Washington Sets Sights on Credit Card Reformby Tim Manni
President Obama is scheduled to meet with the top credit card officials from 14 major banks at the White House on Thursday. In what the Washington Post referred to as a high-profile meeting, the president reportedly will strongly urge the credit card executives to take their own action against “lending abuses or face the wrath of angry consumers and a determined Congress…”
According to President Obama’s economic advisers, the president will dedicate significant time and effort to investigating the alleged abusive practices:
Banks have come under increasing pressure over raising their credit-card rates in recent weeks. Consumer groups are particularly critical of those that raised rates on some existing card holders even as the banks received federal bailout funds. Banks have said credit-market conditions and changes in borrowers’ credit scores necessitated the increases.
Last December the Federal Reserve issued new credit card rules set to take effect in July 2010. The president’s meeting comes at a time when lawmakers are working to pass additional legislation designed to reverse the criticized 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.
White House aides haven’t released Thursday’s agenda and were unclear about the level the president would support the latest bills working their way through Capitol Hill. What is clear is that credit card reform has been on the president’s agenda since the campaign trail, and at the least, the Fed’s new rules could take effect sooner than July of next year.
Amid the demands by lawmakers and consumer groups for reform, credit card issuers feel the Fed’s restrictions will harm the credit markets instead of improving them:
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.
If the president takes the strong-armed approach with the credit card executives as many expect, yet the banks fail to comply, proponents of nationalization could argue that a Federal takeover is in credit card holders’ best interests.