This morning, I heard Sen. Ron Wyden, an Oregon Democrat, flesh out his and Sen. Barack Obama's proposal to create a five-star rating system for credit cards during a conference at the Center for American Progress Action Fund. If a card issuer changed its terms for unfair reasons, it would get a low rating, but if it gave consumers sufficient time to switch cards, it would get a higher one, he said. Wyden compared the concept to the five-star safety ratings for new cars, which he said created extra incentives for car makers to create safer cars.
But a few minutes later, Jonathan Orszag, senior managing director at the economic consultancy Compass Lexecon, criticized the concept on the grounds that consumers are a diverse group, and one person's five-star card might be a one-star to someone else.
I, too, have wondered how the rating system would reflect different consumer preferences and habits. For example, someone who pays off the balance each month should look for a card that offers rewards, while someone who carries a balance should simply go for the lowest interest rate. So what would the government—under Wyden's proposal, the Federal Reserve—rate a card with a high interest rate and no rewards?
Plus—to paraphrase Ralph Nader before he was a presidential candidate—for some debt-ridden consumers, credit cards will be unsafe at any rate.