By Don Miller
Associate Editor
Money Morning
Executives from credit card issuers, including Bank of America Corp. (BAC) and American Express Co. (AXP), met with President Barack Obama yesterday (Thursday) to make their case against new limits on transfer fees and higher interest rates.
But their pleas fell on unsympathetic ears as Obama pressed forward with plans for enhanced consumer protection laws that go beyond credit card restrictions approved by a U.S. House committee Wednesday.
The credit card executives requested the White House meeting as they face outcries of anger from beleaguered cardholders and Congress. Representatives from a "who’s who" of industry leaders attended, including Citigroup Inc. (C), Wells Fargo & Co (WFC), JPMorgan Chase & Co. (JPM), Capital One Financial Corp. (COF), Visa Inc (V) and MasterCard Inc (MA).
"They’re saying that the economic recovery will take longer if Obama takes punitive action against lenders, but the Obama folks…need more of an explanation," Linda Sherry, director of national priorities at Consumer Action, a watchdog group that tracks credit-card practices, told Bloomberg News.
As unemployment and credit card delinquencies rise, card issuers are on the hot seat for imposing large late fees and slamming delinquent customers with huge interest rate increases.
Delinquencies are soaring throughout the industry in concert with unemployment, which reached a 25-year high of 8.5% in March. Charge-offs, which are loans that banks have given up on, increased to an average of 8.02% in February from 4.53% a year earlier, Bloomberg reported.
Capital One reported a $111.9 million first-quarter loss on higher reserves for soured loans on Wednesday. Bank of America reported a $1.8 billion first-quarter loss in its credit-card services unit.
Lenders have tried to protect themselves with late fees, tightening credit limits and closing accounts, angering both lawmakers and consumers.
The meeting came a day after a bill to curb credit card fees and limit penalties cleared a key panel in the House of Representatives
The legislation – called the Credit Cardholders’ Bill of Rights – stops credit card issuers from imposing arbitrary interest rate increases and penalties and halts onerous billing practices. A separate version of the bill is under review in the Senate.
Legislators have expressed outrage that many card issuers have received government bailout money under the Treasury’s Troubled Asset Relief Program, essentially paid for by the U.S. taxpayers who use the cards and are saddled with the high fees.
President Obama’s economic adviser, Lawrence Summers, last weekend accused the companies of enticing consumers with aggressive marketing campaigns and deceptive interest-rate terms, encouraging them to become "addicted" to credit.
The White House specifically wants any legislation to limit issuers’ ability to charge fees when customers exceed their credit limits. Obama’s chief of staff, Rahm Emanuel, recently told House Financial Services Chairman Barney Frank that Obama also wants card issuers to offer longer terms for introductory, low teaser rates.
The administration also wants card companies to apply excess payments first to balances with the highest interest rates, and to tell customers how long it will take to pay off their balances if they only make minimum payments.
The banks are saying the proposed regulations will make matters worse by raising costs, restricting credit, and ultimately hurting borrowers more.
"If the government keeps changing rules, it may make it harder for consumers to get credit," Ken Clayton senior vice president of card policy at the American Bankers Association in Washington, told Bloomberg.
"It means less credit available to vast numbers of Americans at the very wrong time," he said.
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Less credit available to irresponsible, spoiled Americans is EXACTLY what is needed. Hopefully, most of these credit cards will close down. Credit cards are evil.
If you have to get a high-interest loan to buy your beer and cigarettes, then you really cannot afford them, can you?
Re: “Obama is expected to tell the executives today that he wants to go further than the House bill without specifically endorsing all of the provisions of Dodd’s bill.”
Please pay attention, Mr. President. We need REAL reform. We need common sense. We need Chris Dodd’s “Credit Card Accountability Responsibility and Disclosure Act”… Please do not give in, Please do not water it down… Please Give it Muscle!
“If the government keeps changing rules, it may make it harder for consumers to get credit,” Ken Clayton senior vice president of card policy at the American Bankers Association in Washington, told Bloomberg.
This is the problem – The credit issuers had little to no government regulation. Everything was at “Their Discretion.”
So of course, the govenment is changing the rules-they are making the creditor adhere to them.
If companies are losing money (Capital One), perhaps cut back on the advertising budgets. And Visa, perhaps they don’t need to spend $1.7 million dollars to lobby. This is the problem, the American people don’t spend money to lobby.
Why are credit card issuers permitted to charge two months additional interest when a person pays the bill in its entirety in two months? Not only is the person charged for the original two months (which I understand as the account is not paid in full), but the person is charged interest for an additional two months even though the account has been paid in full each month. This makes four months of interest when there was only a balance due for two months.