We've Gnawed the Bones of the Helpless Clean,
Now Lets Get Into the Marrow!

by
William Krehm

The New York Times (5/07, “Credit Card Overhauls Seem Likely” by Jane Birnbaum) reports: “Consumer advocates say regulation of the credit card industry has long been without teeth. But as card holders struggle under the weight of big balances, high interest rates and fees, their pleas to lawmakers for help may well mean that the industry will face some significant regulation by early next year.

“Regulators are saying, We missed the mortgage thing by not acting quickly enough, said Edmund Mierzwinski, federal consumer program director for the Public Interest Research Group. People are losing their homes because the banks were unfair. Now weve got the credit card industry. And people will end up in debt for the rest of their lives, and maybe we ought to do something.

“Until now, credit card companies have primarily been required to disclose their lending terms to borrowers. But consumer advocate have for years been saying that disclosure is not enough. They have been pushing the federal government to take firmer control over the industry - specifically spelling out the circumstances under which lenders can raise and calculate interest rates and impose fees.

“The proposed regulations take a big step in that direction. But they are strongly opposed by the industry, which has long beat back any regulatory constraints. Working with the Office of Thrift Supervision and the National Credit Union Administration, the Federal Reserve introduced its proposals in early May. It has asked for comments and expects to formalize proposals by the end of the year.

“The legislation most likely to succeed in both the House and the Senate sets similar rules on consumers behalf. Representative Carolyn B. Maloney, the Democrat who wrote the House bill, and Christopher J. Dodd, the Democrat of Connecticut behind the Senate measure, said they planned to bring their measures to the floor for votes before Congress adjourns in September.

“The House and Senate bills as well as the Federal Reserve require the lenders apply payments to the debt with the highest interest rate.”

That, of course, would leave less of the non-payment to come under the punitive rates. Fail to do that, a jobless card debt using his credit card to cope with an eviction due to a subprime mortgage situation, and you will have people chained in ever heavier debt for life.

“All would ban double cycle billing, in which interest is charged on some already repaid debt, and all would extend the time, currently 14 days between a statement mailing and payment due date.

“All the measures would prohibit lenders from raising interest on existing debt. The central bank proposes that except for increases caused by changes in stated variable and introductory offers, lenders may increase interest rates only if minimum payments are more than 30 days late.

“Only the Dodd bill prohibits charges for paying by mail, phone or online, and restricts marketing and offers of credit to consumers under 21.”

Credit Cards Oppose Regulation

“ The credit card industry continues to stand firm against regulation, especially law made by Congress. John G. Finneran Jr., the general counsel at Capital One Corporation, testified in House hearings in Match that it would be unwise - especially at this time - to enact broad legislation that sets payment formulas in statute, features and tools of risk management for consumer credit. Fewer balance offers could stifle job creation by entrepreneurs who use credit cards to borrow at the lowest possible cost, added Ken Clayton, senior vice-president for card policy at the American Bankers Association in Washington.

“According to Cardtrak.com, a research company in Naples, Fla., the median balance among the approximately 53 million households carrying general-use card debt from month to month is about $6,700, up from $5,900 five years ago. And with the economy slowing and unemployment rising, growing numbers of card holders are unable to keep up with their payments.

“Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said the Federal Reserve acted last fall after the House approved legislation that would have transferred some of the Feds regulatory power to other agencies.

“Randall S. Kroszner, a Federal Reserve governor, said the central bank began considering the need for additional rules to protect consumers last year after it reviewed the comments on its proposal for greater lender disclosure of credit card terms. Many of these comments were submitted by consumers who indicated in many cases, disclosure alone was not enough, Mr. Kroszner said.

“The House measure has 149 co-sponsors. Twenty of them, including two Republicans, sit on the 70-member House Financial Services Committee that must approve it before the House can vote.

“Mr. Dodd said he is hoping to get bipartisan support in the 21-member Senate Banking, Housing and Urban Affairs Committee that he heads. He said, People must do something, whether organizing online or through community coalitions, or calling their elected representatives.

“Adam J. Levitin, an associate professor of law and credit and credit specialist at Georgtown University, said the proposed rules do not go far enough.

“When the Federal Reserve or Congress tries to nip off specific abuses that the credit card industry practices, it becomes a game of Whack-a-Mole, Mr. Levitin said. As soon as they put the kibosh on one, the industry figures out another. I dont think Congress or the Fed has recognized that reality yet, or has the political will to do it.”

And thus it goes towards the next mega-credit crisis.