Obama to the credit card industry: clean up!
Last Thursday executives of the nation’s leading credit card companies were summonsed to the principal’s office and told to clean up their act. Actually, what President Obama told them was that he intended for Congress to come up with some new consumer-friendly legislation to address what the President referred to as abusive practices.
From the President’s post-meeting remarks:
“…we want to preserve the credit card market. But we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with -- people finding themselves starting off with a low rate and the next thing they know their interest rates have doubled; fees that they didn't know about that are suddenly tacked on to their bills; a whole lack of clarity and transparency in terms of the terms and conditions of their credit cards.
And so there's going to be action in Congress. Our administration is going to be pushing for reform in this area.”
What's interesting is that reform is on the way…albeit on a slow boat that will not arrive until July 1, 2010. Last December the Federal Reserve and other regulatory agencies that oversee the card industry pushed through some tangible pro-consumer changes in how credit card companies can levy fees and change the terms on cards. But in one of the slowest roll-outs in memory, the new regs were given an effective date 18 months down the line. Ostensibly the delay is to give the credit card industry time to make all the technological switches to their systems to comply with the new rules. But the lag time is also allowing the credit card companies to bring in more revenue today by continuing their rate-changing ways before the new rules arrive in July 2010.
One of the hallmark changes that will go into effect is that if you make your payments on time, your credit card company can’t change the interest rate on your existing debt; any rate increase can only be applied to new debt you pile up after receiving notification from your credit card company.
But until July 1, 2010 the card companies can continue to jack up rates on existing balances, at will. And as my colleague Donna Rosato noted in a recent blog post they are indeed pulling out all the stops to collect card revenue, including raising rates on even “good” clients. That's not too surprising given the tough economy that has spurred a big uptick in credit card delinquencies. And that makes it all the harder to imagine that the credit card industry is going to roll over and agree to more pro-consumer legislation in this current environment. And let’s be clear: we are talking about one of the most powerful and effective lobbies in D.C. This is shaping up as an interesting battle on Capitol Hill.
-- Carla Fried