Credit Card Reform Takes Shape

The President held a town hall meeting today in New Mexico, and they got "populist Obama," the one looking out for consumers and concerned about credit card companies jacking up their interest rates.

You should not have to worry that when you sign up for a credit card, you're signing away all your rights. You shouldn't need a magnifying glass or a law degree to read the fine print that sometimes don't even appear to be written in English -- or Spanish. (Applause.) And frankly, when you're trying to navigate your way through this economy, you shouldn't feel like you're getting ripped off by "any time, any reason" rate hikes, and payment deadlines that seem to move around every month. That happen to anybody? You think you're supposed to pay it this day, and suddenly -- and it's never on the end of the month where you're paying all the rest of your bills, right? It's like on the 19th. (Laughter.) All kinds of harsh penalties and fees that you never knew about.

Enough is enough. It's time for strong, reliable protections for our consumers. It's time for reform -- (applause) -- it's time for reform that's built on transparency and accountability and mutual responsibility -- values fundamental to the new foundation we seek to build for our economy.

I actually think, judging from the support in Congress and the outcry from consumers, that some form of this actually gets done on the President's timetable, with a law signed by Memorial Day. Tom Coburn tossed in what he thought would be a poison pill about carrying concealed weapons in national parks, but since the NRA has essentially silenced gun control advocates in Washington that pill tastes like a blueberry pie, even to Democrats. And I don't know if it'll make it through conference. Interest rates won't be capped, and some of the provisions will be a bit weaker than the initial bill, but basically something along the guidelines of the Federal Reserve will pass. And that's because the credit card companies are just the most contemptible companies in America, and they pushed it too far.

The exploration into cardholders’ minds hit a breakthrough in 2002, when J. P. Martin, a math-loving executive at Canadian Tire, decided to analyze almost every piece of information his company had collected from credit-card transactions the previous year. Canadian Tire’s stores sold electronics, sporting equipment, kitchen supplies and automotive goods and issued a credit card that could be used almost anywhere. Martin could often see precisely what cardholders were purchasing, and he discovered that the brands we buy are the windows into our souls — or at least into our willingness to make good on our debts. His data indicated, for instance, that people who bought cheap, generic automotive oil were much more likely to miss a credit-card payment than someone who got the expensive, name-brand stuff. People who bought carbon-monoxide monitors for their homes or those little felt pads that stop chair legs from scratching the floor almost never missed payments. Anyone who purchased a chrome-skull car accessory or a “Mega Thruster Exhaust System” was pretty likely to miss paying his bill eventually.

....Testing indicated that Martin’s predictions, when paired with other commonly used data like cardholders’ credit histories and incomes, were often much more precise than what the industry traditionally used to forecast cardholder riskiness....Data-driven psychologists are now in high demand, and the industry is using them not only to screen out risky debtors but also to determine which cardholders need a phone call to persuade them to mail in a check. Most of the major credit-card companies have set up systems to comb through cardholders’ data for signs that someone is going to stop making payments. Are cardholders suddenly logging in at 1 in the morning? It might signal sleeplessness due to anxiety. Are they using their cards for groceries? It might mean they are trying to conserve their cash.

Unbelievable.