State Consumer Agency Gets Caught in the Middle of a Credit Card War

Last month, when State Consumer Affairs Director Jim Conran found himself in the middle of a nasty rift between two of the nation’s largest credit card companies, he canceled the agency’s plan to host a workshop in Los Angeles that was sponsored by one of them, American Express.

Just two months earlier, the Consumers Affairs Department hosted similar events--paid for by American Express--in San Diego and San Francisco that were aimed at educating consumers about the problems people face who are loaded up with credit card debt.

But after Visa U.S.A. complained that the workshops were self-serving commercial events promoting its rival, Conran canceled the state’s participation. The Los Angeles show went ahead on Sept. 21 without the involvement of the state’s consumer watchdog agency.

The incident raises several ethical and policy questions.

It shows to what lengths private industry will go to in using public officials to make their competitive case. It also demonstrates how difficult it can be for public officials to use their position as a bully pulpit for an issue that grates special industry groups.

But more than anything else, it demonstrates how far the credit card issuers are willing to go in shoring up their positions in the highly charged debate on credit card loan rates.

When Conran spoke at the San Francisco forum on July 7, Gov. Pete Wilson’s consumer advocate was on a roll. Just weeks before, he had announced the completion of an undercover investigation into Sears, Roebuck & Co’s. auto repair unit, and he seemed to be seizing another big consumer issue by bashing the problem of high credit card debt at the American Express-sponsored workshop in San Francisco.

The language in a press release put out by the consumer agency on the day of the San Francisco workshop was that of a consumer crusader railing against “mysterious and costly billing practices to boost (interest) rates” and against “hidden fees and other charges.”

While the release was written on the department’s official stationery, it was written in part and released by the San Francisco public relations firm of Barnes Clarke Inc., which was working for American Express.

The relationship between American Express and the Consumer Affairs Department--one that Conran now regrets--didn’t go unnoticed by some of the state’s largest and most influential banking interests that compete with American Express. Executives at San Mateo-based Visa were incensed that a Wilson appointee was using an American Express-sponsored workshop to bemoan creditcard debt.

The same day that Conran spoke at the San Francisco forum, Visa’s president and chief executive, H. Robert Heller, faxed a two-page letter to Wilson condemning Conran for being “used by a commercial entity, American Express, for their own competitive gain.” The letter went on to read: “I find it inconceivable that the state of California offers a platform and the time and expenses ‘of an employee’ to an out-of-state company that basically compromises your neutrality.”

Conran honored his commitment to host a similar forum the next day in San Diego, but he canceled the agency’s participation at the third event in Los Angeles.

The workshops were dubbed “CreditAbility: It’s in Your Interest” and included a panel discussion by consumer activists from such groups as Bankcard Holders of America, Consumer Action and the Consumer Credit Counseling Service. There were no commercial pitches for American Express, and the firm did not sit on any of the panels, which covered policy and personal finance issues related to credit card debt.

However, the New York-based firm came up with the idea for the workshops, did most of the organizing, arranged for most of the speakers and paid for the costs of the event.

While the Visa pressure coincided with the decision to cancel further participation by the state in the American Express forums, Conran said he wasn’t swayed by Visa’s concerns.

“There was a lot of good information, but as I watched the session (in San Francisco) unfold I realized it was one-sided, leaning to the interests of American Express,” which charges no interest on its most popular credit card. (American Express requires most cardholders to pay their account in full each month, or face revocation of their card.)

When asked why he hadn’t foreseen such an outcome when American Express first approached him with the idea of holding a workshop, Conran explained that “I was a little naive and didn’t understand that the competitive battle between the credit card companies is full of hardened warriors who are fighting it out for market share.”

Before coming to his government post, Conran was an executive with Pacific Bell, where, he said, “there was a sense of cooperation even with our competitors, such as AT&T;, because they were also our best customers.”

Visa has been aggressive in trying to undermine the consumer education forums here and elsewhere, but there’s an “element of deception” in American Express’ role, said Edwin M. Epstein, a professor of business and public policy at the Haas School of Business at UC Berkeley.

He questioned the propriety of American Express going to a state agency and in effect getting them to be an “upfront spokesman for their competitive position.” Epstein noted that their “behind-the-scenes role was more than just a public service.”

American Express spokeswoman Gail Wasserman said that the company’s role as a sponsor was disclosed and that the firm would like to see consumers not be strapped with so much credit card debt. “If the public spends less on interest charges the economy benefits, and we would capture a piece of that spending that doesn’t go to pay off the interest,” she said.

Consumer activist Judith Bell worries that the controversy will curb Conran’s appetite for raising the credit card issue in the future.

“Visa is trying to prevent the debate and American Express is trying to shape how we talk about it,” said Bell, who serves as western regional director for Consumers Union in San Francisco. “Let’s hope that Conran continues to send the consumer-protection message, independent of what the special interests want.”