by David Kretzmann

Recently I have grown deeply concerned with the potential power grab by the central government over credit card interest rates. In a time of weak economic conditions in many industries and the overall economy in general, the White House and Congress assume they have the power and responsibility to lower credit card rates and greatly increase regulation over the industry, in order to protect the consumer.

Prior to 1937, Congress’s role in the regulation of commerce was quite simply defined as the “movement of goods” between states, and put most production and manufacturing outside of the regulatory power of Congress. This definition has essentially been abandoned ever since the Supreme Court, in 1937, upheld an act allowing Congress to regulate many aspects of labor through the National Labor Relations Board.

Before this case, activities within the states were left strictly to the states to regulate and it was out of the boundaries of the federal government to intervene. Today, this description of regulation would be laughed at by the bureaucrats in Washington arguing to regulate practically anything that the government doesn’t already have its hands on.

The issue of whether credit card rates and businesses should be regulated is a viable discussion. Traditionally, and constitutionally, this is an issue that should absolutely be left to the states. It is a local issue and not an interstate issue, thus taking it out of Congress’s regulation jurisdiction. At least, this is what the case would have been before 1937 when a more clear interpretation was used to define the Commerce Clause in the Constitution.

The troubling aspect of the new potential regulations of credit cards is that it is the Federal Reserve Board who is making many of the new decisions and regulations limiting credit-rate increases, set to take effect in 2010. Now, think for a moment.

If it used to be out of the constitutional boundaries of Congress to regulate local and state matters like credit card rates, where on earth does the Federal Reserve get the constitutional authority to set and carry out these regulations? It is troubling that the Constitution can be trampled on this much without so much as a peep asking where the constitutional authority for these powers is derived from.

The issue of whether these regulations are needed or worthwhile is one thing. But rough problems today will easily turn into a disaster tomorrow if there is no check on government. Today we are seeing a federal government with few boundaries or concern for following the Constitution. Our government was created under the Constitution, and the federal government and Congress specifically were given very specific and limited powers. This was generally respected for the first 150 years of our nation’s history.

Credit card regulation may certainly be beneficial on a state level. If the regulation is needed, constitutionally it is clearly and definitively a decision to be debated and made by the states, not the federal government or Federal Reserve. Currently not only is state power being trampled on, but Congress has turned and continues to turn the responsibility of the states over to a closed-off, powerful, independent agency whose very constitutionality itself is questionable.

In today’s time of calls for more federal regulation, intervention, and control over finance, it is hard to imagine a time when Congress’s role in commerce was so narrowed down to regulating the movement of goods between states. It isn’t too unlikely that the Federal Reserve will gain even more regulatory powers over the financial industry over the next several years. What’s ironic is that it is all being carried out in the name of protecting the consumer.

It is absurd to think that allowing the Federal Reserve to carry more regulatory responsibility will help consumers. They have no constitutional authority to regulate, the operators of the Fed are not elected by the people, and the primary operations of the Fed are off-limits to audits. You cannot tell me that this group can adequately protect consumers and not pander to the banking interests who run the agency.

True regulatory representation of the consumer can only be achieved through the states. If it isn’t the individuals who decide the regulations, it isn’t right to call it consumer protection, is it? It’s a head scratcher to think that the same organization who has destroyed the value of our currency (which hits the lower and middle class hardest) can stand up for consumers with a straight face.

It is largely a lack of understanding and respect for the Constitution that got us into this mess in the first place. Many in government either do not understand, or simply ignore, the restraints placed on Congress’s regulatory power and the 10th Amendment’s clear language bringing issues not given to the federal government back to the states and the people.

If it is consumers who you want to protect, all you have to do is follow, respect, and protect the Constitution. Through their local, state, and own regulatory power, the free individuals of this country can do the rest.

“If the provisions of the constitution be not upheld when they pinch as well as when they comfort, they may as well be abandoned.” — Former Associate Justice of the Supreme Court George Sutherland

David Kretzmann is a remarkably precocious and insightful teenage investor who has been investing in individual stocks since July 2005. His latest commentary on finance, the economy, government and more can be found on his website,