Cracking Down on Credit Cards

[The Straight Story]

Cracking Down on Credit Cards

Having long argued that credit card practices need to be cleaned up, this afternoon the President brought representatives from the credit card industry in to talk about the need for greater consumer protections, a need made all the more urgent by the economic crisis. Almost half of American families currently carry a balance, and for those families the average balance was $7,300 at last check in 2007 (the median was $3,000).

Meanwhile, penalty fees on credit cards are around $15 billion annually, an estimated 10 percent of total credit card industry revenues -- one-fifth of those carrying credit card debt pay an interest rate above 20 percent.

Against that backdrop, with Congressional negotiations on legislation getting off the ground, and having acknowledged that neither credit cards not credit card companies are inherently bad, President Obama made clear that some new lines in the sand needed to be drawn.

There are going to be some core principles, though, that I want to adhere to, and I mentioned these to all the credit card issuers involved.

First of all, I think that there has to be strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties. The days of any time, any reason rate hikes and late fee traps have to end.

Number two, all the forms and statements that credit card companies send out have to be written in plain language and be in plain sight. No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out.

Number three, we have to make sure that people can comparison shop when it comes to credit cards without being afraid that they're going to be taken advantage of. So we believe that it's important to require firms to make all their contract terms easily accessible online in a fashion that allows people to shop for the best deal for their needs.

Not every consumer is going to have the same needs. And some may want to take on a higher interest rate because it provides them more convenience or it provides them with a higher credit line. But we want to make sure that they can make those comparisons themselves easily. And we think that one of the things that needs to be explored is the possibility that every credit card issuer has to issue a plain vanilla, easy to understand, simplest terms possible credit card as a default credit card that the average user can feel comfortable with.

Finally, we think we need more accountability in the system. And that means more effective oversight and more effective enforcement so that people who are issuing credit cards but violate law, they will feel the full weight of the law.

http://www.whitehouse.gov/blog/09/04/23/Cracking-Down-on-Credit-Cards/

[regnaD kciN]

1. Closing the barn door after the horse has fled...

With all due respect to our President, proposals (or "gentlemen's agreements" with the financial industry) such as he indicates in those quotes avoid the uncomfortable truth that "protections" merely imposed from now on, or by July 2010, are doomed to be ineffective.

The problem with consumer credit is that what can be done by the banks has already been done. What's the point in talking about an end to outrageous interest rate hikes when interest rates have already been hiked to that level? Saying that "from now on, credit card companies can't arbitrarily raise rates" won't do much for the millions of consumers who've just had their rates arbitrarily raised to 20%, or 25%, or 29.99% over the past few months.

They may help those people who've yet to acquire a credit card, but better help for such people would be to convince them to avoid credit cards in the first place.

The only way such steps will accomplish anything is if they're made retroactive -- where interest rate hikes are rolled back. And, since the pooh-bahs at Citibank, Bank of America, JPMorganChase, and Capital One are highly unlikely to agree to such a step, it's going to have to be mandated by law instead of reached by non-binding, negotiated "understandings."

Better yet, what we need is a hard-and-fast usury law -- one which, say, mandates a hard cap on interest rates of 19.99% or less -- and that mandates an interest rate cut for those who are currently above it. And a limit on the most the banks can charge for a "minimum payment" (to, say, the interest charge plus 1% of the principal), so that banks can't make like Chase and lower your rate, only to raise your minimum payment from 2% to 5% unless you let them raise the interest rate to whatever they want. And an outright ban on cutting a non-defaulted cardholder's credit limit to below their current balance, so they start accruing penalties automatically. And...I'm sure the list could go on and on.

Anything less than that merely qualifies as rearranging the deck chairs on the Titanic, no matter what the good intentions may have been for anyone at that White House session today.