Interesting idea: Government credit cards

 Posted by on 26 April 2009  Modern Life
Apr 262009
 

socialistcreditcard

It’s an idea that some might call (horror!) “socialist.” But Slate writer Christopher Beam asks, reasonably, if the U.S. government is taking over the banks, why not get directly into the credit card business?

Sure, there’s talk of regulating the credit industry a little more stringently — even here in Canada. But Beam wants to know if that’s enough — or even if it’s the best way:

But instead of cracking down on companies that treat their customers poorly, why doesn’t the government just offer a credit card of its own? After all, government regulation may help, but it’s unlikely to solve the problems of the credit industry—namely, spiraling interest rates coupled with rising defaults. Obama likes to talk about constructive alternatives. Why not offer an O-card? With his face on it?

State-owned banks in other countries already issue their own credit cards. And since profit isn’t the main goal, they can offer lower interest rates and fewer fees. Beam also mentions that a government-backed credit card could help out troubled borrowers — they could refinance on the new card, rather than on their old cards, and stay above water.

But he also says that government-issued credit cards would be handed only to the “super creditworthy.”

Sounds like it’s great from a keeping-the-taxpayers-from-having-to-cover-losses perspective, but I don’t know that it’s the super creditworthy who are having all the problems these days.

I suspect that, since the government has powers of coercion (like withholding your tax refund) that would make Visa or Mastercard jealous, it could just offer a lower limit to people with imperfect credit, but steady jobs.

So why not? As Beam points out, the government will already help loan you money for things like student loans and mortgages. And I’ll add that you loan the government money every time you buy a savings bond.

May I even suggest that, since the government would be getting into the market, that they call it “Social Credit“?

(Image credit to Flickr user doyoubleedlikeme. It’s an American Express “Red” card, offered only in the UK as part of the Product(Red) line, but I couldn’t resist the socialist implications.)

Grant Hamilton

  • Colin Corneau

    Bad idea.

    A lot of people who get in trouble with credit card debt simply don’t know any better. They should, but they don’t.

    If gov’t wants to get involved in such matters, they’d be better off making credit and money management courses mandatory in schools. And, even better, coming down HARD on predatory lending practices…that means a nice tight leash on credit card companies, in terms of regulations.

    • http://www.absurdintellectual.com/ Grant Hamilton

      Mandatory money-management courses in schools is a GREAT idea. I fully endorse that idea.

      But the concept of government-issued credit cards isn’t like casinos, say, which are just a cash cow. As the article envisions them, they offer plain-language instead of legalese, plus lower rates, and fewer fees that get tacked on. This would have the effect of sparing people from much of the trouble they could get into. If you’re paying 20% interest, it’s way easier to get behind than if you’re paying 8% interest.

      Secondly, as the article points out, an 8% gov’t credit card would stimulate competition from the existing credit card companies, which are a tightly tied-up oligopoly right now.

      Thirdly, I don’t know why banks can’t do this already? I mean, I have a line of credit with a tiny interest rate and it’s a simple phone call to transfer cash from it to my debit card, which I can then use as easily as a credit card. How is it that there’s a 15% interest rate difference between the credit card and the line of credit?

  • Colin Corneau

    Monopolies allow companies to get away with virtually anything…ie. Canada having the highest cellular phone rates in the industrialized world (and crappiest service, I can attest. I’m talkin’ to you, MTS)

    Not to be contrarian, but lines of credit are extended to those who have a proven track record of fiscal stability. Way too many people see credit cards as free money, which it ain’t. High interest rates are a real villian, but I daresay a lot of people (not all…but a lot) are their own worst enemy when it comes to using credit.