First it was mortgage lenders, banks, and automakers. Now, the White House is taking on the credit card industry, stepping in where previous U.S. administrations have long feared (or been unwilling) to tread.
In April of 2009, credit card execs were invited to the White House to the need to reign in much criticized credit card lending practices. With the meeting, the White House brings the growing problem of credit card debt to the center stage of national awareness.
With execs from MasterCard, Visa, Chase, Citi Group, Discover, Capital One, and Bank of America, the meeting read like a Who’s Who of Credit Card Land. In the meeting, Obama urged credit card companies to work together with lawmakers to curb abusive credit card practices. He emphasized the need to move towards a business model, which, as he put it, is “not dependent on people getting over-extended or finding themselves in over their heads.”
The White House meeting comes at a time when national credit card debt is closing in on $1 trillion, and the economic crisis is making it difficult for an increasing number of U.S. households to keep up with their credit card debt. Lawmakers want to shut down borderline usury practices like steep interest rate increases and credit line cuts, which have even been applied to consumers who always pay on time. Adding insult to injury, credit card companies have lately become more aggressive in these credit card practices, even as the card issuing banks are being shored up by billions of dollars in taxpayer bailout money.
In a catch-22 stalemate, credit card companies argue that increasing default rates and charge-offs are forcing them to take steps to increase their income from credit cards to offset mounting losses. Lawmakers and consumer advocates, on the other hand, point out that raising interest rates and minimum payments create hardship even for card holders in good standing, only increasing the risk that millions more will default on their credit card payments.
So exactly how is the Obama administration trying to regulate the credit card industry? After the White House meeting, President Obama laid out his principles for reforming the industry by requiring lower fees, simpler terms, and more effective oversight and enforcement of laws governing the credit card industry. In particular, he called for stronger consumer protections to put an end to the “any-time, any-reason rate hikes”and “late-fee traps.”
Despite popular support, President Obama may face an uphill battle in delivering on his promise to crack down on credit card abuses. Lobbyists for the credit card industry are already hard at work trying to strong-arm lawmakers into limiting the proposed restrictions on credit card practices.
Still, the star wattage of a popular president may lend momentum to existing bills aiming to curb controversial lending practices. Year 2009, if nothing else, will be the Year of Proposed Credit Card Reform, as the House moves to debate bills to curb some of the more controversial credit card practices. And that, at least, is a step in the right direction.
