U.S. Tightens Screws On Credit Industry
Microsoft's Smart Glass was one of the biggest announcements at its Xbox 360 media briefing, which kicked off E3 this week. / CNET,James Martin
With the government cracking down on credit card companies' ability to increase rates and impose penalties, some wonder just how lenders will make up for the vast amounts of revenue they stand to lose.
And as credit card issuers ponder the ramifications of the proposed rule changes passed by the Senate Tuesday, they may face more bad news.
The Obama administration, trying to rein in abuses exposed by the financial crisis, is considering creation of a regulatory commission to protect consumers of financial products such as credit cards and mortgages, according to administration and industry officials.
These officials said the administration has been exploring such an approach in meetings over the past few days with executives of the financial services industry.
On Tuesday, the 90 Senators passed what's being called a credit card bill of rights, reports CBS News White House correspondent Bill Plante.
Under the proposed legislation, which is expected to be signed into law by the end of the week, lenders would have to give 45 days notice before a rate increase, extend promotional rates for at least six months, place bans on rate hikes on new cards during the first year and deny cards to anyone under 21 unless they can pay off their bills.
Proponents of the bill think it will be a boon for consumers.
"Well, first of all, this is a great day for consumers," Sen. Chris Dodd, D-Conn., told Early Show co-anchor Harry Smith. "It couldn't get much rougher on consumers, when you can raise rates from 5 percent to 24 percent and take credit limits from $32,000 down to $4,000 overnight for being three days late for the first time in 40 years, as happened to a Connecticut couple."
But that leaves credit card companies with a potential gaping hole in their revenues. Penalty fees accounted for up to 70 percent of credit card companies' revenues as recently as 2005, Moneywatch.com editor-at-large Jill Schlesinger told CBS' The Early Show Wednesday.
That could mean increases in other fees that would largely affect customers who regularly make prompt payments - called deadbeats by the credit card industry because they provide lenders with no additional revenue, Schlesinger said.
"How are you going to replace $12 billion? I'll snap up and give you an annual fee. Interest will get charged the day you start that transaction, not a few weeks later. And maybe those rewards programs get cut back. If you're a good payer, the so-called deadbeat, you might get hurt in this legislation," Schlesinger told Early Show co-anchor Maggie Rodriguez
Even with the legislation, there will be a nine-month window before the effects are seen, creating a possible loophole. Consumer groups are concerned the credit card companies will use the time to hike up interest rates and fees while they can, reports CBS News business correspondent Anthony Mason
There were also elements left out of the bill, including proposals to impose caps of 15 percent and 36 percent on annual percentage rates for credit cards and other loans. (Read more from CBS News investigative producer Laura Strickler.)
Meanwhile, the proposal for a new regulatory body could set off a turf war among federal agencies such as the Securities and Exchange Commission and the various bank regulatory agencies.
There was also a discussion of the proposal at a dinner Tuesday at the Treasury Department attended by Treasury Secretary Timothy Geithner and Lawrence Summers, director of the president's National Economic Council.
An administration official who confirmed that the dinner had taken place said no final decisions had been reached.
An industry official said the administration supported the concept that has already been introduced in legislation by several senators. This official said the administration may offer its own approach to the issue.
Geithner has said extensive changes were needed to make sure that the current financial crisis, the worst in seven decades, is never repeated.
The officials who spoke late Tuesday did so on condition that their names not be used because the administration was not ready to unveil a proposal.
Treasury issued a statement late Tuesday that called the dinner "one of a series of meetings with a wide range of relevant constituencies and experts" to seek views on regulatory reform.
"Tonight's outreach meeting was largely attended by academic experts and former government officials. Other meetings have been held with consumer and investor groups and a wide range of financial services and market participants," the Treasury statement said. "No decisions have been made but the administration is actively seeking various viewpoints as it puts together its framework."
The proposal the administration was considering would centralize the enforcement of laws that protect consumers of financial products, such as credit cards, mortgages and mutual funds. That effort currently is spread across a number of federal and state agencies, including the Federal Reserve, the SEC and the Federal Trade Commission.
Under one possible approach, some federal banking agencies might be combined and some powers over consumer products might be consolidated into a new body.
A leading proponent of the commission approach has been Harvard University professor Elizabeth Warren, who currently is serving as the head of the Congressional Oversight Panel for the government's $700 billion financial rescue effort.
Warren argued in a 2007 article that the government needed to do a better job of protecting homeowners who take out mortgages and consumers of other increasingly complex financial products.
Democrat senators introduced legislation earlier this year that would create a commission like the one proposed by Warren.
Some industry groups already have expressed opposition to the plan.
The Financial Services Roundtable, which represents some of the biggest institutions in the country, has argued that it would be a mistake to separate the regulation of financial products from the regulators who oversee the institutions selling those products.
It was unclear whether the administration will propose creating a new federal agency to house the commission or placing the commission under an existing agency.
The administration is expected to unveil its proposal in the next few weeks as it pushes ahead with a sweeping effort to overhaul the government's financial regulatory system.
The administration already has put forward some broad principles for financial regulatory overhaul, including creation of new powers to allow authorities to take over major financial institutions that represent a threat to the system.
© 2010 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report. And as credit card issuers ponder the ramifications of the proposed rule changes passed by the Senate Tuesday, they may face more bad news.
The Obama administration, trying to rein in abuses exposed by the financial crisis, is considering creation of a regulatory commission to protect consumers of financial products such as credit cards and mortgages, according to administration and industry officials.
These officials said the administration has been exploring such an approach in meetings over the past few days with executives of the financial services industry.
On Tuesday, the 90 Senators passed what's being called a credit card bill of rights, reports CBS News White House correspondent Bill Plante.
Under the proposed legislation, which is expected to be signed into law by the end of the week, lenders would have to give 45 days notice before a rate increase, extend promotional rates for at least six months, place bans on rate hikes on new cards during the first year and deny cards to anyone under 21 unless they can pay off their bills.
Proponents of the bill think it will be a boon for consumers.
"Well, first of all, this is a great day for consumers," Sen. Chris Dodd, D-Conn., told Early Show co-anchor Harry Smith. "It couldn't get much rougher on consumers, when you can raise rates from 5 percent to 24 percent and take credit limits from $32,000 down to $4,000 overnight for being three days late for the first time in 40 years, as happened to a Connecticut couple."
But that leaves credit card companies with a potential gaping hole in their revenues. Penalty fees accounted for up to 70 percent of credit card companies' revenues as recently as 2005, Moneywatch.com editor-at-large Jill Schlesinger told CBS' The Early Show Wednesday.
That could mean increases in other fees that would largely affect customers who regularly make prompt payments - called deadbeats by the credit card industry because they provide lenders with no additional revenue, Schlesinger said.
"How are you going to replace $12 billion? I'll snap up and give you an annual fee. Interest will get charged the day you start that transaction, not a few weeks later. And maybe those rewards programs get cut back. If you're a good payer, the so-called deadbeat, you might get hurt in this legislation," Schlesinger told Early Show co-anchor Maggie Rodriguez
Even with the legislation, there will be a nine-month window before the effects are seen, creating a possible loophole. Consumer groups are concerned the credit card companies will use the time to hike up interest rates and fees while they can, reports CBS News business correspondent Anthony Mason
There were also elements left out of the bill, including proposals to impose caps of 15 percent and 36 percent on annual percentage rates for credit cards and other loans. (Read more from CBS News investigative producer Laura Strickler.)
Meanwhile, the proposal for a new regulatory body could set off a turf war among federal agencies such as the Securities and Exchange Commission and the various bank regulatory agencies.
There was also a discussion of the proposal at a dinner Tuesday at the Treasury Department attended by Treasury Secretary Timothy Geithner and Lawrence Summers, director of the president's National Economic Council.
An administration official who confirmed that the dinner had taken place said no final decisions had been reached.
An industry official said the administration supported the concept that has already been introduced in legislation by several senators. This official said the administration may offer its own approach to the issue.
Geithner has said extensive changes were needed to make sure that the current financial crisis, the worst in seven decades, is never repeated.
The officials who spoke late Tuesday did so on condition that their names not be used because the administration was not ready to unveil a proposal.
Treasury issued a statement late Tuesday that called the dinner "one of a series of meetings with a wide range of relevant constituencies and experts" to seek views on regulatory reform.
"Tonight's outreach meeting was largely attended by academic experts and former government officials. Other meetings have been held with consumer and investor groups and a wide range of financial services and market participants," the Treasury statement said. "No decisions have been made but the administration is actively seeking various viewpoints as it puts together its framework."
The proposal the administration was considering would centralize the enforcement of laws that protect consumers of financial products, such as credit cards, mortgages and mutual funds. That effort currently is spread across a number of federal and state agencies, including the Federal Reserve, the SEC and the Federal Trade Commission.
Under one possible approach, some federal banking agencies might be combined and some powers over consumer products might be consolidated into a new body.
A leading proponent of the commission approach has been Harvard University professor Elizabeth Warren, who currently is serving as the head of the Congressional Oversight Panel for the government's $700 billion financial rescue effort.
Warren argued in a 2007 article that the government needed to do a better job of protecting homeowners who take out mortgages and consumers of other increasingly complex financial products.
Democrat senators introduced legislation earlier this year that would create a commission like the one proposed by Warren.
Some industry groups already have expressed opposition to the plan.
The Financial Services Roundtable, which represents some of the biggest institutions in the country, has argued that it would be a mistake to separate the regulation of financial products from the regulators who oversee the institutions selling those products.
It was unclear whether the administration will propose creating a new federal agency to house the commission or placing the commission under an existing agency.
The administration is expected to unveil its proposal in the next few weeks as it pushes ahead with a sweeping effort to overhaul the government's financial regulatory system.
The administration already has put forward some broad principles for financial regulatory overhaul, including creation of new powers to allow authorities to take over major financial institutions that represent a threat to the system.
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Did you see any of them crying for the prosecution of the c-level suits at the companies and corporations who folded and/or survived only because they gobbled up taxpayer dollars?
Nope - they gave them a free pass.
But when it comes to "the little people" - the people the Republicans DON'T care about - why....lollll...they want your blood.
That is the morality of a "rightie": Anything they do to make money is "OK"; anything you do must pass one all-important criteria before it gets their blessing: Does it make them more money?
The country is broken at the corporate level; ethical considerations have been entirely overwhelmed by the profit motive.
We either legislate our corporations into a nice, tight box where they can't harm America and our citizens, or they will cut and slash away at America as long as there is any money in it for them or until America ceases to exist - whichever comes first.
Posted by burgersandfries
For what? For being an ignorant little plick who assumes I have tattoos and a big screen television?
I have health insurance (2 kids and a wife), besides, I make sure I have enough cash on hand to pay the bills.
Yeah we do have a problem with living beyond our means in this country. However, a credit card company should not be allowed to raise the rates after the person has taken on the debt. The people who were trapped by variable rate mortgages and falling home values are an example of this. Do you agree with the practice of lending money out at a 5% rate until the person has accumulated a 10K debt and then raise the rates to 30%.
People with common sense do not take on more debt than can be paid for on a moments notice if needed. I paid of my mortgage in little over half the term it was contracted for and made sure I had enough money to pay it off in full at any time if the rates were manipulated. As I said before, responsibility.
Wait 'til your favorite credit card company decides to start charging interest from the second you charge anything to your card AND charges an annual or monthly fee for the "privilege" of using it. Then you'll know what irresponsibility is all about!
These companies have many methods to punish us for wanting to tame them.
Our ONLY method to punish the companies is the old fashioned close the charge card and cash only purchase.
Agreed... I'll simply destroy my cards. The only reason I have them is because they offer me something back. I don't need them. There is nothing I need that cannot be paid for with good old fashioned cash.
Try planning your life and saving money before you or your children have children. Forego that Tatoo or big screen TV. I certainly hope you would have the responsibility of managing your finances before you bring a life into this world. Credit cards have NEVER been a necessity only a convenience. Credit card companies provide a service, its your responsibility to use that service responsibly.
Posted by variant_530
variant_530 wins the Grand Prize!!!
Posted by credibility2 at 10:42 AM : May 20, 2009
What you fail to understand is that this is NOT just happening to so-called "deadbeats". This can happen to anyone regardless of how you conduct yourself financially. Granted, it is not done by ALL the credit card companies, but by MOST. Key Bank for one is an outstanding, honest company in my experience. The rest are all loan sharks.
"Man has the right to look down upon someone only when he is extending a hand to help him up" Gabriel Marcia Marquez