Restricting credit card rates and fees is not a good idea during a financial crisis

In today's New York Times it was reported that the Obama administration is supporting legislation to limit the fees and rates credit card companies can charge people (Obama Pressures Credit Card Issuers on Rates, NY Times 2009-04-24). This seems to me to be a really dumb move.

What are banks going to do if they can't raise rates and fees on their higher risk credit customers enough to cover their default risk? That's right: The banks are going to get out of the business of offering credit cards to higher risk borrowers. Which is probably for the best for the people who get cut off (borrowing on credit cards to finance consumption is always and everywhere a poor financial strategy). And it would be a great idea if we weren't in a recession. But isn't reducing the availability of consumer credit during a recession attributed to a credit crunch kind of a dumb move?

On a related front, what is going to happen if banks are not allowed to raise rates and fees on existing credit card balances as the risk of default on those existing loan balances increases? That's right: The banks are going to lose even more money and they are going to need an even bigger bailout from the government to survive. In effect, the costs will be shifted from the higher risk borrowers to the taxpayer. Which makes me feel like a chump for being a taxpayer but not a borrower.

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