Reversing the charges


The nation’s consumer-in-chief made himself pointedly clear Thursday to an industry long accustomed to burying the facts within reams of fine print.

“The days of any-time, any-reason rate hikes and late-fee traps have to end,” President Obama declared after summoning senior credit card industry execs to the White House for an unusual scolding of one of the nation’s most powerful and lucrative businesses.

But for all his populist sentiment, Obama has his work cut out for him.


The industry leaders, representing the likes of Bank of America Corp., JPMorgan Chase & Co. and Citibank, exited the meeting without saying a word to waiting reporters.

But their silence spoke volumes. On the line for them is an estimated $3 trillion in annual credit and debit card transactions, plus billions more in late fees and other charges.

Card issuers won’t budge on any of this without a fight. Nor will they willingly soften practices that have proved to be surefire money-spinners in even the most recessionary times.

The big question is whether they’ve finally gone too far -- and whether Obama can channel consumers’ pain into meaningful reform.

There has been no shortage of recent examples of card companies turning the screws on customers.

Capital One told many cardholders that their interest rate was nearly doubling because of “changes in the credit environment” -- changes, that is, for Cap One, which lost $1.42 billion in the last three months of 2008 and pocketed $3.55 billion in bailout cash from taxpayers.

Citi, which has received $45 billion in bailout cash, told cardholders that their rate could jump to almost 30% if they missed a single payment.

Chase, which has received $25 billion from taxpayers, said it would start charging a $10 monthly fee to those who have carried large balances for more than a couple of years. It subsequently backed off from this move amid an outcry from customers.

On Wednesday, the House Financial Services Committee passed legislation creating a “credit cardholders’ bill of rights” that would accelerate many of the Fed’s rule changes.

Among other things, the legislation would prevent card issuers from raising rates whenever they please and imposing finance charges on people who have already paid their bills.

It would also require more transparency on the part of card companies so that potential customers would know upfront all the terms and conditions that come with their shiny plastic.

A floor vote on the bill is expected next week. Similar legislation is working its way through the Senate.

This won’t be good enough for many people. It wouldn’t impose a cap on interest rates, for example, or require card issuers to inform customers about how long it would take to pay off their balance if they make only minimum payments.

But the legislation in both the House and Senate would impose more restrictions than rules coming down the pike from the Federal Reserve. And it would happen a lot sooner than the Fed rules, which won’t take effect until July 2010.

Any congressional action would also carry the full force of law, which the Fed’s policy revisions would not.

Not surprisingly, the card industry says it supports the Fed rules but is against what lawmakers are cooking up.

The message from Washington is that enough’s enough. As Obama said, there’s nothing wrong with the card industry making a reasonable profit, but it must be “in a way that is responsible.”

The stakes couldn’t be higher. According to the Nilson Report, a credit card industry publication, the average household with plastic now carries more than $10,000 in debt.

“We need more accountability in the system,” Obama said. “And that means more effective oversight and more effective enforcement.”

He said he wants “strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties.

“No more fine print, no more confusing terms and conditions.”

Is this asking for too much? Hardly.

But the industry indicated Thursday that it wouldn’t willingly bow to even this much regulation.

It didn’t say this straight out, of course. You had to read the fine print.


David Lazarus’ column runs Wednesdays and Sundays, and occasionally in between. Send your tips or feedback to david.lazarus@