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.