percent, so up more than one percent, while all other interest rates have gone down. Gee, why do you think that is? Could it be because Congress is protecting us? The companies pass these costs on to us. They also take -- keep some people from getting credit. Some of the banks will say, "Well, gee, we can't charge a fee to the people who don't pay on time. We're going to have tougher standards." And so then they get payday loans, and they're much worse. Payday loans charge you sometimes like seven percent a week. That's 400 percent a year. How does that help poor people?

INGRAHAM: John, doesn't this remind you a little bit of what was promised during the health care debate, too, that again we had a crisis in health care. The government had to come in, spend a bunch of money, and create a big bureaucracy with new rules and new regulations. We're just learning about what they're going to be now and in the coming months.

But now we're finding out that access to services is not going to be improved. Even the Obama administration seems to be basically conceding a lot of this ground now. And so the unintended consequences are more expensive health care probably and fewer choices and less power to the people.

STOSSEL: Those are always the unintended consequences, and we've only begun to learn what they are in the healthcare bill.

What I've learned in 40 years of consumer reporting is that the market is imperfect, and some people get ripped off. But nothing is better than the market, where the customer and the business deal directly with each other, because if you rip people off, word gets out. That business eventually loses its customers, and the good ones that serve people well get the business. You get government in there, and it's just more money for the lawyers who write the bills.

INGRAHAM: And John, I love seeing Chris Dodd at that ceremony. This is all taking me back, because that's after, you know, we learned about all the Countrywide and the sweetheart deals and all, you know, the lovely little mortgage rates we got and all of that.

And Fannie and Freddie -- Freddie Mac and Fannie Mae, at the center of this housing meltdown, still are going back to the federal government for more money. Every -- every quarter it's billions more requested and needed to keep this whole thing afloat. And we're just -- Barney Frank and Chris Dodd, as far as can I tell, just looked the other way.

STOSSEL: Right. Here we're going after these $2 fees on a credit card. Fannie and Freddie took $140 billion from the public saying, "Hey, buy a house. You have bad credit? Oh, that doesn't matter. Down payment? No, you don't need one, because housing can only go up and we're good for it." And nothing happens to them.

INGRAHAM: This utopian idea of social engineering: everybody has to have a house, everybody has got to go to college. We, the government, are going to impose this rubric on the public at large. And in the end, we find the market has a way of reacting anyway. And so people are going to get stung one way or another, either at the front-end or the back-end. But this way it's going to be a lot more uncomfortable.

STOSSEL: Definitely. Now they're just blowing more air into the bubble. And Canada didn't have these policies. Canada didn't have the problem. And they have more home ownership than we have.

INGRAHAM: John Stossel, thanks so much.

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