Obama Looking to Help Credit Card Holders

By Alan Stewart Carl | Related entries in Banks, Business, Congress, Fiscal Responsibility

On Thursday, President Obama announced support for a new bill aimed at protecting credit card holders.

As early as next week, House Democrats expect to act on a bill that would make it harder for the industry to slap new fees and rates on cardholders while also requiring clearer disclosure of the costs and risks for cardholders. The bill would codify and expedite rules already proposed by the Federal Reserve Board, rules that would not be implemented until 2010.

Legislation pending in the Senate would go further, barring lenders from imposing interest rate increases on existing balances.

As usual with these things, the specifics will be hashed out in Congress. But the credit card companies are already warning that new restrictions will inhibit their ability to provide credit in these tough times. And Republicans are calling Obama a hypocrite for going after credit card companies when his own policies are unfairly heaping debt onto the American public.

I do not doubt that some credit card companies knowingly participate in ethically questionable business practices. But, in my mind, the central problem isn’t that new fees are created without warning or that finance charges are applied without explanation, but that too many of these companies actively exploit consumers by handing out credit to those without the means of paying off debts and by creating too-good-to-be-true offers which are designed to fool consumers into making bad decisions. Even for savvy credit card holders with good habits, picking through the small print on a new offer can be a frustrating and confusing undertaking. It’s no surprise some people end up with massive bills, choked with unaffordable finance charges.

I’m not sure what the appropriate government solution to these problems would be. Transparency in credit card offers would be a good start. No more advertising 0% finance charges for 18 months while hiding the fact that being late on one payment by one day will cause you to lose the deal and end up with 20-something percent in finance charges.

After that, I’d support some form of initiative that holds credit card companies partially liable for extending credit to consumers who clearly lack the means to pay off debts. That’s a subjective matter, so the issue would probably need to be handled through bankruptcy court. But creating some form of shared liability would help prevent cases of blatant exploitation.

Obviously, credit card companies need the freedom to earn profits and wastrel consumers shouldn’t be protected from their mistakes. But I do believe there is an unhealthy imbalance between credit card companies and their consumers. As always, I fear Congress will overreach and/or focus on the wrong aspects of the problem, but I’m not upset that the matter is being considered.


This entry was posted on Thursday, April 23rd, 2009 and is filed under Banks, Business, Congress, Fiscal Responsibility. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

11 Responses to “Obama Looking to Help Credit Card Holders”

  1. Connell Finance Contributor Says:

    The problem is that once consumers fall down the hole of fees and interest it makes it nearly impossible to get back out. The companies want consumers to make one late payment so that they can change the terms of the deal and begin racking up all kinds of fees. This along with teaser rates and other promotional garbage, are the kind of shady business practices that cause innocent well meaning people to become buried in debt. Sure not everybody needs a new flat screen tv and new suv but they shouldn’t have to worry about losing everything because they were late on one payment.

  2. Trescml Says:

    It shows the strength of the banks that they have been able to keep this off the table so long and that Congress (at least the Senate) is not very likely to pass meaningful legislation. I am glad Obama is trying to push this issues.

    I think that not only is there an unhealthy imbalance in credit card companies and consumers, but in general between the financial industry and public.

  3. kranky kritter Says:

    Extending from this to a broader related subject, I think that reinvigorated consumer protection is an area that is overipe for renewed focus.We’ve seen a generation’s worth of the government looking the other way while zeaolous marketing dep’ts have come up with more and more complicated shell games.

    A broad effort to rein in abuses would be extremely popular with regular folks. Businesses can of course be relied on to make the argument that such regulations will adversely affect the economy etc etc. But for regular folks, it’s an issue of fairness, equity, and clarity. It’s become routine for marketing departments to sell their products by featuring one attractive aspect of their deal and obscuring all the catches as much as humanly possible.

    Essentially, the pro-business argument boils down to “we should be able to continue to mislead people because its good for the economy.

    Most people hate this, and would LOVE to see reform. Businesses and marketing dep’ts have had a generation of laissez-faire, and IMO they have shown they can’t handle it.

  4. Mike A Says:

    I’ve watched over the last 20 years the degradation of consumer protections. As the complexity of life has increased (try decoding your cell phone bill, your medical insurance statements or understanding the mouse-print on contracts) the protection from deceptive billing and other opportunistic money-grabbing practices has faded. My personal belief is many americans are under intentional financial attack, not only by scammers, but by corporations looking to boost profit margins on services. We’ve gone from “the consumer is right” mentality to a “the consumer is ripe” mentality.

    Maybe I am jaded as I remember it has not always been this way. I’m also hopeful that it won’t always be so.

  5. Todd Says:

    Hi Alan,

    The example you gave is bad enough … losing the introductory offer, and paying a high rate if you’re late on a payment … but at least the consumer had some control of that situation.

    Even worse, is what some credit card companies have been doing lately. They send you a letter saying that due to some silly reason like “not enough retail activity”, your rates will be going up from 9% to 18%. Of course they give you the option to “pay off your balance and close the account” if you don’t agree with the change in terms.

    Legal I suppose, but for that percentage of people out there who really are struggling with credit, it’s essentially lawful theft … they can’t afford to pay off the balance … and they did nothing “wrong” to cause their rates to go up.

    Knowing congress, they’ll go overboard, and put together legislation so complicated that nothing gets passed. But, it sure would be nice if they were able to at least pass a rule that says if the card company wants to arbitrarily raise the interest rate w/out cause, it can only be on new purchases, not pre-existing balances.

    That seems fair to me.

    Todd

  6. shawn Says:

    It’s really bizarre to me how the same people who argue about the importance of personal accountability and making responsible decisions are so often against making it easy for individuals to access the information they need to make the proper choices.

    All that fine print that I have to agree to in order to get anything done is complicated and dense, and basically subject to change at the whims of people I’ll never meet. I’m smart, well educated, and even when I make the effort, it’s hard to be sure of what I’m getting myself into.

    People don’t have the time or resources to consult a lawyer every time they sign a credit card or a cell phone contract or whatever. It makes complete sense for the government to enforce some basic protections.

  7. ExiledIndependent Says:

    Longer term, and perhaps more foundational, is that we need to slowly change consumer behavior away from reliance on credit. A culture where the common person is inherently distrustful of credit, only using it in very limited ways and for brief periods of time, is ultimately more desirable. Addiction to credit is in many ways a fairly recent development (50 years young or younger), so it’s not like it’s impossible to envision a world with more responsible individuals *as well as* regulation that prevents and seriously punishes predatory corporate behavior.

  8. Paul Says:

    Credit cards are a legalized rasket ! A loan shark would give you a better deal !!

  9. Paul Says:

    RACKET

  10. rachel Says:

    Just making a law that all fonts in credit card contracts be 12 points or larger and in plain English (lets say a Newsweek- or Time-level vocabulary and syntax) would be helpful for consumers.

  11. ryan Says:

    People do need to be accountable for their own spending, however, that is no excuse for banks to cheat and deceive like they do. These are two seperate issues. Unfortunately, I am sure the credit card companies will rush to raise current cardholder rates before the law goes in to effect.

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