Now on our home page, Holding All the Cards, a web exclusive from Jeff Sovern on the power credit-card companies continue to wield over their customers.

Congress passed a credit-card-reform law in 2009 and created the Consumer Financial Protection Bureau in 2010. But the interest rules didnt change. In fact, of the fifty-nine senators who voted to create the Bureau, twenty-four also voted to let credit-card issuers keep using any states law they want provided they establish operations thereirrespective of where their customers live.Confused? Thats partly the point. These rules illustrate what economists call a market failure; that is, the failure of market transactions to reach the optimal result. Sometimes that happens in consumer transactions because few consumers pay attention to the contract in question, or because the contract itself is confusing. But when it comes to credit-card transactions, its not just the market that fails consumers, its also democracy. Just as businesses get their way with contract terms consumers ignore, they can often achieve their legislative goals on issues voters disregard. Consequently, legislators were able to portray themselves as pro-consumer on an issue voters noticedthe Consumer Financial Protection Bureauwhile voting for bills favorable to the financial industry on issues voters ignored, such as whether South Dakota law can apply to credit-card transactions in other states.

Consumers arent being helped by Supreme Court rulings that favor banks on class actions and arbitration, or by Republican plans to weaken the regulatory effectiveness of the Consumer Financial Protection Bureau. But these bespeak the bigger issue: the outsized influence of the financial industry, which still retains the ability to write its own rules even in the face of cascading crises.In the short time since Commonweal editorializedon the multibillion-dollar JPMorgan mess and lobbying efforts to scuttle Dodd-Frank, Barclays has admitted rigging the London interbank offered rate, or Libor. Now strapped cities and states that think their troubles were worsened by Barclays and other major banks involved in setting Libor each dayincluding Bank of America, JPMorgan, and Deutsche Bankare seeking damages. While The New York Times quotes analysts who say it could be one of the most expensive scandals to hit Wall Street since the financial crisis, Matthew Yglesias (whose piece in Slate is also a good backgrounder on Libor) puts a much finer point on things:

Todays cutthroat finance is nothing if not brilliant at arbitrage. In particular, its gotten frighteningly good at arbitraging away effective regulatory oversight. Time and again problems have arisen when clever bankers have found clever ways of undermining the intention of regulatory systems. The Libor malfeasance lays bare in an unusually clear way the basic fact that a modern bank is perfectly happy to lie when theres money to be made. Its time to stop being surprised and start realizing that these are the inevitable fruits of a regulatory system thats weak by design.

Dominic Preziosi is Commonweal’s editor. Follow him on Twitter.

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