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David_J_Balan comments on Mandating Information Disclosure vs. Banning Deceptive Contract Terms - Less Wrong
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Ah, but now you're changing the argument! In the post, you argued that it's OK to interfere because people are being tricked (an argument for which I have some sympathy). Now, you're arguing that it's OK to interfere because the only purpose of the cards is to match borrowers with lenders. That, I dont agree with at all.
People choose a card for many different reasons. I can imagine people choosing to (perhaps falsely) signal their high wealth by choosing a high-rate card (their friends will assume they pay it off every month). They might choose the "trick" card to give themselves an incentive to pay on time. They may enjoy trying to "outwit" others by paying the card off on time and letting others cover the issuer's expenses.
In a competitive market, the money the company makes by "tricks" is competed down: other cards will find it profitable to enter the market and charge less (even if they use the same "tricks"). So a larger cost is borne by those who fall for the "tricks". Still, those people might not be happier with the tricks removed.
For instance, suppose I forget to pay on time every five years (which is probably about right). And suppose my forgetting costs $60. Now, the government comes along and decrees that, instead of charging me $60 when I forget, they'll charge me $1 a month regardless.
I wouldn't like that. It might be irrational, but that's still my preference. Haven't you, the government, done me wrong by eliminating the "trick" that I understood but chose anyway? Does my being less happy than before rank at zero on your scale of costs and benefits?
Either those terms represent an efficient contract or they don't. The most obvious way that they wouldn't would be if they tricked you, and as a practical matter that is where most of the action is. Originally it sounded like you agreed that you were being tricked also, but in a milder sense. If you positively prefer those terms, then in your case they are efficient. But I rather doubt that these are really terms that you would have chosen.
As for the issue of competition, that's not how it works. When Laibson presented the paper I referred to in the main post, my recollection is that he said that, while the credit card industry is quite competitive, the way that competition happens is that the companies use expensive promotions to identify myopic consumers. So competition doesn't benefit consumers, and in the end it doesn't even benefit the credit card companies! It's pure social waste.