The troubles sound familiar. Borrowers falling behind on their payments. Defaults rising. Huge swaths of loans souring. Investors getting burned. But forget the now familiar tales of mortgages gone bad. The next horror for beaten-down financial firms is the $950 billion worth of outstanding credit-card debt—much of it toxic. . .. The consumer debt bomb is already beginning to spray shrapnel throughout the financial markets, further weakening the U.S. economy. “The next meltdown will be in credit cards,” says Gregory Larkin, senior analyst at research firm Innovest Strategic Value Advisors. . .. But some banks and credit-card companies may be exacerbating their problems. To boost profits and get ahead of coming regulation, they’re hiking interest rates. But that’s making it harder for consumers to keep up. . .. Sure, the credit-card market is just a fraction of the $11.9 trillion mortgage market. But sometimes the losses can be more painful. That’s because most credit-card debt is unsecured, meaning consumers don’t have to make down payments when opening up their accounts. If they stop making monthly payments and the account goes bad, there are no underlying assets for credit-card companies to recoup. With mortgages, in contrast, some banks are protected both by down payments and by the ability to recover at least some of the money by selling the property. . .. The industry’s practices during the lending boom are coming back to haunt many credit-card lenders now.
Cate Colombo, a former call center staffer at MBNA, the big issuer bought by Bank of America in 2005, says her job was to develop a rapport with credit-card customers and advise them to use more of their available credit. Colleagues would often gather around her chair when she was on the phone with a customer and chant:
“Sell, sell.” “It was like Boiler Room,” says Colombo, referring to the 2000 movie about unscrupulous stockbrokers. “I knew that they would probably be in debt for the rest of their lives.” Unless, of course, they default. Assume that you are member of Congress. What would you do in light of the facts in this case?

1. Create legislation that does not allow credit-card issuers to raise interest rates for those who cannot pay their bills.

2. Create legislation that makes it a crime for people like Cate Columbo to entice people to spend money on a credit card when they can’t afford it.
3. I would not create any legislation. Credit-card issuers and people like Cate Columbo are not to blame for our financial problems. People must be responsible for their own behavior.
4. Invent other options.