Clamp down: "The days of any time, any reason rate hikes and late fee traps have to end," said President Obama after meeting with representatives of the credit card industry in White House Thursday. From left, David Nelms of Discover, Treasury Secretary Timothy Geithner, the president, senior adviser Valerie Jarrett, and Lloyd Wirshba of Barclaycard US.
(Gerald Herbert/AP)Photos (1 of 1)
Obama seeks to protect credit-card users
The president told credit-card companies Thursday he wants to halt arbitrary rate hikes and get more protections for consumers.
By Ron Scherer | Staff writer/ April 23, 2009 edition
New York
Consumers are used to getting those credit-card letters in the mail. No, not the ones offering low rates on balance transfers, but the ones telling them in fine print that interest rates are going up to 20 or 30 percent. And if they are one minute late in paying – ka-ching! – an onerous fee will be added.
Now, the card companies themselves are looking at changes – and they’re not too happy either.
On Thursday, President Obama met with the head honchos of several credit-card companies and told them he wants them to change their ways. Mr. Obama said he wants more competition, simpler cards, non-abusive interest rates and fees, and tighter monitoring of credit card companies.
The credit-card companies replied that change is already on the way, pointing to new and stricter Federal Reserve rules that go into effect in about a year. But those rules are not as far reaching as what Obama is asking for.
“The industry laid out a case that what the Fed is doing is enough,” said White House Press Secretary Robert Gibbs after the meeting. But, he added, “The president believes that there are things that can be done and should be done beyond what the Fed has proposed to protect the consumers.”
Not only is the credit-card industry under the gun from Obama and his economic team, but Congress is also considering legislation that includes a credit-card holders’ bill of rights, which would outlaw arbitrary increases in interest rates on existing card balances.
In addition, it would eliminate “double cycle” billing by not allowing credit cards to charge interest on debt that consumers have already paid on time.
The legislation also tackles “subprime” credit cards where yearly fixed fees exceed 25 percent of the credit limit. It would prevent those fees from being charged to the card itself.
A House version of the bill will have to be reconciled with a Senate version that is being shepherded by Sen. Christopher Dodd (D) of Connecticut. The credit-card industry is opposed to some parts of both bills and is concerned that Congress might add even tougher provisions in amendments.
Consumer groups believe the president’s meeting with the credit-card companies may help get the legislation passed. It’s “a very important shot in the arm,” says Ed Mierzwinski, consumer program director at the US Public Interest Research Group in Washington. “The banks are trying to delay or kill the bill, and now that the president is behind it, that will be impossible for them to do.”
The meeting with Obama was positive, said the American Bankers Association (ABA) in a statement. “The executives listened carefully to those concerns and agreed to work with the administration to address them,” said ABA president and CEO Edward Yingling in the statement.
The ABA said it pointed out to the Obama economic team that a major factor in raising interest rates has been the freezing of the securitization market for credit cards. The securitization market accounts for half of all funding for card loans.
The banking industry maintains it has to protect itself since credit-card delinquencies are rising. The number of accounts that are more than 30 days late has increased from 3.9 percent in the fourth quarter of 2006 to 5.6 percent in the fourth quarter of 2008.
However, credit-card fees are also rising. Issuers collect about $15 billion annually in penalties, or about 10 percent of total credit-card revenues.
More than three-quarters of American families have credit cards and almost half carry a balance, according to the Federal Reserve.
One of Obama’s proposals is for consumers to be able to compare credit-card offers on the Internet. According to Jeffrey Weber, CEO of Credit Card Depot, credit-card companies have been making that hard to do.
Card companies have stopped allowing websites such as Bankrate.com “to promote the cards in a comparison format,” he says. “This started happening in November, and it has made the task of finding a deal significantly more difficult.”
The banks have also made it more expensive to transfer balances. Mr. Weber says that a year ago, consumers could transfer a balance for a 3 percent fee or a maximum of $75. Now, he says, some banks are just charging the 3 percent fee without setting a cap.
“On a $5,000 balance, it used to cost $75 to transfer a balance. Now, it’s up to $150,” he points out. On June 1, Bank of America’s fee will go up to 4 percent on balance transfers. [Editor’s note: The original version gave the wrong date for Bank of America’s fee change.]
“Consumers trying to get out of debt have their options limited,” he says.
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Comments
2. jpcorbett | 04.23.09
this sounds like a people’s president. it’s about time the american people wised up. thank god!!
3. Elisa | 04.23.09
Yea for the home team! 29% interest rates and exorbitant fees make it very difficult to pay off debt. Seems counterintuitive to charge someone more who already has difficulties paying existing debt. Credit card companies take interest rates and fees to the extreme. There needs to be a cap and some regulation. The credit card companies have had the laws, benefit of the doubt and loopholes on their side for far too long. It is the consumers’ turn now. You don’t have to be on the streets to be a greedy pickpocketer!
4. aldo minuti | 04.23.09
It is high time. Go a bit further and jail the whole bunch of criminal bankers and “Economists”
5. Phil | 04.23.09
All hail King Obama.
This isn’t the American people wising up–the American people wising up would be them spending their money wisely and not racking up debt and living beyond their means. Take some responsibility, people. Stop relying on Big Brother interfering with the private enterprise to fix your mistakes.
6. PaulK | 04.23.09
“the card companies themselves are looking at changes – and they’re not too happy either.”
aww too bad, GO OBAMA!!
7. Non-socialists | 04.23.09
The President’s job is not to tell Credit Card Companies how to run their companies. What do you think Obama knows about this subject? What do you think a senator knows about this? The answer little if anything. Consumers should wisen up, and not spend beyond their means. Directing companies on how to run their business is a slippery slope to socialism.
8. Shaun | 04.23.09
The credit card industry is the only industry where the provider of a loan can change the terms of a loan after the loan has been issued. It’s absurd. There must be protection.
9. Larry Wise | 04.23.09
The President has a bully pulpit, and thankgoodness he has the fortitude and the intelligence to use it wisely.
10. Chuck Miser | 04.23.09
The Credit Card companies had a agenda and they won for the last 8 years, now the pendulum turns and heads the other way, and should it lop off a few of these banks that are part of the problem of this historic time that is seeing unprecedented numbers of bankruptcy and divorces to the little guy, fueled in part by their legal loan sharking practices, so be it!
11. mac | 04.23.09
While I agree something should be done, one has to realize that unpaid balances on one,s card is usually from one living beyond their means. Haven,t 95% of you ever heard the old adage that if you can,t afford it , don,t buy it ? This is just one more item that a majority of the populace believes they are owed from the government. Aren,t any of you out there responsible for your own actions ? I sure as heck don,t want the government in my own personal business,or bailing me out.If I were to allow this, the federal government would be in my pants. Wise up, and start being responsible for your own stupidity !
13. Truth | 04.23.09
Boy…Obama finally is doing something right….Oh but wait, this is just talk too. Let see what really happened the first 100 days. Maybe we need a credit card CZAR, or how about give them some TARP money. Talk is cheap and the economy is still failing.
14. Chris | 04.23.09
It’s nice to see that the fed is doing something about these big bank card fee & rates. Thank GOD
Go UAW, buy Ford!!!!!!!
15. Robert | 04.23.09
It sounds like people have been too stupid for too long. Come on America, change your behavior. You are paying stupid tax. Be responsible, learn from your mistakes, pay off your credit cards and don’t look back. The banks own you if you have credit card debt.
17. Alex Couchman | 04.23.09
If consumers really want to do something about higher credit card rates and fees, here’s a really bold idea: stop borrowing from the credit card company and pay your statement balance each month. If you can’t do that, you’re spending beyond your means. Beware a “people’s President” who tells businesses in a supposed free-market system what they can or cannot do. There was a time, not too long ago, when Americans would have bristled at the thought of a Nanny State. Today, people can’t seem to get enough coddling. How our forefathers must look down from the heavens and weep.
18. Erik | 04.24.09
What business does the government have dictating the interest rates for borrowers? If credit companies are in breech of contract, then they will have to settle in court with the consumer. If not, then the consumer pays the interest he/she agreed to. I don’t think anyone can really know the consequences of this legislation, but it begs the question….What if credit card companies tighten credit because they aren’t making much money off high interest rates? Why should responsible people suffer the credit crunch caused by irresponsible people aligned with government power? Or, what if credit card companies are aligned with government power and they have some sort of benefit that is hidden in the “fine print” of this legislation? A people’s president should be one that upholds the constitution for individual liberty, not create laws that violate individual contracts.
19. Gabriel | 04.24.09
Yes…great…how many more industries and businesses does the president think he has the authority to dictate how they’re supposed to run? Here’s an idea, a business with a poor business model be allowed to fail, one with a good business model be allowed to succeed, and the people decide who succeeds and fails, not the government.
20. Murray Robertson | 04.24.09
Hey Mr Obama. Way to go! I am an Australian, and we hope that your attitude to the people who suffer gets taken notice of by our Mr Rudd.
22. MichaelG | 04.24.09
I would also like to see a stop to the practice of the negative effect on credit ratings of transferring balances from one company to a company that offers a lower rate. Limits might be imposed on the number over a specific period of time, but being a smart consumer should not penalize credit card customers.
23. hailobama | 04.24.09
this sounds like a socialist president. I do agree that the credit card companies are out of control BUT it is NOT the presidents place to try to intimidate them. These banks should stop the loansharking out of the goodness of their hearts not because the big brother goverment says so!
24. archangel | 04.24.09
the credit card companies are dishonest, predatory. 20% and 30% interest rates are usury, that is, one of the seven cardinal vices, this one called Greed. There’s a special place in hell… for those who add not only charge unjustly, but also hide the data as the article states, so the consumer is baffled about what the best credit card deal is. Bankrate is an outstanding site (I dont work for them) and has cutting edge info on how to maximize finances… and was one of the first twoyears ago to expose the credit card scam of the ’small print’ where the card companies suddenly raise or double the interest rate at will. Just so you know, you can call your credit card company and ask them to lower the rate. They often will, and by quite a few points. We call them quarterly. Because they lower the rates of interest, you get the impression they know they are doing something unjust and are afraid of the consumers as a group
if you are bugged by this kind of greed that theives out of your pocket, one of the groups that has formed a consumer group to fight the credit card wheeler and dealers and to support ceilings on what they can do, ConsumerReports. You need not pay, but look at the site. There are letters there you can email to your congress people.
25. Hans Mouritzen | 04.24.09
Thank you Obama for putting a halt to this legalized loan sharking which has been going on for way too many years.
I wish we could return to the days when having a credit card was a sign of credit worthiness rather than an indicator of not being able to afford the purchase. I also wish the minimum payments would be a percentage of total rather than a ridiculously low, fixed amount. Why should it take about 7 years to pay off a $1000 debt at $15 per month?
27. Jack | 04.24.09
Why give credit cards to people who have a high probability of being unable to repay? The way credit card companies make money on the poor is to use advertising to tempt them to borrow and then use abusive fees and usurious interest rates to keep them in servitude. It is a self serving argument for credit card companies to declare that restricting their abusive business practices will make credit unavailable from the poor.
28. jheliker | 04.24.09
This should have been done when bush was here. Now that we have a president of the people once again, we may very well pull ourselves back up.
29. Kitty Antonik Wakfer | 04.24.09
<< More than three-quarters of American families have credit cards and **almost half carry a balance**, according to the Federal Reserve. << [emphasis added]
I have not seen any media reference to President Obama also encouraging responsible *use* of credit cards. Some reference to doing so would have shown me that he has some understanding that self-responsibility is a characteristic of a fully adult human being. Government practices of "looking out for" citizens is very much like that of parents who discourage their chronologically adult children from making full social maturing changes (standing on their own 2 feet and taking the consequences). There is a big difference between upholding existing fraud laws (or amending them for clarification) and constantly attempting to create an environment where self-responsibility is thought of as old-fashioned.
One would best wonder what the government (those running and promoting it) gets from a citizenry that is largely low (?very low?) on the self-responsibility scale....
30. Scott Semans | 04.24.09
The Dodd bill is a softie, the banks themselves could have written it. What needs to be addressed is the Black Hole term now found in every cardholder agreement. That’s the one that, after outlining all the specific ways your APR can be increased on already-borrowed money: prime rate rises, late payment, late to other lender - says more or less “we reserve the right to modify any of the foregoing terms, including those dealing with APR, by sending you a notice.” That’s not an opt-out notice, just a notice. Now what kind of contract is it that can be modified at will by one party? The credit card companies have been getting away with violating one of the most basic tenets of contract law. End that, and you significantly reduce the scope for abuse.
31. hadenough | 04.25.09
We need this! Always had good credit, my banks decreased credit lines, which put me near the limit, so because I was near the limit, they increased interest rate to 29%! How do they expect me to get out of it and when you call the card companies, they don’t want to work with you. So, do I keep a roof over my children’s head and food on my table, or do I pay the cards? No brainer. I know I am not the only one out there in this situation and it’s really sad, I wasn’t even late before.
Contemplating trying to settle the accounts, but not sure if I can find a reputable, legitimate company to help me. I already tried to do it on my own. Even tried to get a loan mod on my mortgage, was told verbatim, if you have a home equity loan, you should default, they can’t take your house without satisfying your first mortgage. Hello? Sad what is has come to.
32. J.C. Lettow | 04.25.09
AGREE!! with jpcorbett- Obama, a PEOPLES PRESIDENT!! - Only problem with the solution is that Most PEOPLE JUST CAN’T WAIT TILL 2010!
With so many inherited problems on the Presidents plate, let us hope HE can see the Forest for the Bushes? No one else seems to be able. HELP SIR, HELP!
33. Californian | 04.29.09
“These banks should stop the loansharking out of the goodness of their hearts not because the big brother goverment says so!”
Of all the comments in this thread, this is by far the silliest. Yes, and people should stop committing crimes too, but they DON’T, so we have laws and law enforcement. Grow up!
34. Deborah Sue Sloan | 04.29.09
Thank you President Barack Obama. Thank Jehovah (God) for a president who has common sense as well as book sense.
I close my account at its fixed rated because if I kept it open they were going to raise my 8.9% to 9.9%.
The bank must be crazy. This woman is paying the bank off; saving and will borrow from herself.
My husband told me this a long time ago. When I got the rate increase it slap me in the face real good.
Now the silly skip a month payment plan, I know is not my friend. Some says this is socialism; maybe you need to study sociology to learn what real socialism is. It is better than playing the fool all the time.
Lift your heads, and close your fist America; stop giving your money away. Make the banks play fair. Take off your blindfolds. I see the LIGHT. A big bright light.
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1. Cate Tierney | 04.23.09
It’s about time!!!! Go Obama, GO!!!!!!!!!!!!!!!!