U.S. seeks tighter rules for card firms
The Obama administration is moving to rewrite the rules of the game for credit card lenders, vowing to crack down on high interest rates and predatory practices it says contributed to the economic crisis.
The drive, which comes as Congress takes up competing plans to impose greater regulation and oversight on card companies, faces stiff resistance from the industry. Companies warn that proposed bills could tighten credit and damp the increased consumer spending they say is necessary for economic recovery.
On Thursday, President Obama and his chief economic advisor, Lawrence H. Summers, will meet at the White House with executives from leading credit card issuers, such as American Express Co., Bank of America Corp., Visa Inc., Capital One Financial Corp. and MasterCard Inc.
Many of those lenders have raised interest rates substantially as the recession has deepened, and defaults and delinquencies have shot up.
Summers said Sunday that the president was focusing on such credit card abuses as those “having to do with the way people have been deceived into paying extraordinarily high interest rates that they wouldn’t have paid if they knew what they were getting themselves into.”
On Monday, White House spokesman Robert Gibbs said there were several goals for the Thursday meeting.
“There are meaningful uses for credit, obviously, in this economy,” Gibbs said. “What we want to do is make sure that people have access to credit, but you can also do this in a way that’s transparent and fair.”
Also this week, members of the House Financial Services Committee will consider a bill by Rep. Carolyn B. Maloney (D-N.Y.) referred to as the Credit Cardholders’ Bill of Rights. The measure takes its name from Obama’s pledge in the presidential campaign to provide more protection for consumers from arbitrary interest rate hikes and late fees.
One thrust of the Maloney bill, which also is backed by Financial Services Committee Chairman Barney Frank (D-Mass.), would call for clearer labels on the financial products, similar to those used for food. The White House wants a system that rates credit card offers for consumers, Gibbs said.
The Maloney bill is similar to rules the Federal Reserve will put into effect in 2010.
A version of the bill passed the House last year with significant Republican support. Maloney said Monday that she hoped for quick congressional action on the measure.
That may give it a stronger chance of survival than the competing proposal offered by Sen. Christopher J. Dodd (D-Conn.), which provides for more extensive federal oversight and has drawn sharper opposition from the industry.
“I have high hopes we can pass the House again, work out differences with the Senate’s version and get this to the president’s desk before summer,” she said.
The Dodd bill dictates when lenders could increase interest rates and would prevent rate hikes when a cardholder has stayed current on payments even if the holder’s overall credit score has declined.
Lobbyists such as Scott Talbott of the Financial Services Roundtable, an industry trade group, warn that a draconian approach will restrict the flow of credit to consumers and inhibit economic recovery.
“Some people will be denied credit, and everyone else will be paying more,” Talbott said. “Our economy is driven by consumer purchases. Credit cards are used to make a lot of those purchases.”
In a letter last month, Floyd Stoner, a lobbyist for the American Bankers Assn., said Dodd’s bill “would exacerbate the problems facing the U.S. economy by imposing serious restraints on card lenders’ ability to serve consumers and small businesses.”
Dodd has taken a strong stand against credit card issuers at a time when he has shown political vulnerability for his perceived ties to the financial sector, particularly insurance giant American International Group Inc.
Polls show Dodd, who is up for reelection next year, trailing his Republican opponent, former U.S. Rep. Rob Simmons.