Credit Cards

Back in May, I posted on a piece of legislation that was working its way through Congress and was expected to get President Obama's signature when it was passed. In it, I raised a number of questions about the possible impact of the legislation on the credit card market.

1. What will be the impact on size of the credit market - how many people will be eligible to get credit cards - based on some of the proposed changes?
2. If demand (the number of customers) changes, what happens to the price of credit?
3. If banks cannot cover risk or make a profit at a given price, what can they do to the supply of credit to change the price?
4. If people (consumers) get less (fewer benefits) and are charged more, are they likely to change their spending patterns?
5. Given that using credit is usually a choice, what incentives to use or not use are created by the changes?
6. Do these changes create externalities (costs or benefits that accrue to parties outside the transaction) that will complicate the pricing of the service?

Some of the changes will not take effect until 2010. And it is probably too early to truly measure the impact of those that are taking effect tomorrow. But I think this article in today's issue of The Wall Street Journal offers some hints at the answers, at least in the short-run.

Do you think this article might be a way to open your personal finance classes? Maybe you could use it as a "while you were away" approach to introduce the topic. This might then get the students talking about credit and credit cards. It could provide a baseline for you about their level of knowledge (or misunderstanding), as well give you an early way to peak their interest.

I look forward to your comments.