OP-ED: Time to Get Tough On Credit Card Companies
by U.S. Senator Christopher J. Dodd | April 29, 2009 9:05 PM
Posted to Opinion
Tomorrow, the House of Representatives is scheduled to vote on a credit card reform bill - an important step toward cracking down on the deceptive and abusive practices that are standard operating procedure for the credit card companies.
To be sure, it’s a far cry from where we were twenty years ago, when I first began waging what was then a lonely fight. Today, we have the President on our side. Recognizing that credit card reform is essential to our economic recovery, President Obama pledged last week to get credit card reform “done in short order.”
The need is obvious. A recent survey of the country’s 12 largest credit card issuers by the Pew Charitable Trusts found that 93 percent of surveyed cards allowed the issuer to raise interest rates at any time for any reason. And the results are clear; between March 2007 and February 2008, credit card companies raised interest rates on nearly one out of every four accounts - about 70 million cardholders who were charged $10 billion in extra interest. According to CreditCard.com, the average outstanding credit card debt for households with a credit card was $10,679 at the end of 2008.
Recently, Senator Chuck Schumer and I wrote the Federal Reserve, urging them to expedite a provision limiting interest rate increases on existing balances in rules set to go into effect in July, 2010.
But with our economy hanging in the balance, layoffs mounting and consumers increasingly relying on credit cards to pay for basic necessities, the moment is right for broad reform.
I’ve introduced the Credit Card Accountability Responsibility and Disclosure Act. It prevents credit card companies from tricking consumers into paying additional interest and fees. It protects the rights of financially responsible credit card users.
And perhaps most importantly, it prevents “any-time, any reason” increases in interest rates and changes in terms.
My legislation was passed out of the Banking Committee earlier this month, and over the next several weeks we will be working with President Obama and the House to reach an agreement. Whatever the final product, it must include strong protections for consumers, including:
Robust Protections for Young People and Students. Recently, my seven year-old daughter received a credit card solicitation in the mail. Jackie and I laughed it off, but it brings up a serious point: young people are faced with an onslaught of credit card offers - often years before they turn 18 and usually as soon as they set foot onto a college campus. According to Sallie Mae, college students graduate with an average credit card debt of more than $4,100 - that’s up from $2,900 four years ago. Nearly a fifth of students have balances over $7,000. Just as we saw in the mortgage crisis with lenders and borrowers, too often, issuers offer cards to young people without verifying any ability to repay whatsoever before allowing them to take on what is all too often a lifetime of debt.
Ban Retroactive Rate Increases. One constituent of mine transferred her student loans to her credit card to take advantage of a low “fixed rate” offer only to have her interest rate on that debt increased from 5 to 24 percent. Her monthly payments increased by over $260. She had to cash in her retirement IRAs to pay off the debt - all because she paid one day late by phone. Another woman I met in Connecticut had her interest rate raised from 12 to 27 percent when she was three days late on a credit card payment for the first time in 18 years. Credit card companies must end these unfair practices.
Fair Allocation of Payments. Many cardholders hold multiple credit card balances with multiple interest rates. We need to ensure that if you pay down your balance by, say, $1,000, that amount is credited to the account with the highest interest rate first.
Tougher Penalties and Enforcement. My legislation imposes serious penalties on credit card companies for violating the terms of an agreement. That means, if your credit card company wrongly raises your rate, the company could pay as much as $5,000 per violation - or even higher if the company is found to engage in a pattern or practice of violations. My hope is that strong incentives like these will encourage companies to act more responsibly in the first place.
For me, these provisions are essential to achieving real reform.
We have a once-in-a-generation opportunity to end the abusive and predatory practices of the credit card companies. Americans do not deserve - and cannot afford - to be pushed down the economic ladder by credit card companies any longer. Now is the time to stand up to these companies and force real reforms.
Comments (11)
Posted by: ctkeith | April 29, 2009 9:47 PM
May I suggest one more reform many of my business owner freinds would appreciate?
ALL businesse that sign a contract allowing them to accept credit cards must sign an agreement to NOT OFFER DISCOUNTS FOR CASH SALES.ALL credit card sales cost the business that accepts these cards between 1 and 3% of the sale.
I believe if your reform also disallowed credit cards companies the ability to demand no cash discounts as a condition of doing business with these credit card companies both the consumer and millions of businesses would see huge benefits.
PS-If this was put into your law cash sales at gas stations would be at least 10cents a gallon less even at todays low price of $2.15 a gallon.
Posted by: Martha | April 29, 2009 10:56 PM
I'm no expert, but I'm sure this "tough-sounding" bill is full of loopholes, give-aways and outright concessions to the credit card industry that helps keep Mr. Dodd's campaign war chest bursting with cash (no credit, please!).
We'll hear all about them only after the dust has settled.
As long as Dodd continues to take bribes (oh, I mean "contributions") from the very people in the finance industry the he is supposed to be regulating, then he has no credibility in my book.
Sorry, Chris.
Posted by: Gerard Holinski | April 30, 2009 7:58 AM
People really need to be smart when it comes to debt. The best strategy, of course, is to avoid the use of credit cards altogether. Or at least pay all balanes immediately when due. The credit card companies won't be happy, but so what. Cure the disease, don't just treat symptoms!
Posted by: PrahaPartizan![[TypeKey Profile Page]](http://www.ctnewsjunkie.com/nav-commenters.gif)
| April 30, 2009 9:39 AM
Any new legislation restricting credit card abuses needs to bring back the concept of usury. We were assured by the credit card companies when the usury restrictions were lifted nearly thirty years ago that competition and the market would limit their ability to raise interest rates unimpeded. Of course, the credit card business turned into an oligopoly with a mere handful of firms and they raise rates to whatever and whenever they want, even now when the Fed is giving them money interest free. The time has come to cap the interest rates based on real interest rates over an established base. Even if the banksters were allowed to charge 12% over base, they could still charge handsomely for their lending. Since they've got the government and the courts providing their muscle for them, they should even be in better shape than your friendly local loan-shark for getting their money back. If they can't manage a business on that basis, then they just aren't very good and they don't deserve the bonuses they've been receiving. I'm tired of paying "Grade A" prices for "Gentleman's C" performance.
Posted by: Chris Healy | April 30, 2009 9:55 AM
It's great to see Chris Dodd realizes that Credit Card companies sometimes charge high rates and rope dopey college kids into thinking money is free. Now, he wants to make sure everyone can skip town on their debts - and thereby make credit even more expensive to new borrowers.
Atta boy. CH
Posted by: unionleo | April 30, 2009 11:26 AM
It's time to rein in the banks - they are and have been destroying family finances with greedy scams that have gone unchecked.
Many good working family supporting members of congress - including you -have been advocating for for changing this system. The change efforts have been beat back for years. Since timing is everything - the time is ripe, the leaders are ready and now there is an opportunity for you to move the agenda you've been trying to get going for a long time
It is critical that we all sieze the moment in the growing environment for change - get long term controls in place - focus on how we can prevent these things from happening again. Crises can destroy things - some we'll miss others we won't. Keep on pushing to find more ways to destroy bad practices now while enough people are willing to listen, learn and act accordingly.
We can turn this crisis into real opportunity and get the middle class back on track and have a fairer system in which we all prosper.
Posted by: SoooooTired | April 30, 2009 1:01 PM
I'm no expert, but I'm sure this "tough-sounding" bill is full of loopholes, give-aways and outright concessions to the credit card industry that helps keep Mr. Dodd's campaign war chest bursting with cash
You said it, you are no expert. An expert might of, you know, read the bill before they started talking about what they were sure was in it.
It's great to see Chris Dodd realizes that Credit Card companies sometimes charge high rates and rope dopey college kids into thinking money is free. Now, he wants to make sure everyone can skip town on their debts - and thereby make credit even more expensive to new borrowers.
Chris Healy, if that is even his real name, would be well served to actually read the bill as well. It doesn't let anyone walk away from any debt at all. Mr. Healy seems angry about the opposition to the bankruptcy "reform" bill... from 2004. You remember, the one that made sure that people forced into bankruptcy by catastrophic medical issues could get no relief. Chris is probably frustrated that they didn't just institute debtor prisons - and not the kind you can just walk away from on your third strike.
Posted by: iBlogWestHartford | May 1, 2009 1:56 PM
SoooooTired,
HEH!! Wake up for just one moment. I'll be brief. Then you can get back to your nap.
You ask a fair question.
One of my (least) favorite "loop-holes" in the Dodd bill is this:
We know that credit card companies making a killing by getting college students deep into debt and gorging on the interest, penalties, late fees - whatever they can dream up.
Fortunately, Senator Dodd is addressing this problem. He writes: "Whatever the final product, it must include strong protections for consumers, including: Robust Protections for Young People and Students"
And how might we protect these students and young people under 21?
Well, we could require that a parent, guardian or other responsible individual agrees to co-sign for the debt.
Great! That's in the bill!
Or, we could require that the applicant provides proof he or she can independently repay the debt.
Wow! That's in the bill too.
So we're done, right? Financial security for students. No Visa Vultures giving them credit cards that can't possibly afford to use. On to the next fundraiser?
Uh-uh, pal. Not so fast.
SOMEBODY added a third option. An escape clause. A back-door for the Vultures.
See, if the Dodd measure passes, a student with NO income whatsoever, with thousands of dollars of existing credit card debt, with NO co-signer, can STILL get as many credit cards as she wants.
You see - all she has to do is take a class. That's it. A quote - "certified financial literacy course" - unquote. It's right there in black and white - Section 301 of the "Credit Card Accountability Responsibility and Disclosure Act." (And what does it take for a class to be "certified"? Oh, that will all be worked out later . . .)
Hey, students ain't dumb. They know all about "taking classes." If there's a 4-hour on-line class through the University of Phoenix, they're all over it.
And will the "knowledge" they get from their "certified class" increase their income, so they can pay off credit cards? Will it lower the costs of their tuition and books, so they won't need to use credit cards to pay for those necessities?
Uhhmmm . . . No.
This is the loophole. The poison pill from the Masters at MasterCard
Now, tell me: "Why on earth would Senator Dodd include this loophole in his masterpiece of a bill?"
Hmmm . . . . .
Posted by: Martha | May 2, 2009 3:48 PM
Good example of loopholes in the "Credit Card SEMI-Accountability SORTA-Responsibility and QUASI-Disclosure Act."
What's even MORE interesting is:
Why no response/defense/denial/explanation for Mr. SoooooTired?
Or from some other Dodd supporter?
Is silence acknowledgement of the veracity of the charge?
Mr. Dodd?????
Not enough . . . time . . . to . . . get . . . tough????
Posted by: Stephen Urban | May 10, 2009 10:31 AM
I am tired of going to every store and being solicitated at the register to take there credit cards, we dont need this harrassment, just give us the 10% and stop making employees, kids if you would pushing this unprofound bad business practice,sure we can easly say no thanks but this gets to be harrasment,and also limits our choices to feed and cloth our families.
Posted by: Pat | June 12, 2009 9:22 AM
I know you passed the new credit card rules for next Feb. 2010, but now that that has happened, they are all raising the rates now before the law takes affect. How was this suppose to help us? There is no where to go for help.