TPM contributor Adam Levitin has an op-ed this morning in the Chicago Tribune that makes a terrific point: Complex credit card pricing prevents consumers from knowing the true cost of credit and, as a result, prevents the invisible hand of the market from working its magic.
In all the resistance to “regulation” of any credit product, it is easy to overlook the simple point that Adam drives home so forcefully. Markets work on full information. The implications are powerful: If a consumer can’t figure out the features of a product, then the market won’t price those features appropriately.
Adam focuses specifically on the complexity of pricing. He points out that there are many, many price points — interest rate, default interest rates, two-cycle billing, etc., so that the most straightforward question — what does this cost? — is obscured. Complexity can sometimes mean more customization to a particular consumer’s needs (think of the shelves in a grocery store) or it can mean a more sophisticated product (think of a 2008 car engine). But complexity in credit cards has a very real cost when it hides the risks and charges associated with a credit card.
Take a look at Adam’s article. But ignore the ads for more credit cards that will run on the screen.