Stop Soaking Credit Card Shoppers

The Fed and the White House are trying to get interest rates down, in order to coax the cautious consumer back into a buying mood. But if that consumer charges purchases to a credit card, the interest rate is apt to be a stunning 19.5% -- enough to put a damper on any buyer's zeal.

The credit-card rate has been flirting with 20% in spite of a dramatic decline in what banks have to pay for money. Since mid-1990, the federal funds rate has been cut 13 times and now stands at just 4.75%.

Why have things reached this ugly pass? The answer is that Washington, still stunned by the savings and loan debacle, is treating the banking system with kid gloves. Banks cite the cards unsecured-credit aspect as justification for such high rates -- yet they're snowing mailboxes with new-account solicitations. The truth is that the wide spread between what banks pay for money and what they charge consumers for it is a subsidy to an industry that is rightly seen as shaky. It's also true that, despite lip service to lower rates, Washington has tolerated and even encouraged banks to soak the consumer -- to prop up the industry.

On the evidence, banks seem ready to ignore President Bush's call for lower credit-card rates. But the banks must realize that if they do not heed the call, they may not get the other things they want -- such as interstate banking. And for their part, regulators and politicians should stop subsidizing banks by allowing outrageous rates on consumer loans. It is time to end this charade.

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