Taking a Swing At the Bullies Behind the Plastic

President Obama's meeting with the top credit card issuers reminds me of a principal calling the playground bully into his office.

We all know how that goes down. There's a lecture, stern warning, maybe a suspension, and ultimately a promise from the bully to behave.

But for those of us who have experienced the pain of a bully's physical or verbal abuse, we know that change isn't going to come out of a single talking-to.

I have no confidence that change is coming in the way credit card companies operate because you can't make a bully treat people right. The bully needs to want to change, and the only sure-fire way to achieve that is for the rest of us to band together to stop the abuse.

There's a saying in counseling that "hurt people hurt people." In this case, credit issuers are hurting. Credit card delinquencies and charge-offs are rising to levels never seen before, according to the latest Fitch Credit Card Index. Fitch expects charge-offs (uncollectible debt) to run higher in coming months and approach 10 percent by this time next year.

Already some credit card issuers are seeing close to double-digit charge-offs. For example, Capital One Financial said its charge-off rate spiked to 8.4 percent in the first quarter, up from 5.85 percent in 2008 and 3.72 percent in the first quarter of 2007. The company said it expects further increases in its U.S. credit card charge-off rate through 2009 as the economy continues to weaken.

To stem credit losses, issuers have been increasing interest rates on customers they consider risky. It doesn't seem to matter that these companies approved the cards and credit limits that may have put customers in riskier positions.

Bullies go after the weak. The credit card companies -- by jacking up interest rates -- are hurting people already struggling to pay their bills. If people are barely keeping up with payments at single-digit interest rates, taking rates to double digits pushes them to fall behind in payments or to default.

Even good customers are getting bullied. Take this question I received during a recent online discussion: "A major credit card company recently closed my account. When I called to inquire why, they said my credit score with one of the agencies had dropped so they couldn't take me anymore. I pulled up that credit report, and while my credit score did drop from the mid-700s to the low-700s, I can only assume this is because I bought a house and now have a larger amount of debt on my record. I haven't missed or been late on a payment or opened any other new cards."

Think of the fundamental dishonesty on the part of the credit card company in this case. In truth, the issuer kicked this person to the curb because the company is worried about its own financial losses. But then again, that's what bullies do. They transfer their pain to others.

We are in part at fault for the way we are treated by these companies. Despite our grousing about egregious card conditions, we still use our cards. Or we get fed up with one company's policies. We close that account only to open one with another company imposing similar -- if not the same -- objectionable rules.

After years of allowing these companies to push consumers around, Congress is finally threatening to enact legislation that should have been in place long before this recession.