As part of a larger push on consumer finance issues and under mounting pressure from cash-strapped Americans, President Obama called in executives from 13 credit card companies to deliver a stern message: Crack down on the kinds of practices that the Federal Reserve has called "unfair" and "deceptive."
"People are finding themselves starting off with a low rate, and the next thing that you know, their interest rate has doubled," Obama said after today's meeting. "There have to be strong and reliable protections for consumers."
Credit card companies are coming under growing fire for engaging in practices like "universal default," in which consumers who are late in payments to one creditor find their interest rates raised by another. Critics also cite "two-cycle billing," which occurs when consumers who pay the full balance of their card one month but not the next find interest being charged on both months of debt. Government officials and lawmakers complain that actions taken by credit card companies are not transparent enough or announced with enough advance warning.
The House Financial Services Committee yesterday approved a bill sponsored by Democratic Rep. Carolyn Maloney of New York to ban the most egregious practices. It would impose limits on fees, prohibit companies from charging customers for paying over the phone or the Internet, and require that companies notify cardholders of increased rates at least 45 days in advance. Some of those changes have already been approved by the Federal Reserve, which changed its regulations in December, but the bill both goes further and, lawmakers say, is necessary to codify the regulations into law.
Obama said today that he supports legislation to crack down on the practices. He also unveiled a number of principles he wants to see reflected in the bill, including that all credit card company forms and statements "have to be written in plain language and be in plain sight—no more fine print" and that each firm offer at least one "plain vanilla, easy-to-understand" card as a basic default for consumers.
During his campaign, Obama proposed a "credit card bill of rights" to clean up many of the industry's activities. At least publicly, though, the issue has—unsurprisingly—taken a back seat to other economic efforts, like bailing out banks and auto companies. Although some of the credit card companies have received more than $120 billion in bailout funds, officials are emphasizing that the practices need to be addressed whether the banks are propped up by the government or not.
The House bill would go into effect either a year after enactment or on July 1, 2010, whichever comes first, although one provision—the requirement to give 45 days' notice of changes—will be enforceable 90 days after the bill is signed. The Federal Reserve regulations take effect July 1, 2010.
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