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Obama aims to crack down on credit card issuers

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President Obama Discusses Credit Card Principles Following Meeting with Credit Card Executives


President Obama met with representatives from the credit card industry this afternoon to discuss the impact of the current economic crisis on consumers. He has been a strong proponent of cleaning up the practices of the credit card industry since he was a Senator and he called for measures to strengthen consumer protection in the credit card market during the campaign.


Credit cards have been made unnecessarily complicated for consumers, often leading them to pay more than they reasonably expect. The Federal Reserve has taken a strong first step towards improving disclosures and ending unfair practices. Leaders in the House, including Chairman Frank and Representatives Maloney and Gutierrez, and in the Senate, including Chairman Dodd and Senator Levin, have drafted bills that will codify and strengthen these new regulations.


Following the meeting, the President highlighted the following principles that he would like to see as part of the final legislation:


Strong and reliable protections for consumers – protections that ban unfair rate increases and forbid abusive fees and penalties.

All the forms and statements that credit card companies send out have to have plain language that is in plain sight. No more fine print, no more confusing terms and conditions.

Requirement that all firms make their contract terms easily accessible and provide consumers with the information they need to go online and do some comparison shopping. It also means requiring firms to offer at least one simple, straightforward credit card that offers the strongest protections along with the simplest terms and prices.

Increased accountability in the system, so that we can hold those responsible who do engage in deceptive practices that hurt families and consumers. This will require beefing up monitoring and enforcement, and also penalties for any violations of the law.

Below is some background on the impact of credit cards on American families:


Prevalence of credit card debt


Credit Card Debt has increased significantly in the past decade. Credit card debt has increased by 25 percent in the past 10 years, and reached $963B in January 2009. (Federal Reserve 2009)

More than three-quarters of families have credit cards and close to half carry a balance. Seventy-eight percent of U.S. families have a credit card, and 44 percent of families carried a balance on their credit card. (Nielsen 2008, Federal Reserve 2008)

Families carry significant credit card debt. The average amount of credit card debt among families with a balance was $7,300 in 2007 (the median was $3,000). (Federal Reserve, 2008)

Delinquency rates have increased by more than a third since the end of 2006. The number of accounts more than 30 days late has increased from 3.9% in the fourth quarter of 2006, to 5.6% in the fourth quarter of 2008. (FFIEC, 2008)

Credit card fees and interest rates are extremely high


Issuers collect $15B annually in penalty fees. Penalty fees on credit cards are around $15 billion annually, an estimated 10 percent of total credit card industry revenues. (Calculation based on GAO 2006 and Federal Reserve 2009)

One-fifth of those carrying credit card debt pay an interest rate above 20 percent. Ninety-percent of issuers assessed variable rate cards and an estimated one-fifth were charged interest rates above 20 percent (GAO 2006).

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Dodd, Schumer Call on Federal Reserve to Impose Emergency Freeze on Credit Card Rates


Senators Urge Regulators to Speed Up Rule that Would Stop Companies from Hiking Rates on Existing Balances


On the same day President Obama summoned the country’s major credit card issuers to the White House to discuss reforming their practices, U.S. Senators Charles E. Schumer (D-NY) and Senate Banking Chairman Christopher Dodd (D-CT) called on federal regulators to implement an emergency freeze on interest rates tied to existing balances on credit cards.


In a letter to Federal Reserve Chairman Ben Bernanke and other regulators, Schumer and Dodd noted that the Fed has already issued a new regulatory rule that would ban the practice of retroactively raising the interest rates on existing credit-card balances. But the Senators noted that the rule is not scheduled to take effect until July 2010, giving companies more than a year to hike rates on consumers preemptively to get under the deadline. Both Senators said they have heard complaints from constituents who have seen their rates double or even triple almost overnight and without explanation.


Schumer and Dodd said the Fed should invoke its emergency powers to make the rule effective immediately.


"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.


Under Dodd's leadership, the Senate Banking Committee has approved a strong credit card bill that would incorporate and go beyond many of the Fed’s planned rule changes and implement them sooner than currently proposed by the Fed. Rep. Carolyn Maloney has sponsored a related bill on the House side, where it won approval from the House Financial Services Committee earlier this week.


A copy of Schumer and Dodd's letter appears below.




April 23, 2009




Dear Chairman Bernanke, Director Bowman, and Chairman Fryzel:




We write to you today to urge you to use your emergency authority under the “good cause” exception to the Administrative Procedures Act, to immediately implement the provision in the final rules you have previously issued concerning interest rate increases on existing balances for consumer credit cards. The rules are currently scheduled to become effective in July 2010. As you are also aware, Congress is working on legislation to strengthen these rules and provide additional protections for consumers. As Congress works to pass this legislation, and before your rules become effective, issuers continue to operate using unfair and deceptive acts and practices.






Credit card providers have been aggressively raising rates on consumers now to avoid the ramifications of this rule when it goes into effect next year. Companies have increased interest rates across the board now, to increase interest rates before the new rules go into effect. Consumers describe situations to our offices in which the interest rates on their accounts have doubled or tripled overnight, without any misconduct on their part. This kind of practice clearly violates the spirit and intention of the rules, even if the delayed implementation date has the effect of making such behavior legal.




The OTS, NCUA and Federal Reserve have all used this emergency authority numerous times since 2007 to implement rules without public notice or comment, and to make final rules effective immediately. 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. Therefore, we strongly urge you to utilize your emergency powers to put this rule into place immediately and protect consumers from these outrageous rate increases.




Thank you for your consideration of this matter. Please don’t hesitate to contact our staffs any information or questions.








Charles Schumer Chris Dodd

Edited by Luke_Wilbur
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Guest George

I was I was in the bank industry. Business and people put their money into banks and get little to no money back in interest. The bank takes their money and lends money in the form of credit cards for 18% or more.

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