Along with Americans for Financial Reform (AFR) and many great progressive bloggers and activists, my most important task between now and the final passage of the financial reform bill is to try to keep this zombie-like army of lobbyists from picking every detail that matters off the bill and dumping all the good things in the trash. The thing about a subject this huge is that all these "details" and "side issues" are actually quite enormous. Even though this bill is disappointing on many centrally important issues (the biggest of which is to actually break up these monster banks), each provision the House and Senate conferees are currently negotiating over matter a lot.
One example of an under-the-radar side issue with big consequences is this swipe fee issue. I got intrigued by this issue a few weeks ago when my friends at AFR alerted me to it, I started writing about it, and have now managed to talk a bunch of retail business folks into paying me to work on it (is this a great country or what?) Here's the deal: every time a restaurant owner or taxicab driver, a small business person or, for that matter, a blogger, swipes a credit or debit card, the credit card company can charge a fee. Any fee they want. The bigger the business, the lower the fee that can be negotiated, so the folks this really screws over are the smallest businesses who use credit card machines. My cabbie the other day told me he gets charged 10 cents on the dollar, and I know a bunch of other small business people in the same boat. You know who else gets screwed by this? Charities. The swipe fee costs charities around $250 million a year, according to an analysis by the Huffington Post.
So 10 cents here, 10 cents there - not such a big issue, you say? Well, you know what, there are a lot of credit and debit card transactions in this country every day. The definitive estimate on the amount of money being taken out of the pockets of retail businesses and put into the pocket of the banks stands at $48 billion per year. And here's a shocker: 80% of all this money is received by the top 10 banks (actually, I'm a little surprised it is not even more concentrated).
In the world of trillion dollar Federal Reserve bailouts for the banking industry, $48 billion may not seem like much, which is why people call it a side issue in financial reform. But a $48 billion dollar infusion of cash into the real economy as opposed to the profits of the biggest banks would have a lot of benefit right now. And left unregulated, that number will inevitably get bigger, because the big banks' profits will likely be curbed 15-20% by the financial reform bill, and they will be looking for new ways to boost their profits. Any part of the financial industry left unregulated will be in for new rounds of price gouging and market manipulation. The amount Americans pay in swipe fees, who are already paying the highest fees in the world, has already gone up 3 times the amount it was in 2001. Left unregulated, it will go up a lot more.
So if we win this fight, and the banks don't get the $48 billion, what happens to it? Retailers say they will be able to lower prices as a result, so consumers will benefit, but it's hard to know whether or not that will be true. I suspect that some of the $48 billion will benefit consumers with lower prices; some will benefit business owners directly. Hopefully some of those businesses will use the money to hire more workers or even given the workers they have a much needed raise. The extra dollars gained by small businesses might be enough to keep some struggling restaurants and local businesses alive in these tough times.
Regardless of how that $48 billion pie gets sliced, though, getting that money pumping through the rest of the economy and out of the hands of the very biggest banks is a big plus. The big banks have too much power and too much concentrated wealth: anything that takes money out of their hands and puts it into the Main Street economy is a very good thing. This "side" issue matters a lot.
The other day Digby wrote about a scam by Bank of America, where they switched the monthly bill's envelope to look like junk mail, so people threw it away, and they collect million upon millions in late fees.
The plain brown envelope looked like it was one of those car dealership "checks" that were all the rage before the credit crisis hit. And because I didn't realize the first month that I hadn't gotten my bill, it created a black mark on my credit for a late payment which resulted in a cascade of raised rates on several cards.
It was clearly a sneaky trick. ... And that's what people are dealing with all the time as consumers, with their health insurance, their credit cards, their mortgages, their pensions -- overwhelming complexity designed to trip them up and cost them money or deny them benefits to which they believed in good faith they were entitled. And its all perfectly legal -- or at least there's no visible accountability for it.
Me, too! Chase ran a scam on me but I didn't realize it was just a scam until I was talking with someone else and found out exactly the same thing happened to her. I had automatic payments set up so any balance was paid out of my checking account. (I never, ever, ever, ever carry a balance on credits cards. And you should never, ever, ever do that either.) They stopped the automatic payments, and charged me late fees. I fought it, and filed a complaint with the Fed, and when I got them to reverse the late fee, they applied a fee reversal fee! That card is long gone.
So how many of you got socked by AOL, where you couldn't get them to stop charging your card? How many have been hit by other scams? How about cell phone scams, like Verizon's various scams -- VCast when you didn't want it, or the deal where they put the key for "Get It Now" or "Mobile Web" where you accidentally hit it all the time, and they charge you each time?
President Barack Obama is scheduled to unveil his agenda for revamping financial regulation later this week. As the economy struggles though a recession created by the banking industry, it's crucial that Obama and his advisers craft a set of rules ensuring that the financial sector strengthens our economy instead of destroying it.
The Senate just passed an empty law they call a "reform" of the credit card industry. The Democrats will undoubtedly proclaim across the land, I'm guessing by tomorrow in e-mail solicitations, that they are working hard to help the people of this country, protect them from the predators on Wall Street. But the Democrats will be lying when they make those claims, as will President Obama who undoubtedly will use this in his re-election campaign.
The media will also lie about it, trying to fool the public into believing this law does something to help the people. But the only thing it really does is to further defraud the public.
There are a few nonsensical provisions that will have no effect whatsoever. They can't use a dragnet clause (to say a default on anything else, like a mortgage, is a default on their credit card so they can raise the interest). Big deal. Somebody's house is in foreclosure, their credit card is not the biggest thing on their mind. They give people a little bit longer before the late fees hit, but they leave the late fees in there -- which, combined with other ridiculous punitive fees raised $20 Billion for these Loansharks last year alone.
But here's the worst part of all. A new provision says that anyone under 21 must either prove they are able to pay the credit card or have their parents be co-signers. The Democrats claim that this is to "protect" young people from getting credit cards if they're unable to pay them. But the truth is that this is just a sneaky, deceptive way to fool adults to take on responsibility for their children's obligations -- 18 through 21 -- when right now, there is no such obligation. An 18 year old defaults on a credit card, tough luck Citibank, try to collect. Under the new law, Citibank will go grab Mom and Dad's paycheck. Even for a 20-year-old who lives on their own, and has a full-time job. Citibank will now go take the money out of Mom and Dad's checking account. Thanks to the Democrats, who undoubtedly will claim this is another big benefit for working Americans.
Last week, someone introduced an amendment to cap interest on credit cards at 15%. It was shot down. The Democrats have the majority in the Senate, but they also take the most bribes from the credit card industry. So they said no way. The federal government loans money to the credit card industry at 1/2 % interest per year. The credit card industry turns around and loans that money to American citizens, but charge 25% interest per year, and they rake in about a 24% profit per year. Talk about obscene loansharking practices.
This week, somebody introduced an amendment to "limit" interest to 36%, and that was shot down too. No, the Democrats cried, we must let the credit card companies charge 50% interest if they want, because they pay us so much money in bribes.
What we should do is just pick a date, then stop paying and stop using our credit cards. Tell Congress to get up off their fat, corrupt asses and pass a real reform of credit cards to limit interest to 10%, eliminate late and other fees, and make the new interest rate retroactive to January 1 of this year.
What do you call a government that lies to the citizens, deceives them, pretends to be a democracy but actually sells their votes to the richest corporations in the world, lets businesses take the jobs to other countries, watch their own people be thrown out of work and forced to borrow money just to survive, then lets the loansharks charge 25% or more for a simple loan? A corrupt, deceitful, fraudulent, useless, traitorous dictatorship.
Byron Dorgan (Dem. - North Dakota) was on C-Span this morning to discuss the elements of the Senate's upcoming Credit Card Bill. I'm not sure what he thinks he can accomplish, but at the very least, he is making us aware that the CC companies are big players in the screwing of the American Economy.
I could not even begin to address the criminality that is the essence of the credit card industry.
In order to understand credit cards, we need to recognize that most banks will loan people money for a modest interest rate. If the borrower has some assets -- a house, for example -- as collateral.
But for working people with few assets, the only loan they can get is from the credit card companies or the loan sharks -- same difference -- at outrageous interest rates. The interest charged does not reflect the "risk" of the loan, the number of defaults, the difficulty in collection, or any of the other stories they always tell us. They charge it because they can get away with it, just like the mob does.
Every once in awhile, some leading Democrat has a press conference and insists they're going to "get tough" on credit card companies. But it's all just a show -- a circus to divert the public from the truth, which is that most of the Senators and Representatives take bribes from the credit card companies. Take bribes to look the other way when the credit card companies steal everything from the working people of this country.
Most countries in the world have laws about usury. We do too. They prohibit people from charging excessive interest on a loan. For most of us, for example, if we loan money to somebody, we can only charge a certain amount of interest -- around 10% in most states.
So why don't the credit card companies have to obey the laws about usury? Because they paid bribes to the politicians in Congress to get a special law saying that they don't have to obey those laws. It's just straight-up corruption.
Credit card companies are thieves, the same as the street hoodlums who hide in alleys and knock people over the head on their way home from work, steal their wallets. The credit card industry is responsible for stealing trillions of dollars from working people in the U.S. every year.
We need serious new regulations of this industry. The absurd "disclosure" additions to the law, put into place by Wall Street's favorite Senator Chuck Schumer, does absolutely nothing to help the people. So what if the Loan Sharks have to "announce" what they plan to do right before they break your legs? Disclosure does not cure or solve theft and fraud. Chris Dodd recently announced his own "get tough" new rules, which are also garbage. From now on, when they send you a statement, they have to put it in 9 point instead of 8 point type. Just absurd "reforms" which do nothing to help the people of this country.
When working people's wages are being crushed by corporations sending jobs outside the country, when the cost of everything is artificially raised by corporations manipulating the markets (i.e. the oil companies), most people need to borrow money to pay for emergencies. When the only loans available come from the Loansharks, then having a law that makes them "disclose" that they will charge obscene amounts does nothing to help working people. Thanks for nothing Chuck Schumer and Chris Dodd. And Congress, which just this week asked President Obama to "talk" to their biggest contributors, ask them to please be nicer. Yeah, that'll do it.
Here's some shocking numbers on the Loan Shark industry in the U.S.:
Let's talk about a few of the biggest problems. This is what Congress needs to change. Now.
1. Usury. Credit cards should have a maximum interest of 10%.
2. "Late" Fees. Late fees should be illegal. If someone is late, the interest keeps running so the credit card company loses nothing.
3. Over-limit charges. Straight theft. They lose nothing if somebody charges over the limit.
4. Cash advance charges. Absurd. Enormous charges on top of the obscene interest rates for, essentially, somebody borrowing a couple of hundred dollars.
5. Dragnet clauses. If you default on your car loan from another lender, then the credit card company will "drag" that default into the credit card account, and raise your interest to 25%. Ridiculous. The two things have nothing to do with each other.
6. Mailing location for billing statements. They tell people the due-date is, for example, the 28th of the month (more below). Somebody in California puts the check in the mail on the 25th or 26th, but their payment center is in God-knows-where Maine, rural, with poor mail service, to maximize late fees.
7. Due-dates chosen to maximize late payments. Due-dates are generally the 28th of the month, or the 13th, around there. They know people get paid on the 15th and 30th, will write the check out the next day, and are more likely to be late. All due-dates should be on the 20th of the month.
8. Interest independent of what the loansharks pay us to borrow our money. Credit card companies borrow my money, taxpayer's money, from the federal government, and pay less than 1% interest per year. Then they turn around and charge 25% per year on credit cards. Their total "costs" consist of paying some 12 year old girl in a third world country about $1.00/day to sit in front of a computer and process payments, issue new bills. They're making a killing off of us. And Congress knows it, and they let them because they get kick-backs. Interest for credit cards should be capped at 10% but also tied to the federal discount rate -- say 5% more than the lowest federal discount rate for the preceding 6 months -- which means today's rate should be 6% on credit cards.
Some of the largest U.S. banks may be on the ropes these days, but the disparity between the plight of financial executives and ordinary Americans has never been starker. Over the past two decades, the banking system has grown accustomed to scoring massive profits by preying on its own customers, making 2009's transition to pilfering taxpayer wallets an easy one. After burying the economy under a mountain of unaffordable debt, bank CEOs are now finding ways to subsidize their own paychecks with taxpayer bailout funds.
One of the particularly exasperating characteristics of the current financial crisis is that the institutions responsible for the crisis are on kamikaze missions: as they go down, they exact maximum damage on their customers and on the economy at large before crashing and burning. This is, in part, simply due to organizational decision making: an organization's leadership will attempt to keep a firm afloat as long as possible, no matter the larger social and economic costs.
Credit card companies are currently on such a destructive mission. Credit card defaults, long feared as the financial crisis's second coming (after housing defaults), are at their highest level in 20 years with so-called "charge offs" - the amount a credit card company believes it will never be repaid - rising significantly in recent months to 8.7% at American Express and 9.33% at Citigroup. As a consequence, credit card companies are squeezing their remaining customers dry. As James Surowiecki pointed out in last week's New Yorker:
[C]redit-card companies have had to rein in their lending and shed accounts . Since that risks shrinking profits, they're also trying to get as much as they can out of their existing customers, by doing things like sharply increasing their interest rates.
Apologists call these increased interest rates "risk-based pricing", which they claim allows credit card companies to keep credit widely available. But Adam Levitin at CreditSlips undermines this claim, made recently by Meredith Whitney in the Wall Street Journal:
Just as an insurer cannot decide premiums after the coverage event occurs, so too can a lender not decide what interest rates apply after the borrowing. Pricing after a risk materializes isn't risk-based pricing. It's rent extraction.
The larger story involved with consumer-adverse lending practices is laid out in an interesting article by Thomas Geoghegan in next month's Harper's ("At interest rates of 25 percent, or 50 percent, or 500 percent, lenders don't really want the loan to be repaid - they want us to be irresponsible, or at least to have a certain amount of bad character."). But the particular pain being exacted on individual consumers and on small business owners (are you listening, John Boehner?) by increased interest rates at a particularly bad economic time for American households is the simple and all-too-familiar story of failed regulation.
Just over a year ago, Rep. Carolyn Maloney introduced legislation - the Credit Cardholders' Bill of Rights - to prohibit credit card companies from instituting these very interest rate increases on outstanding card balances. The House passed the legislation last September, but it died in the Senate. At the same time, the Federal Reserve has drafted its own rules to regulate credit card lending which, to the Fed's credit, include a provision mirroring that of the Cardholders' Bill of Rights. The problem is that the Fed's prohibition on retroactive interest rate hikes does not take effect until July of 2010.
As the economy continues to sour and unemployment rises, credit defaults will only worsen and credit card companies will extract even higher interest rates and more fees from vulnerable households and small businesses. The lack of regulation not only eased us into this financial crisis, but is exacerbating the pain it inflicts on us.
by Zach Carter, Media Consortium MediaWire blogger
In 2008, we witnessed the first serious fallout from deep structural flaws in the relationship between the nation's public and private sectors, a relationship which fell short in every conceivable area from Wall Street regulation to the basic social safety net. The biggest economic stories of 2009 will be about how President-elect Barack Obama's administration repairs-or fails to repair-that connection.
The first step in rebuilding a government that actually responds to problems before they reach the bailout stage will be Obama's highly anticipated economic recovery package. As Dean Baker notes for The Huffington Post, the failure to date of Congress to pass meaningful stimulus legislation has been beyond negligent. Several Congressional leaders are cautioning that a bill will not be ready until February, but with more than two weeks to go before Obama's inauguration, Congress has both the time and the public support necessary to pass a major bill before Obama takes up a chair in the Oval Office, as anyone who remembers the speed of Congressional action moved on the Wall Street bailout can attest.
The credit card associations and the banks that support them have gotten away for too long without answering serious questions about their practices, and at long last, tomorrow there will be a hearing on Capitol Hill to consider the Credit Card Fair Fee Act - HR 5546. It hasn't had the same press as the Credit Card Bill of Rights but it is no less important, and I say that not just because I work with the merchant group that has done tons of work over the last couple years to bring the issue to this point.
One co-sponsor of the bill who speaking up on the issue is Vermont's Peter Welch, one of the best progressives we have in the House. Comments from Welch and more details via the Rutland Herald below:
I read very closely about what's happening with the credit card industry, and I know when they're trying to put one past a reporter. Especially a small-town reporter that they probably don't expect to do all the research on a story that a member of the SCLM would. So imagine my (mock) suprise to find a MasterCard spokesperson trying to sneak one past a reporter for the Valley News of White River Junction, Vermont.
What do they know in Vermont anyway? Enough to make MasterCard look not just deceptive, but inept at doing it. Details after the jump.
On a day when the Bush administration is getting caught for misusing credit cards, it's a good reminder that the industry itself is broken. I work for a group that's focused on unfair credit card fees, so I see it all the time.
Not that the Wall Street Journal is willing to face the facts about just how broken the industry is. They don't DO facts.
So it's nice to see Rep. Conyers defend his bill, the Credit Card Fair Fee Act, in their pages. The Journal's faulty logic and the response below:
The past week has been highly important in the ongoing battle between consumers and merchants vs. the credit card industry. The focus has tightened on the duopoly of Visa and MasterCard in recent years, and after many hearings and much work, a solution might be on the horizon. However, the banks have considerable lobbying assets at their disposal, which means victory is not assured. I realize it's a bit of a long-shot, but I would love to see either Hillary Clinton or Barack Obama pick this up as an issue. If John Edwards was still in this race, I'm sure he would. This is another opportunity for them to appeal to his supporters.
Two bills have been introduced in the House that could make all the difference, both for everyday cardholders and for merchant account holders. Both are hit with ostentatious fees on a daily basis, and the former can incur harsh penalties without even knowing about it. The first is called the Credit Cardholders' Bill of Rights (H.R. 5244), and the second is the Credit Card Fair Fee Act (H.R. 5546). The first is supported by Rep. Carolyn Maloney, the second by Rep. John Conyers.
I myself am the fairly recent owner of a credit card. Iv'e gone through most of my life and late into my twenties without ever needing one. I finally succumbed after many admonitions from older friends who warned, "One day you'll want to buy a house, and you'll want to have credit." So I relented. I now have a new card in my wallet. It's much shinier than my debit card. I wonder if that's on purpose.
And of course, his card has rewards, but I am loath to rack up points on it. Why? For one thing, I don't trust where the money comes from. It comes out of something called the interchange fee, which is like an ATM fee for merchants, if your ATM fees kept going up and up and up each year. Another reason is the absurdity of spending thousands to reap a small reward. Spending money on absurd little gifts is just, well, absurd. And the other problem is that you can get into massive debt chasing after these "rewards" -- it's a dangerous game to play.
What's the most absurd reward you've ever heard? Have you had a bad experience trying to collect?
The great thing about giving to charity is that you give what you can, even if it's a small amount. I didn't always think of it this way. I used to think that my donations wouldn't matter unless I could give large amounts of money. And in fact, I didn't give anything until Hurricane Katrina. Before that I was in school, and what little money I had was earmarked for Ramen. Could I have given a dollar or two for various causes? Yes, but I figured it wouldn't be worth it. And so I waited until I was done with school, and ensconced in a job with a livable wage, until I started giving back. And even now, I'm only making enough that it's 25 here or 50 there.
So that's why I'm upset to see that now Red Cross is now requiring a minimum donation amount before it will accept your donations over the web.
But I am not upset with Red Cross. And you might recognize that sign as one similar to the ones you see next to the cash register at coffee and sandwich shops and independent convenience stores. They're all facing the same problem...
STATE BLOGS
Powered by: SoapBlox