Have you heard of Carmen Segarra? She was an employee of the New York Federal Reserve until she was fired for doing her job. She had refused to tone down a report that criticized her bosses and colleagues. She had witnessed — and had the secret recordings to prove it — timidity and servility on their part when dealing with the major banks they were supposed to regulate. This wasn’t just a toothless watchdog: it was one that saw its role as licking the faces of the very people it was supposed to deter.

You can see why some who work for regulators take this stance. They’re middle ranking and relatively low-paid people whose best hope for making serious money is to be recruited by the banks they’re supposed to supervise. And, when they do try to bring into line a financial institution that’s straying, they face armies of high-paid lawyers and endless litigation that they lack the resources and talent to effectively oppose.

Is credit card regulation better?

Once upon a time, credit cards were regulated by the Federal Trade Commission, a body that IndexCreditCards.com would from time to time accuse of “never knowingly being on the side of a consumer.” But in July 2011 many of its responsibilities passed to the new Consumer Financial Protection Bureau (CFPB). And the bureau has certainly been more active than its predecessor in introducing transparency and fairness into the card market.

However, even it doesn’t have an unblemished record. The Credit CARD Act of 2009 prohibited card issuers from charging in total fees during the first year an account was opened more than 25 percent of the credit line provided. First Premier of South Dakota found an alleged loophole in this, and offered a product that gave a $300 line while charging a $95 “processing fee” alongside a first year’s annual fee of $75 and a 36-percent APR. Use that $300 throughout that first year, and you’d pay the card issuer $278 in fees and interest — or 92.3 percent of your line of credit.

Amazingly, (see “Secured credit cards and the Rottweiler tendency“) First Premier found a federal judge who agreed with its assertion that the $95 processing fee wasn’t a part of the total fees charged during the first year, because it was payable before the account was opened. That could have been the CFPB’s cue to appeal, but the regulator chickened out — or “caved,” to quote American Banker magazine.

Credit CARD Act

Still, credit card users do generally get a much better deal than they used to, and the CFPB can certainly claim some of the credit for that, although it has to share it with the Credit CARD Act. In October 2013, the bureau carried out its own study of that law’s impacts, and found:

1. The total cost of credit for card users fell two percentage points between 2008 and 2012.
2. Overlimit fees have faded to near extinction.
3. Late fees were down an average of $6 since the CARD Act was passed.
4. Credit remains largely available to those who deserve it.
5. Young people have better protections against credit they can’t afford.

Credit card companies doing well

When the Credit CARD Act was still a bill, wending its way through Congress, banking lobbyists descended on Capitol Hill in extraordinary numbers. Among their more dire warnings was the assertion that the proposed law posed an existential threat to the card industry, and could see issuers shutter their businesses, thus robbing consumers of all the benefits of plastic. How did that work out?

On Oct. 12, The Wall Street Journal talked about credit card companies being in a “sweet spot.” It said American Express, Capital One and JPMorgan Chase were all expected to achieve profits at pre-recession highs. And it went on to quote JPMorgan credit card chief Eileen Serra, who observed in an interview, “The current state of the industry is very, very healthy.”

Indeed, the Journal (hardly a nest of lefty vipers) even acknowledged that some of the industry’s current success may be down to the rules the CARD Act introduced: Some executives believe fees and penalty rates that were too high used to stop customers from staying afloat, and drove them to default.

So there’s plenty of evidence that card industry regulation benefits both consumers and purveyors of plastic. That makes it even more important that its regulator remains independent, vigilant and courageous.

Published 10/20/14 (Modified 10/30/14)