Credit was kind of an open field for much of its lifespan. Credit, as the modern concept we use every day, is arguably still imperfect but a great deal more regulated than ever before. In 1967, for example, offers to extend credit had no oversight. If consumers made bad choices, they paid for them out of their wages, taken out like taxes or the costs for group health insurance.
Are we better off for it? Yes and no. It’s difficult to gauge whether consumer understanding of credit has risen or fallen, but credit has become less of an extortionate practice in the meantime.
The main goals of the Consumer Credit Protection Act were to safeguard employees from having their wages garnished, provide clear guidelines for how to offer funding, and create a framework for dealing with debt in a modern sense. It’s important not to understate that these guidelines hadn’t existed before, so borrowing money was an extremely risky proposition for both sides involved.
One of the primary tools the federal government used to try and enforce, or provide guidelines for, this Act was the Truth in Lending Act. Using TILA, the government could regulate home-equity loans and credit cards. After 1968, the consumer had more information regarding a loan and could make a better decision on which program was right for him. Prior to, the consumer still had the burden of paying a loan back without the knowledge of whether the terms were more favorable to another loan.
Without these important restrictions, banks were using various practices to try and hide the true costs of a particular transaction. The CCPA made lending and credit far more transparent.
About the Author: Samuel Phineas Upham is an investor at a family office/ hedgefund, where he focuses on special situation illiquid investing. Before this position, Phin Upham was working at Morgan Stanley in the Media and Telecom group. You may contact Phin on his Samuel Phineas Upham website or Twitter.