Slaves To The Clock

So the revised credit card reform bill passed the House overwhelmingly today, after overwhelmingly passing the Senate, and the President will sign it probably within a couple days. Most of the rules in the bill would have already been instituted by the Federal Reserve, but this sped up the timeline, as they will take effect immediately instead of in July 2010. Very little else is new here, save for some slight strengthening from the Senate.

And in exchange for that acceleration, gun owners will be allowed to carry loaded weapons into national parks.

To the frustration and discouragement of many Democrats, House and Senate lawmakers and aides say it now appears likely that President Obama will this week sign into law a provision allowing visitors to national parks and refuges to carry loaded and concealed weapons.

The White House is lukewarm at best on the gun provision, which was added to a popular measure imposing new rules on credit card companies. But the Democrats who now control both Congress and the White House appear ready to allow it to survive rather than derail a consumer-friendly credit card measure that Mr. Obama is eager to sign as Congress heads off for a Memorial Day recess.

“Timing is everything in politics,” said Senator Tom Coburn, Republican of Oklahoma and the champion of the gun proposal [...]

“It is a shame,” said Senator Barbara Boxer, Democrat of California. “But you have to come to a realization around here that at this point in time, the N.R.A. gets the votes,” she said referring to the National Rifle Association.

“Either you are going to bring down the whole Senate and never do anything or you or going to swallow hard and say, ‘I will just vote my conscience on those amendments and speak out until people get a hold of their senses,’ ” Mrs. Boxer said.

Far be it from me to contradict Sen. Boxer, but I don't know what the hell she's talking about. Here's how my Civics 101 book tells me how legislation works: the House passes a version, the Senate passes a version, the differences are reconciled in conference, and both Houses then vote on the final version. That's not what happened here. The House passed a version, the Senate passed a version with an unrelated gun rider, and then the House just shrugged and passed the Senate version. Why? With Democrats controlling the conference, the rider could have easily been tossed out. And if Boxer is telling me that 40 US Senators would be able to go back to their districts and explain they voted with the credit card companies, I just don't believe her.

There was absolutely a remedy here, and no need for this measure, which does not have majority support among Democrats, to be included. But there's the matter of the clock. The President wanted a bill on his desk by Memorial Day. And the House passing the Senate's bill was the best way for that to happen. The gun measure stays because Congress wanted to facilitate the President's schedule.

Because if there's one thing Congress is known for, it's punctuality.

It's amazing how Democrats learned the worst lessons from Republicans while forgetting the simple lessons, like how to screw the opposition in conference committee.

Pyrrhic Victory On Credit Cards

We're going to get a credit card reform bill passing the Senate today, and the House will pick it up and pass it as well, even with the amendment allowing licensed gun owners to carry a concealed weapon in national parks. After a series of victories, the bank lobby could not hold back the tide on this issue, sparked by consumer anger.

The Senate on Tuesday is expected to pass the Credit Cardholders’ Bill of Rights, which would outlaw retroactive rate hikes and some penalty fees and give consumers more notice of rate changes and more time to pay their bills.

Similar legislation passed the House two weeks ago on a lopsided 357-70 vote. And President Barack Obama wants Congress to get a final version to his desk by Friday [...]

So, while praying for an eleventh-hour glitch (which can happen in the Senate), the once-dominant bank lobbyists are bracing for passage of the first credit card reform bill in history.

“We just have to be OK with people getting their pound of flesh out of us,” said one weary industry insider.

Now, as much as the banksters poormouth this, I wouldn't get crazy. The Fed already mandated most of these changes; the bill just codifies them into law. The lobbyists probably figure it's good to let the President win one for a change, especially one as inoffensive as credit card reform that would have taken effect anyway. On the big issues, like regulating derivatives (which the Treasury Department is pretending to do) and CEO compensation (which Geithner has no plans to touch), the banksters still own the place, and their millions of dollars in lobbying has most certainly paid off.

Meanwhile, here's the credit card industry's counter-move:

Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”

The more things change...

UPDATE: The bill passes 90-5.

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.

Credit Card Reform Deal In Senate

Senate Banking Committee leaders have reached a compromise deal on credit card reform.

The House has passed a credit card reform measure that mirrors new rules passed by the Federal Reserve in December. The (Chris) Dodd bill offers stronger consumer protections than the House bill and the Federal Reserve rules. The Fed's regulations won't go into effect until July 2010. The Senate bill's protections would be enacted nine months after being signed into law.

Dodd had sought to ban all interest rate increases on existing balances. Under the compromise bill, card issuers would be allowed to retroactively bump up rates for any borrower whose payments are 60 days past due. However, if the borrower pays on time for six months, the card issuer would have to restore the original rate. The bill also prohibits card issuers from increasing rates during the first year a credit card account is opened and requires them to get customers' permission to set up accounts so that transactions over the limit can be processed. Another provision would require card issuers to post credit card agreements online.

"It's a meaningful compromise that will significantly improve the credit card marketplace and stop abusive practices," said Travis B. Plunkett, legislative director of the Consumer Federation of America.

Getting Richard Shelby's signoff early strongly improves the possibilities for the bill, even while the banksters lobby against it. Just by virtue of being more real for most Americans, it will be harder for the Congress to walk away from this. It's rare to see a stronger bill coming out of the Senate than the House, but that's the case here.

And let's not diminish the significance of the Chris Dodd credit card reform bill getting signed into law. He'll need help like this to win re-election.

The Lingering L-Shaped Recession

The OECD has joined the "green shoots" caucus by affirming that signs of a recovery are imminent, and the President of the European Central Bank is openly talking about central bankers scaling back their support once this recovery hits.

I really don't know what these people are talking about. If they want signs, I can give them signs. And there are just as many on the down side of the ledger as there are on the up side. There's the second wave of the foreclosure crisis. And let's add the credit card default crisis nipping at its heels. As more layoffs accrue, less people have the ability to pay their bills; that's just axiomatic. And the stress tests calculated credit card losses at a lower level of unemployment that what could easily happen in an adverse scenario.

The banks have an incentive to make profits, despite these scenarios that would eat into them, because they can reduce their capital needs if profit inch higher. There's only one way for them to do that - reduce lending and hoard money, along with gouging customers with fees to increase profits.

Finally, there's this historic shift from spending to saving that has accompanied economic insecurity. Now, in the long term, saving needs to increase to a more manageable level. But the paradox of thrift in the short term is harmful to any recovery.

Whatever the reason, I expect the saving rate to continue to rise over the next year or two. And that raises a question: what will be the impact on PCE (personal consumption expenditures) of a rising saving rate?

I created the following scatter graph for the period from 1955 through Q1 2009. This compares the annual change in PCE with the annual change in the saving rate.

Note that R-squared is only .125, so there are other factors impacting PCE (like changes in income!).

But a rising saving rate does seem to suppress PCE (as expected). If the saving rate rises to 8% by the end of 2010, this suggests that real PCE growth will be about 1% below trend per year.

So with wages barely rising, and a rising saving rate suppressing PCE, I'd expect PCE growth to be sluggish for some time. And since PCE is usually one of the engines of recovery (along with residential investment), I expect the recovery to be very sluggish too (no Immaculate recovery).

Let's recap: lower consumption, lower wages, higher unemployment leading to more credit card defaults, a potentially devastating second wave of foreclosures, and banks that must hoard capital and take profits, leading to less lending.

This is considered a GOOD outlook?

That only makes sense with a giant second stimulus, but the "green shoots" happy talk undercuts that option. Instead, I think Krugman is right - we're looking at half-steps that get the economy into some uneasy equilibrium without any serious recovery, and we just float for a decade.

"We're doing half-measures that help the economy limp along without fully recovering, and we're having measures that help the banks survive without really thriving," Krugman said.

"We're doing what the Japanese did in the nineties," he told a small group of reporters during a visit to Beijing.

He said it was not clear that China would suffer sub-par growth as a consequence of the fallout of the present crisis.

"I'm mostly worried that the U.S. and the euro zone will have Japanese-type lost decades," he said.

Krugman said he expected little or no employment growth this year or next in the United States, where the jobless rate in April hit a 25-year high of 8.9 percent.

Without a second stimulus, I don't know how this ends.

Next Up, Banks Get To Torpedo Credit Card Reform

On a day that the banksters stopped cramdown in the Senate, the House bucked the trend, passing the Credit Cardholder's Bill of Rights by a wide, bipartisan margin.

In 2008, credit card issuers imposed $19 billion in penalty fees on families with credit cards and this year, card companies will break all records for late fees, over-limit charges, and other penalties, pulling in more than $20.5 billion. Credit-card debt in the U.S. has reached a record high of nearly $1 trillion — and almost half of American families currently carry a balance, and for those families the average balance was $7,300. One-fifth of those carrying credit-card debt pay an interest rate above 20 percent [...]

The Credit Cardholders’ Bill of Rights Act passed today levels the playing field between card issuers and cardholders by applying common-sense regulations that would ban retroactive interest rate hikes on existing balances, double-cycle billing, and due-date gimmicks. It would also increase the advance notice of impending rate hikes, giving cardholders the information they need and rights to make decisions about their financial lives. Our economic recovery depends on a shared prosperity — and we must put an end to these abusive practices that continue to drive so many Americans deeper and deeper into debt.

I'm glad this ends double-cycle billing, where cardholders pay interest on debt that they've already paid off, and forces credit card companies to allocate payment to the debt with the highest interest rate. But overall, these are very modest protections that simply prohibit the credit card companies from ripping off the American people. And 105 Republicans agreed yesterday.

(Among those who didn't: David Dreier, Michelle Bachmann, John Boehner, Eric Cantor, Tom McClintock, Paul Ryan.)

Of course, as Dick Durbin noted yesterday, the bankers who own the Senate will return to try and ditch this bill. They've killed the same legislation before, and Harry Reid didn't exactly sound confident this time around:

Reid said the Senate next week will take up the credit card reform bill, which would restrict companies’ ability to raise rates on balances. Asked if he had 60 votes, the majority leader said, “We’ll find out.”

Heaven forbid the Senate Majority Leader actually lift a finger to get the votes.

This will be a test of leadership, but will probably end as a test to the limits of bankster ownership.

...check out the juicy rationalizations from Democrats who sold out their constituents facing foreclosure.

...By the way, cramdown was only a part of the bankruptcy bill passed by Congress yesterday. Included in this bill, which was supposed to aid foreclosure victims?

The defeat clears the way for a final vote as early as Friday for the legislation, which has several features that the banking industry has sought. One provision would have the effect of reducing a proposed special premium the banks would owe the Federal Deposit Insurance Corporation later that year by more than 50 percent — a $7.7 billion saving. A second provision would make permanent the temporary increase in deposits guaranteed by the F.D.I.C., to $250,000, from $100,000.

That's right, their insurance will increase permanently (I actually agree with that part), and the premiums to the FDIC would LOWER. My insurance company has never told me they'd lower my premiums and increase my insurance. I don't have a lobbyist, however.

Can Meaningful Credit Card Legislation Pass Congress?

There really isn't a better populist issue for the President to take on than the issue of usurious credit card fees and rates. The industry has essentially gotten away with murder for decades, and given the populist fury whipped up on both sides of the aisle even the corporate-loving Republicans will have a hard time voting against this one.

WASHINGTON — President Obama threw his support on Thursday behind legislation that would keep banks from imposing higher fees and interest rates on credit card users, and said terms must be “written in plain language and be in plain sight.”

“The days of any-time, any-reason rate hikes and late-fee traps have to end,” the president said at the White House after meeting with top executives from the nation’s largest credit card companies, a session Mr. Obama called “constructive.”

“No more fine print, no more confusing terms and conditions,” the president said, following up on campaign pledges to try to curtail high fees and rates and chop away at the thickets of fine print in credit card statements.

The meeting came as the House was preparing to adopt new restrictions on credit cards. Lawmakers said on Thursday that they had agreed to make some amendments to the legislation that were being sought by senior White House officials. One provision would require the credit card companies to apply consumer payments first to any debt that has the highest interest rate.

This is a move they always pull. If you get behind on one payment, whatever you pay in the future only pays off the lowest-rate debt.

That would be additional to the rules that the Federal Reserve already has adopted regarding the industry. The bill codifying those rules into law, along with several other provisions, has already passed the House.

On Wednesday the House Financial Services committee overwhelmingly approved a bill that would reduce many fees and limit the ability of the credit card companies to charge penalties. The bill, sponsored by Representative Barney Frank, Democrat of Massachusetts, and Representative Carolyn B. Maloney, Democrat of New York, was adopted 48 to 19.

The bill put into law most of the credit card restrictions adopted last year by the Federal Reserve, and also imposed some new rules on the industry. It would, for instance, prohibit the companies from marketing credit cards to minors. It also would require the companies to provide more information to regulators and permit consumers to order companies to set their credit limits at amounts lower than the card company was willing to offer.

Congressional aides said the measure could reach the House floor as early as next week, and they predicted swift passage.

A similar bill was adopted by the Senate banking committee three weeks ago, but its narrow passage and opposition from all of the committee’s Republican members indicated that it faced an uphill battle.

It's always the Senate, isn't it? Not to mention the fact that the Representatives from South Dakota and Delaware, the "offshore tax havens" of the credit card industry, aren't likely to go along with much of anything. And in the Senate they hold far more power relative to their population than they should. Unicameral legislature FTW! We'll see the limits of what the President can pull off here.

Incidentally, Carolyn Maloney, who is a great progressive fighter, is seriously considering a primary challenge to Sen. Kirsten Gillibrand in New York. If she does it, she'll have my support.

Haggling With Taxpayer-Owned Companies

This is a maddening enough situation when you isolate it, but keep in mind that the government has kept these same banks afloat with hundreds of billions of dollars in capital.

The Obama administration has entered a tense showdown with several of the nation’s largest banks that appears likely to determine whether Chrysler survives.

Last week the Treasury Department, which runs President Obama’s automobile task force, presented banks holding $6.9 billion in Chrysler’s secured debt with a plan under which they would get about 15 cents on the dollar, or about $1 billion.

That is roughly the trading level of Chrysler debt in recent days, a reflection of Mr. Obama’s declaration that the firm is not viable on its own, and must put together a partnership with Fiat or go out of business [...]

On Monday the banks, led by JPMorgan Chase and Citigroup, rejected the administration’s plan outright, with some of the debtholders arguing that they would rather break up Chrysler and sell its assets — notably its Jeep brand — because they believed that they would receive more money selling the assets than they were being offered by the administration.

The lenders offered 65 cents on the dollar and a 40% stake in Chrysler, and the government has now counter-offered with 22 cents and a 5% stake in the reorganized company. The union is sitting on the sidelines at this point.

Can I just re-emphasize how ridiculous this is? For all practical purposes, we own the banks that are haggling with us. And this isn't the only area in which the banks are using our money to show leverage over our government. Among the millions of dollars in political lobbying, the banksters are stopping progress on consumer bills:

The banks have made it difficult for Congressional Democrats and the White House to give stretched homeowners a stronger hand in negotiating lower monthly payments on mortgages and to prevent credit card companies from imposing higher fees and interest rates.

Having won some early skirmishes by teaming with Republican allies, the banks now appear to have the upper hand and may wind up killing — or at least substantially diluting — both pro-consumer measures.

I don't think they'll stop the credit card bill - the President has personally stepped in on that one and I expect a decent bill to pass, the way it did yesterday - but cram-down does look dead, with key Democrats jumping ship. James Kwak correctly sources my anger.

The banks leading the charge over Chrysler: JPMorgan Chase and Citigroup. The banks opposed to cram-downs: Bank of America, JPMorgan Chase and Wells Fargo. The banks blocking credit card protections: American Express, Bank of America, Capital One Financial, Citigroup, Discover Financial Services, and JPMorgan Chase. All or almost all are bailout beneficiaries. But don’t blame them: they’re just doing what they can to maximize their profits at the expense of the taxpayer, which is perfectly legal (and even ethical, depending on your conception of shareholder rights). Instead, you should be wondering why they are in a position to be maximizing profits at the taxpayer’s expense.

If you’re Tim Geithner or Barack Obama, you’re probably thinking that now would be a nice time to have a controlling interest in these banks so they would stop blocking your efforts to help the rest of the economy. But the government has consistently bent over backward to avoid gaining control over the banks. It began with Henry Paulson (Bush administration) taking non-convertible, non-voting preferred shares last October; it continued with the Citigroup and Bank of America bailouts in November and January (during the transition period), in which the banks got underpriced asset insurance in exchange for more non-voting shares; and it peaked in the third Citigroup bailout in February, when the Obama administration insisted on forcing other investors to convert preferred shares into common, precisely to avoid getting a majority stake.

If the government had simply accepted the ordinary consequences of its actions - majority ownership - it would at least not have to plead for favors from Citigroup and Bank of America, who desperately needed help on any terms the government chose to dictate. Arguably JPMorgan and Wells are in a different situation, since the government was never in a position to buy a majority stake, and they are claiming they only took TARP money as an act of patriotic solidarity. But leaving aside TARP capital, the government has gone to extraordinary lengths to protect the financial system - guarantees on money market funds, increased guarantees on deposits, guarantees on bank debt, massive programs to lend against or purchase securities, not to mention the AIG bailout conduit - without which none of these banks would be in a position to make a profit. Yet it has left the banks in a position to capture the entire surplus from its actions, without getting the kind of concessions that would come in handy now.

When government takes its own tools away from itself, this is the consequence - a society governed by oligarchs.

Finally Taking A Look At Usury In The Credit Card Industry

In Al Franken's "Why Not Me," which chronicles his fake run for the White House (as opposed to his fake run for Senate, and I say "fake" because it can't be real that it's April and he still hasn't been seated), his single issue that he rides to victory is ATM fees at banks. I've been wondering why more politicians haven't jumped on consumer banking issues, that interface with the public every single day. Looks like the President has thought this over as well.

President Barack Obama plans to crack down on deceptive credit-card industry practices that have saddled U.S. consumers with huge debts and soaring interest rates, U.S. officials said on Sunday.

Top White House economic adviser Lawrence Summers said Obama would be "very focused in the very near term on a whole set of issues having to do with credit card abuses."

"We need to do things to stop the marketing of credit in ways that addict people to it," Summers said in an interview on the NBC television talk show "Meet the Press."

Summers, director of the White House National Economic Council, said the administration is concerned about practices that result in consumers being "deceived into paying extraordinarily high rates that they wouldn't have paid if they knew they were getting themselves into."

The movie Maxed Out covers this topic fully, and guess who emerges as the lone voice in Congress wanting to tackle this issue? Chris Dodd. His bills regulating the credit card industry have been so watered down over the years they actually arrive on the President's desk in liquid form. It's high time we did something about these usurious rates.

That said, I am not all that encouraged by the fact that the industry gets a White House meeting to plead their case:

Executives of the nation's largest credit-card companies will meet with President Barack Obama at the White House on Thursday to discuss growing concerns about questionable practices in the industry.

White House Press Secretary Robert Gibbs said Monday that the meeting would be a chance to stress the need for greater clarity in the way that credit cards are marketed and administered. During his campaign last year, Obama strongly supported legislation to improve the rights of cardholders.

"What we want to do is ensure that people can have access to the credit that they need, but that we can also do this in a way that's transparent and fair and honest. And I think that's one of the things that the president will talk to them about," Gibbs said.

A recent survey of credit card practices by the Pew Charitable Trusts found that of more than 400 cards offered online by the 12 largest issuers, all allowed payments to be applied in ways that disadvantaged cardholders, such as paying off lower-interest balances before those that accrue higher interest.

Keep in mind that most of these credit card issuers are the same banks that received huge bailouts from the government. Yet they continue to gouge the consumer. Why exactly do they deserve a meeting at the White House? Are consumers getting a meeting?

The Curious Case Of Christopher Dodd

Chris Dodd has clearly become collateral damage to the economic crisis and in particular the AIG bonus scandal, and it's sad to see. The Administration basically hung him out to dry and he's paying the price.

Slipping below a 50 percent approval rating is often considered a red flag for incumbents. Quinnipiac Poll Director Douglas Schwartz said Dodd's 33 percent approval rating, a dip from 44 percent in a March 10 poll, is "especially devastating."

"A 33 percent job approval is unheard of for a 30-year incumbent, especially a Democrat in a blue state," Schwartz said.

The poll also found Dodd trails his two announced Republican challengers, former GOP Congressman Rob Simmons and Connecticut state Sen. Sam Caligiuri. Former ambassador Tom Foley, who has not announced whether he will run against Dodd, also would hold an edge over the veteran Democrat, according to the poll.

It shows Simmons defeating Dodd by a margin of 50 percent to 34 percent. Dodd also trails Caligiuri 41 percent to 37 percent, and Foley 43 percent to 35 percent.

Even more distressing is that Dodd has been one of the only ones in Congress trying to make the banksters really pay for their greed by setting limits on the credit card industry. A loanshark offers lower rates than the banks on some credit cards. You can't come up with a more real-world distress to regular working people. And as Tom Geoghegan notes, you can draw a straight line from the collapse of anti-usury laws in the 1970s and the bubble of capital that ended up going into the exotic financial products that helped cause this crisis. Dodd's bill isn't a full step away from that wild open marketplace, but it goes pretty far.

Today, the Senate Banking Committee passed the Credit Card Accountability Responsibility and Disclosure Act - legislation I wrote to stop abusive and deceptive credit card practices once and for all. Indeed, 2009 may well prove a watershed moment for credit card reform [...]

Universal default is one of countless abusive practices credit card companies regularly engage in today that my legislation would put to an end.

Here are a few other practices the Credit C.A.R.D Act ends:

"Any Time, Any Reason" interest rate hikes. Issuers often unilaterally change the terms of a credit card contract before the term is up. One issuer "voluntarily" eliminated these hikes after Congress exposed them. They even ran ads stating that "a deal is a deal." But there is nothing binding them to that commitment, and most issuers have already gone back to the practice - one a Pew Charitable Trusts survey found in 93% of 400 cards issued by the country's largest banks and issuers. This bill makes that practice illegal.

Penalty Rates With No End. Let's say you've been a customer in good standing, and you have a reasonable interest rate of 12%. You pay your bill three days late, and you get raised to a penalty interest rate of 29.9%. Once that penalty rate increase is triggered, there is no limit on how long it will last. From that point on, you continue to pay your bill on time, but despite that, you continue to pay the penalty rate for the life of that card. The amount and duration of the penalty rate is entirely determined by the card issuer. My bill says that after 6 months of on time payment, your rate has to go back down.

Double-Cycle Billing. Say a few months ago, you had a credit card debt of a thousand dollars - and that since then, you've paid off $900 of that debt. It's not uncommon for credit card companies to keep charging interest not on a hundred dollars but on the full $1,000 for another cycle or two. The Credit C.A.R.D Act prevents that practice.

Aggressive Marketing to Young People. Recently, my seven year-old daughter received a credit card solicitation in the mail. Jackie and I laughed it off, but it brings up a serious point: young people are faced with an onslaught of credit card offers. And just as we saw in the mortgage crisis with lenders and borrowers, too often, issuers offer cards to young people without verifying any ability to repay whatsoever. This is particularly true for students, who are flooded with offers the second they set foot onto a college campus - in fact, industry officials have testified to Congress that simply being a college student is considered a "positive factor" toward the ability to pay. This bill simply says that credit card companies must take into account a young person's ability to repay before allowing them to take on what is all too often a lifetime's worth of debt.

It should be stronger, but even this mild stuff barely cleared the Senate Banking Committee, which credit card-state Senator Tim Johnson voting against it. The point is that Dodd has been working to rein in credit card abuse for decades. Now some demagoguery has driven down his poll numbers and threatened his career. It's quite unfair.

Unfortunately, once the public mind is set, they resist changing it. At some point, Dodd may have to be asked to step aside. And the Obama Administration, which threw him over the side of the boat, had better make good for him.

News of the Good

I think I need a little good news, so here goes:

• A Senate Judiciary Subcommittee heard debate yesterday on a bill to cap credit card fees for people in bankruptcy.

Under current law, people filing for chapters 7 and 13 bankruptcy protection are obligated to pay credit card balances along with secured debts, such as house and auto loans. The measure is aimed at punishing credit card companies that raise their interest rates to a high level and at giving consumers who may be on the verge of bankruptcy greater leverage to negotiate better deals with those lenders.

The bill, introduced in January by Sens. Sheldon Whitehouse (D-R.I.) and Richard J. Durbin (D-Ill.), is another weapon the government is wielding against exorbitant rates charged by credit card companies. New regulations issued by the Federal Reserve targeting predatory lending practices are scheduled to go into effect next year.

Tom Geoghegan has a great article on how unlimited interest rates destroyed the economy at Harper's; unfortunately it's not online and only in the magazine. He correctly labels what the credit card industry is doing as usury, which used to be a crime for, oh, 5,000 years, but which is now accepted. This money suck from debtors to creditors fattens the financial services industry and causes bubbles and speculation. It's high time we did something about it. This is good.

• The Obama Administration's Justice Department will release Bush-era torture memos, over CIA objection.

Over objections from the U.S. intelligence community, the White House is moving to declassify—and publicly release—three internal memos that will lay out, for the first time, details of the "enhanced" interrogation techniques approved by the Bush administration for use against "high value" Qaeda detainees. The memos, written by Justice Department lawyers in May 2005, provide the legal rationale for waterboarding, head slapping and other rough tactics used by the CIA. One senior Obama official, who like others interviewed for this story requested anonymity because of the issue's sensitivity, said the memos were "ugly" and could embarrass the CIA. Other officials predicted they would fuel demands for a "truth commission" on torture.

While Obama's record on civil liberties is mixed thus far, on transparency and disclosure he has done quite a good job. The argument between Obama and Dick Cheney over the weekend was not an argument about detention, necessarily; it was an argument about torture. And the truth will come out. This is good.

• The EPA will review mountaintop mining projects which do great harm to the environment.

Dozens of mountaintop coal-mining permits will be reviewed for their potential impacts on streams and wetlands, the Environmental Protection Agency said Tuesday in breaking with Bush administration policy.

Announced by EPA Administrator Lisa Jackson, the move targets a controversial practice by coal mining companies that blasts away whole peaks and sends mining waste into streams and wetlands. It does not apply to existing mines, but to requests for new permits, a number estimated to be as high as 200.

I wish it were retroactive, but I'll take it. Mountaintop mining is a horrific practice and steps should be taken to stop it. This is good.

• Sen. Dick Durbin is introducing his public financing bill once again.

After the most expensive campaign cycle in U.S. history, a bipartisan group of lawmakers will introduce legislation this week to create an ambitious voluntary public campaign financing system that would ban contributions from lobbyists and place strict limits on other sources of campaign cash.

Under the proposed overhaul of campaign finance law, candidates would be prohibited from accepting donations from registered federal lobbyists but would receive public matching money for contributions from people in their communities. Advocates of the "Fair Elections Now" measure said the system would weaken the predominance of special interests in politics.

A lot of times, politicians offer "reform" that would do little or nothing to reform anything. This is an exception. Public financing is a proven technique, in Arizona, in Maine, in various municipal elections, to reduce the influence of money in politics. This is good (though I'm not hopeful, despite it being sponsored by members of both parties, that it will be successful).

• A federal judge paved the way for the dispensation of the morning-after pill to girls younger than 18.

U.S. District Judge Edward R. Korman in New York instructed the agency to make Plan B available to 17-year-olds within 30 days and to review whether to make the emergency contraceptive available to all ages without a doctor's order.

In his 52-page decision, Korman repeatedly criticized the FDA's handling of the issue, agreeing with allegations in a lawsuit that the decision was "arbitrary and capricious" and influenced by "political and ideological" considerations imposed by the Bush administration.

"These political considerations, delays and implausible justifications for decision-making are not the only evidence of a lack of good faith and reasoned agency decision-making," he wrote. "Indeed, the record is clear that the FDA's course of conduct regarding Plan B departed in significant ways from the agency's normal procedures regarding similar applications to switch a drug from prescription to non-prescription use."

The common argument from the right is that the ability to obtain Plan B will cause promiscuity. Plan B causes nausea and temporary bodily harm, which nobody seek out, and besides nobody on earth thinks that way. What will happen is a decrease in the unwanted teenage pregnancy rate, which is desired by most, and an enhancement of free choice for women. This is good.

Now, some may say that none of this matters, and Obama's taxpayer giveaway to the banks will destroy the country, and overall he's a very bad person. But tell that to the 17 year-old who now can rectify her bad situation, or the residents who get sick from living next to the mountaintop removal mine, etc.

What The Congress Is Doing Right (Yes, There Is Something)

I'm distressed by the lifting of the ban on offshore drilling, and the bailout bill is still fluid. But at the end of this session, the Congress is getting some good bills across the line.

After much wrangling from Senate hold king Tom Coburn, the Senate finally dislodged the Emmett Till Unsolved Civil Rights Crimes Act and got it passed. This would set up a cold case unit to investigate crimes and injustices of the Civil Rights era.

The Paul Wellstone and Pete Domenici Mental Health Parity Act passed the House by overwhelming margins yesterday. This would prohibit insurance agencies from limiting benefits for mental health ailments. Right now only 1/3 of all Americans suffering from mental illness receive adequate treatment, and this bill would go a long way to altering that. More here.

In addition, the House passed a credit card holder's bill of rights, which would accomplish the following.

Ends unfair, arbitrary interest rate increases, by requiring ample notice before rate hikes and permitting lenders to raise rates on existing balances only if minimum payments are more than 30 days late (except for increases caused by changes in stated variable and introductory offers)

Ends penalties on cardholders who pay on time, like charging interest on already repaid debt

Protects consumers from due date gimmicks by requiring credit card companies to mail bills 25 days (instead of 14) before the due date

Ends the credit card practice of applying consumer payments to lower interest debt first

This also passed overwhelmingly.

I'll withhold judgment to see what they do with this piece of garbage bailout bill, but Congress is not entirely useless.

The Republican Economic Plan: I'm Sorry, There's A Problem?

OK, we're back to normal now. Thank you, resetting of PRAM!

Now that I'm cheered by this return to form, let me dive right into the collapse of the US economy. Consumer confidence is in the toilet and prices are continuing to rise. New home sales are dropping like a rock, reducing the equity in people's houses. This leads them to put all their spending on credit cards, where debt is up 315% and nobody's paying their bills on time. Real wages, after finally rising year-over-year for the first time in the Bush Administration, are now falling again. The federal debt is now the same percentage of GDP that it was in 1992. In short, it's like the Clinton years, the dot-com boom, the housing boom, fiscal responsibility, it's like of that never happened.

What's worse is that Republicans remain committed to doing nothing about this, even as the serious structural economic problems already hidding the lower and middle classes threaten the bankers and high-wage earners you'd think they'd care about.

Congressional leaders yesterday gathered support for aggressive changes to bankruptcy laws that would help troubled homeowners, even as the Bush administration threatened to veto the plan and emphasized its opposition to any program that would risk tax dollars.

Democrats are calling for the government to do more than what the administration has done to date. They propose a range of initiatives that include the purchase of troubled mortgage securities by a federal agency and the empowering of bankruptcy judges to change the terms of high-interest loans held by homeowners facing foreclosure.

But the administration said that changing mortgage terms retroactively for a select group of troubled borrowers would only add to lenders' woes and lead to higher mortgage rates for everyone.

The bottom line is that they want to save their precious tax cuts, continue to hollow out the revenue base and destroy the social safety net. They literally have no plan for the economy other than riding the same policies that drove us into this ditch.

Looming Recession Update: Redeeming Gifts For Food

This is truly the biggest indication that we're headed into a severe recession that I've yet seen:

Here's a sign of how shaky the economy has become: Wal-Mart says its shoppers are redeeming their holiday gift cards for basic items — pasta sauce, diapers, laundry detergent — instead of iPods or DVDs.

Merchants had hoped shoppers armed with gift cards would provide a lift after a dismal holiday shopping season — partly because shoppers tend to spend even more than the value of the card. But that didn't seem to happen last month, and retailers are feeling the pain.

On Thursday, the nation's retailers turned in their worst January in almost four decades as high gas and food prices, a slumping housing market, tighter credit and a tougher job market pushed consumers to the edge.

Our economy is so dependent on consumer spending that the simple fact that nobody's buying the new release of Michael Clayton despite the totally cool commentary track is really enough to send the whole nation into a tailspin. The truth is that nobody has saved any money for a while, and the most common places where people have typically been able to gather that money, through home equity loans, are drying up as a consequence of the housing crisis. People could turn to their maxed-out credit cards, but for some insane reason the credit card companies are making that more unlikely:

Hundreds of thousands of Capital One and Bank of America cardholders have been notified in recent months that their interest rates are going up — in some cases to as much as 28% — even though they haven't been missing payments.

...."They need to raise rates because they can't raise fees anymore," [David] Robertson said. "It's politically untenable."

...."The card issuers are moving from a risk-management strategy to a revenue-generating strategy," [Robertson] said. "Credit cards are consistently the most profitable retail banking product," Robertson observed. "The growth is not there anymore. And with a recession coming down the pike, there's no expectation of more spending by consumers. The industry needs to raise prices to keep profits where they need to be."

As Kevin Drum notes, this is just going to make people less likely to use their credit cards, meaning less consumer spending and a bigger problem for the same banks trying to make money off their credit cards. The logic is so short-sighted, and it mirrors the logic that has brought us to this economic meltdown in the first place.

I, The Economy, Am Coming To You

I think 0% interest rates are how low Helicopter Ben Bernanke would have to cut them to get us out of this mess. The economy is just souring on too many fronts, and it's all interconnected. We know that housing is a mess. People are barely managing to keep their homes, and they certainly aren't able to borrow against it and live off the home. As a direct result, consumer spending is in the toilet:

An already weak holiday shopping season turned out to be even worse than expected for many of the nation's retailers, who reported Thursday they had disappointing sales results for December. The poor performance raised more concerns about consumer spending, and in turn, the health of the economy.

And if you have no way of borrowing against your home, but you need to borrow to survive, or just borrow to grab some more material goods or that last Christmas present, or to keep up with your own living standard, why then you'd borrow against your credit cards.

We've just learned that credit card debt increased at an 11.3% annual rate in November. In 2005, it increased at a 3.1 percent rate. Why the jump? As Dean Baker says, "People borrow against their credit cards when they can't borrow against their homes. It looks like a lot of people can't borrow against their homes."

Meanwhile, we know that certain prices continue to soar. Gas is expected to hit $3.50 a gallon this summer, and health care costs averaged seven THOUSAND dollars a person last year. Now, that's mostly incurred by the sickest among us, but premiums and deductibles are certainly going up. And that's delivering a health care system that is decreasing in effectiveness.

A pair of researchers has just published an update that compares various countries on their rates of "amenable mortality," defined as deaths that are "potentially preventable with timely and effective health care." In 1997, the United States ranked 15th out of 19 industrialized countries. So how are we doing now?

Answer: we're now 19th out of 19. The rest of the countries have improved their performance by an average of 16%, while the U.S., that well-known engine of healthcare innovation, has improved by only 4%. So now we're in last place.

As Kevin Drum says, "This is really bad news. The chickens are coming home to roost."

Only 365 Shopping Days Until Christmas

It seems to me that holiday shopping statistics are starting to become as ubiquitous as weekend movie grosses (am I supposed to root for my favorite department store?), but they're still not getting the bare facts right.

I'm twiddling my thumbs for a bit until it's time to hop in the car and head over to my father-in-law's place, and a few minutes ago I came across a piece by Michael Barbaro in the New York Times about "bleak" retail holiday spending this year:

Spending between Thanksgiving and Christmas rose just 3.6 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 6.6 percent in 2006, and 8 percent in 2005.

But this isn't right. As near as I can tell (though, naturally, Barbaro doesn't bother to mention it), these numbers aren't adjusted for inflation. In other words, they're useless. Here's what that paragraph should have said:

Adjusted for inflation, spending between Thanksgiving and Christmas declined 0.7 percent over last year, the weakest performance in at least four years, according to MasterCard Advisors, a division of the credit card company. By comparison, sales grew 4.0 percent in 2006, and 4.4 percent in 2005.

I can't imagine that conglomerate-owned media reports would leave out key details to keep up a fiction that the economy is just humming along. That doesn't even seem possible!

Meanwhile, I didn't even think it was possible to default on your credit cards given the easy availability of consumer credit, but now that's starting to happen.

Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country's largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.

Let me give you another example of a byproduct of the mortgage crisis; immigrants aren't finding construction jobs because housing starts are in the toilet, and they're going back to their home countries. Now, you'll hear a lot of other explanations for this, like various punitive laws in Arizona, but if there were jobs, they'd stay. This is going to be a real problem for lunkhead Republicans who want to blame everything on the brown people, including them causing the mortgage crisis by misunderstanding the forms, because as we all know it's been illegal immigrants buying those million-dollar homes. But the underground economy usually feels the crunch earlier than the economy in general, and if there aren't any jobs, there's no reason to live under fear of deportation. And then we'll see exactly how much these immigrants actually contribute to the economy once they're not around to do the menial labor anymore. Somehow the resultant economic downturn will ALSO be blamed on the brown people, too.

We're in a season of giving, but that will soon give way to a long winter and a lot of people with nothing left to give. The coming recession will be the final ignominy for an executive branch that has given up on competent stewardship.

Chris Dodd Is Making Sense

At first I was surprised by the report that Chris Dodd raised more money than any Democratic Presidential candidate in Q4 of last year, including Hillary Clinton. Then I realized that he's the incoming chair of the Senate Banking Committee, and the banking industry was trying to bribe him because they knew what his views were on predatory lending and the credit card business. But he is thankfully unbowed. He is going after the business-as-usual of stated income loans, subprime loans, discriminatory loans to minority borrowers, and all the rest. And he's already done work on reforming the credit card industry.

He really is a good Senator.