(Here's the promised diary from Demos in tandem with my previous diary - promoted by Paul Rosenberg)
By Caleb Gibson In remarks made at a summit in Trinidad and Tobago this past weekend, National Economic Council director Larry Summers teed up what has turned out to be a very active week in the credit card reform arena. Summers told NBC’s David Gregory that President Obama would be "very focused in the very near term on a whole set of issues having to do with credit card abuses." He wasn't kidding. Thursday, Obama, Summers, Treasury Secretary Timothy Geithner and White House senior advisor Valerie Jarrett held a "pow-wow" with over a dozen executives from the major credit card issuers and networks to discuss lending practices that have roiled consumers and lawmakers.
(Some have compared this meeting to being called to the principal's office or taken out to the woodshed. One Republican credit card lobbyist told POLITICO, "the companies will get the s*** beat out of them by the President and Summers." We consumer advocates would love to get that much attention from the White House.)
But before the White House got their chance to let the credit card companies have it, the industry came under fire from at least three other federal entities.
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On Tuesday, the Congressional Oversight Panel--created by Congress to oversee the TARP program--heard from Geithner himself on accountability and transparency in the taxpayer-funded financial bailout. The panel's chair, Harvard Law professor Elizabeth Warren, pointedly observed that the first quarterly profits in the financial sector in recent memory just happen to coincide with a spike in complaints of juiced up fees and interest rates hikes for millions of borrowers in good standing.
The next day, the House Financial Services Committee reported out the Credit Cardholders Bill of Rights Act (H.R. 627), legislation that would outlaw many of the most egregiously unfair credit card lending practices. The bill was approved by a vote of 48-19, with nearly a third of the panel's Republicans supporting the measure.
And not to be left out, just hours before yesterday's Obama-banker summit, two senior Senators called on federal regulators to invoke emergency powers to freeze interest rates on existing credit card balances. In a letter, Sens. Charles E. Schumer (D-NY) and Christopher Dodd (D-CT) implored Federal Reserve Chairman Ben Bernanke and the heads of other regulatory agencies to implement immediately a rule that would provide many of the same consumer protections as H.R. 627, but is not scheduled to take effect until July of 2010. With next year's deadline looming, the Senators wrote, banks are scrambling to shake down their customers while it's still legal. Noting that the Fed has taken bold steps to ease the rules for foundering financial institutions, they asserted that "it is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies."
The common theme in Warren's questioning and the Schumer/Dodd letter is not to be missed.
As the consequences of the subprime meltdown spread, banks are openly increasing interest rates and fees on their credit card customers in order to cover losses in other areas. And as Demos' Vice President of Policy and Programs Tamara Draut pointed out in the Washington Times yesterday, the practice of re-pricing has become completely uncoupled from customers' risk profiles. The only reason this is possible is because in the absence of almost any regulation, issuers have tilted the playing field heavily in their favor.
Demos' research shows that inequitable credit card underwriting practices have shifted the cost of credit to individuals least able to afford it, while at the same time generating some of the highest profits in the entire banking sector. Low-income families and households of color, primarily African Americans and Latinos, bear the brunt of the cost of credit card deregulation through excessive fees and high interest rates. While one in four low- and middle-income households pay annual percentage rates (APRs) of 20 percent or higher, nearly a third of African Americans and Hispanics had APRs over 20 percent, compared to one fifth of whites. Industry lobbyists argue that now is a "bad time" to level the playing field in the credit card market. As they endeavor earnestly to jumpstart consumer lending, new protections for borrowers, they say, would force them to restrict credit across the board-cut it off altogether for some-and increase interest rates for everyone. This argument is hard to swallow when the fed funds rate is hovering around zero, the prime rate sits at an all-time low of 3.25% and American households are seeing their rates jacked up, their credit limits slashed. At Wednesday's Financial Services mark-up, Rep. Brad Miller (D-NC) said the industry was crying wolf. He might have been more sympathetic, he said, if he hadn't been hearing the same arguments for the entire six-and-a-half years he'd sat on the Committee.
And it looks like Miller's not the only one getting tired of hearing the same-old-same-old from the industry. Press photographers caught Summers's eyelids getting heavy in the middle of the sit-down with credit card execs. It's not exactly "beating the s***" out of them," but it sends a message: enough already. "The days of any-time, any- reason rate hikes and late-fee traps have to end," declared Obama after the meeting. When asked about the dual goals of protecting consumers and enabling a profitable market for the banks, the President responded, "We think that it's been out of balance." This week, at least, it looks like a whole lot of folks would agree. |
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