Credit Card Reforms Pressed by Obama
Friday, April 24, 2009
President Obama met with executives from 13 of the nation's largest credit card issuers at the White House yesterday and pressed them to curb excessive fees and provide consumers with more straightforward contracts.
Obama told the executives that he supports pending legislation to stamp out unfair practices, such as raising interest rates on outstanding balances even when consumers have paid their bills on time.
"I think that there has to be strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties," Obama said after the meeting. "The days of anytime, any reason rate hikes and late fee traps have to end."
Obama said plain language should be used in complicated credit card statements. "No more fine print, no more confusing terms and conditions," he said. "We want clarity and transparency from here on out."
The meeting came as anger grows against credit card companies, whose practices have come under intense scrutiny by consumers and legislators. At the same time, the companies have been hit by fast-rising default rates, which have strapped their businesses and, the companies say, have made it harder for them to extend credit at favorable rates.
Obama has been calling for tougher regulation of credit card lending since his days in the Senate. Yesterday's meeting is part of the White House's efforts to press middle-class issues with top financial executives. Several weeks ago, he met with banking executives, telling them to rein in bonuses and other extravagances.
At yesterday's session, Obama cited letters he has received from Americans complaining about sudden changes in their credit card terms. "He often gets letters from people that discuss their credit card rate increasing overnight, their bill date changing, their being charged enormous fees, and then interest on top of those fees," White House press secretary Robert Gibbs said.
White House officials said that while the meeting was cordial, industry officials told the president that pending Federal Reserve rules go far enough to protect consumers. The president disagreed. The executives also told Obama of the challenges they face, including raising money through securitization of their loans.
"It was a meeting where the president was very frank in talking to the execs, that he had concerns about some of the practices the industry has been engaged in," said Edward L. Yingling, president and chief executive of American Bankers Association, who attended the meeting. "But at the same time . . . he recognizes the importance of the industry, and both sides indicated that they needed to work together, to work through this and move on."
Other industry officials also struck a conciliatory tone.
"We are pleased and supportive of the president's message of increasing disclosures and consumer protection as well as recognizing the importance of credit cards as an important source of funding," said Scott Talbott, senior vice president at the Financial Services Roundtable, which represents large financial institutions.
The Federal Reserve in December passed new rules that would ban such practices as raising interest rates on existing balances except under certain circumstances, assessing late fees if the borrower was not given 21 days to make a payment and applying payments over the minimum in a way that maximized interest charges.
While the changes were sweeping, consumer advocates said they fell short because the card companies are not required to comply until July 1, 2010.
Earlier this week, the House Financial Services Committee passed a Credit Cardholders' Bill of Rights that would codify the Fed's regulations. The measure is expected to reach the floor next week. The Senate is considering a stronger measure, which would prohibit companies from charging more than one over-limit fee per billing period, charge interest on fees, charge a fee to make a payment and raise interest rates at anytime for any reason. The bill would also limit aggressive marketing by card issuers to borrowers under 21.
Obama told the credit card officials that he generally backs legislative action and that his administration would work with Congress to see that it becomes law.
Asked whether there has to be a balance between protecting consumers and allowing credit companies to make money, Obama was quick to respond.
"We think that it's been out of balance," he said. "And so we think we need to create a new equilibrium where credit is flowing, those who are issuing credit are able to make a reasonable profit -- but they're doing so in a way that is responsible and consumers are not finding themselves in a bad situation that they didn't anticipate."