Obama Seeks Reform of Credit Card Firms' Practices

Obama Seeks Reform of Credit Card Firms' Practices
By Michael D. Shear and Nancy Trejos
Copyright by The Washington Post
Thursday, April 23, 2009; 4:42 PM
http://www.washingtonpost.com/wp-dyn/content/article/2009/04/23/AR2009042300348.html?hpid=topnews


President Obama emphasized to credit card executives today that he intends to back efforts to crack down on what lawmakers consider to be deceptive practices, even as the industry criticizes proposed legislation in the House of Representatives as dangerous to the nation's hopes for an economic recovery.

The House Financial Services Committee yesterday approved a Credit Cardholders' Bill of Rights that would prevent such practices as arbitrarily raising interest rates on existing balances, assessing late fees if not enough time was given to pay, and charging interest on debts already paid.

Rep. Barney Frank (D-Mass.), the committee chairman, said he expects the measure to reach the House floor next week. A similar measure is being considered in the Senate.

Credit card representatives pushed back against the effort, warning that lawmakers should not seek these changes in the middle of a national credit crunch.

"The American Bankers Association continues to have real concerns that the bill passed by the House Financial Services Committee today will have a negative effect on lenders' ability to offer reasonably priced credit to consumers and may make matters worse for the broader economy," Kenneth J. Clayton, a senior vice president of the association, said in a statement.

"We're decreasing the availability and increasing cost when we want to be moving in the opposite direction," Scott Talbott of the Financial Services Roundtable said earlier this week.

This afternoon, senior executives from 13 companies -- including Gordon Smith, chief executive of Chase Card Services for J.P. Morgan Chase & Co.; Paul Galant, chief executive of N.A. Cards for Citi; Edward L. Yingling, president and chief executive of the American Bankers Association; and Richard Struthers, president of Global Card Services for Bank of America -- met with Obama and his top economic aides at the White House. The president was accompanied by Treasury Secretary Timothy F. Geithner, top economic adviser Lawrence H. Summers, chief economist Christina Romer and senior adviser Valerie Jarrett. Obama emphasized that the power of the White House will be behind the legislation.

"The days of any time, any reason rate hikes and late fee traps have to end," Obama said after the meeting.

Highlighting principles that he wants to see included in legislation, Obama also called for plain language in credit card forms and statements, with no more confusing terms and conditions. He said credit card companies should make their contract terms easily accessibly and give consumers the information they need to go online and compare offers, and he called for increased accountability for those who engage in deceptive practices.

"In the meeting, participants discussed the important role credit cards play for consumers, small business and the broader economy," Yingling said. "The group discussed trends in credit card usage and lending that serve as leading indicators of the current and future health of the economy."

He said Obama "did raise concerns about certain issues surrounding credit cards." The credit card executives listened carefully to those concerns and agreed to work with the administration to address them," Yingling said.

In an e-mail sent late yesterday, Jarrett said Obama "believes new rules of the road for the credit card industry are needed."

The bill sent to the House floor yesterday would codify new Federal Reserve regulations aimed at curbing credit card abuses. A separate bill in the Senate, sponsored by Banking Committee Chairman Christopher J. Dodd (D-Conn.), would go even further, prohibiting companies from applying a variety of charges. The measure includes capping over-limit fees at one per billing period, allowing no interest charges on fees and no fees to make a payment. The legislation also would prevent companies from raising interest rates at any time for any reason and limit aggressive marketing by card issuers aimed at borrowers under 21.

Administration officials said Obama wants to go further than the House bill without specifically endorsing all of the provisions of Dodd's bill. The officials confirmed that the president will push for stronger rules in some areas than those proposed in the legislation but is "broadly supportive" of the bills working their way through Congress.

The message that bank executives were braced to receive from the president is that he believes the marketplace is unfairly stacked against the consumer, with credit card companies able to change the terms of their customers' agreements at any time without any penalty.

"They truly believe that there needs to be changes in the marketplace to address concerns that will be raised," Clayton said.

Obama has been calling for new regulation of credit card lending since his days on the campaign trail in 2008 and 2007. Geithner endorsed curbs on the credit card companies in remarks several weeks ago.

Flying back from Iowa aboard Air Force One yesterday, press secretary Robert Gibbs said the president's goal is to put an end to the practices that anger consumers.

"So that if somebody gets a credit card, they don't find that their rates go up exponentially on a certain day based on fine print in a contract that no one is ever going to read, or that we find out that certain fees -- you know, interest is charged, an interest rate is charged on certain fees involved in a credit card," Gibbs said.

"He's going to outline and go through some principles of what he would like to see and that he believes Congress can get done in order to protect the American people," Gibbs added.

Also today, Dodd and Sen. Charles E. Schumer (D-N.Y.) called on federal regulators to implement an emergency freeze on interest rates tied to existing balances on credit cards. The Federal Reserve's new rules would limit such rate increases, but not until July 2010.

"Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions. 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 senators wrote in a letter to Federal Reserve Chairman Ben S. Bernanke and other regulators.