Card Issuers Brace for Stern Warning
Obama to Press Executives to Adopt New Rules or Face Action by Congress
Tuesday, April 21, 2009
President Obama will meet directly with credit card executives this week and plans to tell them to support strict measures that curb lending abuses or face the wrath of angry consumers and a determined Congress, according to banking industry officials.
The heads of the credit card divisions at 14 major banks are set to meet with the president and his top economic officials at the White House on Thursday, administration aides confirmed yesterday. They are bracing for a warning that the president will join the chorus of condemnation if they resist efforts to protect their credit card customers from unfair practices.
The high-profile meeting comes as members of Congress launch new efforts to crack down on credit card companies for such practices as arbitrarily raising interest rates on existing balances, charging late fees when enough time was not given between the billing and due dates, and charging interest on debt that was paid on time.
Lawmakers in the House plan to begin work tomorrow on a bill that would codify new Federal Reserve regulations aimed at curbing those practices. A separate bill in the Senate, sponsored by Sen. 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.
Industry sources said the president will tell the executives on Thursday that he wants to go further than the House bill without specifically endorsing all of the provisions of Dodd's bill. Administration 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.
Obama has been calling for new regulation of credit card lending since the campaign trail. Treasury Secretary Timothy F. Geithner endorsed curbs on the credit card companies in remarks several weeks ago.
White House aides declined to discuss the specific agenda for Thursday's meeting. A senior White House official described it as an "outreach meeting" and said "any assumption that we would invite representatives in to simply stomp our feet and lecture about what they must do or else is simply inaccurate."
Press secretary Robert Gibbs said yesterday that administration officials will make clear to the executives that Obama would like them to take action voluntarily but that he supports legislation to force restrictions on their lending practices if they refuse.
"The administration and, I think, the public in general would be happy if some of the practices that they and others find offensive are ended -- would be a good step in the right direction. That I don't doubt," Gibbs told reporters.
He added that the White House will not be shy about "pursuing a course through Congress that would provide fairness and transparency to this process."
White House officials are hoping to avoid a repeat of the situation that followed disclosure of the multimillion-dollar bonuses at insurance giant American International Group, when a public outcry led to congressional action that Obama felt went too far. In that case, Obama initially expressed his outrage about the bonuses, but later was forced to ratchet back his rhetoric to keep lawmakers from taking actions that might threaten the government's efforts to bail out the banks.
Gibbs made clear yesterday that Obama shares the public's frustration -- and even anger -- about credit cards. Asked whether the president is angry at the practices of credit card companies that have received government lifelines, Gibbs said the emotions are directed more broadly.
"Well, I don't think the anger just is for bailed-out companies," he said. "I mean, there are companies that aren't getting money from the federal government that are involved in practices where people see their credit card rate skyrocket unbeknownst to them or contained in paragraph 14 of some very small writing at the very end of a credit card contract."
Representatives of some credit card companies have been tight-lipped about what they expect at the meeting.
"We hope there to be a useful dialogue about the state of the economy, the ability of lenders to make loans in this challenging environment, and the potential negative impact that further policy initiatives may have on the provision of credit to consumers and small businesses," said Kenneth J. Clayton, senior vice president and general counsel of the American Bankers Association Card Policy Council.
Card issuers argue that the restrictions imposed by the Fed already will reduce the availability of credit, particularly to marginal customers, and will force them to hike interest rates. They say additional limits will only heighten both trends at a time when the government is trying to increase lending.
"We're decreasing the availability and increasing cost when we want to be moving in the opposite direction," said Scott Talbott of the Financial Services Roundtable.
But members of Congress hailed the White House's involvement.
"I welcome President Obama's support for our efforts to crack down on abusive and predatory credit card practices," Dodd said. "We will only fully recover from this economic crisis when we put an end to the abusive practices that continue to drive so many Americans deeper and deeper into debt."
Consumer advocates said the White House's support could add momentum to congressional efforts to crack down on the industry.
"Many families who have been hit by unjustified and financially destabilizing credit card interest rate increases recently are asking why their taxes are supporting these practices," said Travis Plunkett, legislative director of the Consumer Federation of America. "The White House could be decisive in prodding Congress to enact a proposal that curbs a wider array of abusive practices than the Federal Reserve rule and takes effect more quickly."
Staff writer Binyamin Appelbaum contributed to this report.