I think Congress needs tighter control over the credit card industry.

As this ‘bQandA evolves, I’ve taken to asking real economists (i.e., ones with Ph.D.s) to read both your questions and my answers, and comment on any or all of them. This installment’s “guest vetter” is Martin Neil Baily, now with the Brookings Institution. He was chairman of President Bill Clinton’s Council of Economic Advisors and is a certified VKP (very knowledgeable person). If you wish to be even more suitably impressed, check out his bio:

Question/Comment: I think Congress needs tighter control over the credit card industry.
My chief concerns are:
1. Too many unsolicited offers for credit in the mail (my daughter receives at least one a week).
2. Credit card companies should not be able to send blank checks to you. (Every month I receive unsolicited blank checks which I then need to shred.)
3. Interest rates should be tied to your credit score. The rules for setting interest rates are too arbitrary they can change rates for just about any reason they want.
This industry needs more media attention.

Paul Solman: More media attention? I’m the last person to argue that point. But do you really want legislation to prevent unsolicited offers for credit – or anything else – in the mail? Or a prohibition against blank checks? How would you write such legislation so that it couldn’t be gotten around, and/or wouldn’t abrogate freedom of speech? I mean, who likes political ads on TV, for example? But the Supreme Court has said they are constitutionally protected. Personally, I think two of the great costs of a (relatively) free market are mendacity and manipulation. But it has always been thus, and I just don’t know how much you can do about it. On the other hand, if you think you can do it…

As for interest rates, they sometimes are tied to your credit score, no? That’s one of the key differences between ‘prime’ and ‘subprime’ loans, though brokers suckered people eligible for prime rates into subprime mortgages.

Martin Neil Baily: We have a very competitive and lightly regulated financial sector in the United States, and that is a plus to the extent that it makes it easy for people to borrow and keeps down the interest rates we pay on mortgages and other loans. It has become a problem when lenders use deceptive practices and borrowers do not know what they are getting into, as Paul noted.