Obama Pushes Stronger Credit Card Rules
President Barack Obama said Thursday his administration is determined to get a credit-card law that eliminates tricky fine print, sudden rate increases and late fees that give millions of consumers headaches.
"I trust that those in the industry who want to act responsibly will engage with us in a constructive fashion, and that we're going to get this done in short order," Mr. Obama said, delivering a pointed message to leading executives of credit-card issuing companies seated at his side.
Mr. Obama said he wants legislation that will prevent consumers from facing a sudden, surprising rise in fees. He said credit-card companies must publish their forms in plainspoken language. The president said companies must make it easier for people to do comparison shopping and said there must be greater enforcement so that violators feel the "full weight" of the law.FAQ: Credit Card Rate Hikes
But the banking industry is warning that Mr. Obama's push for legislation could backfire, restricting lenders and making less credit available to Americans during the economic crisis.
Both the House and Senate are considering a credit card "bill of rights" to limit the ability of credit-card companies to raise interest rates on existing balances and to require greater disclosure.
"These practices need to be stopped. … They cannot continue to use and do practices that are unfair to people," Rep. Carol Maloney, D-NY, told CBS News.
For cardholders like Carol Chapman, the legislation is overdue.
"I think someone should have done this a long time ago," she told CBS News correspondent Bill Plante.
Chapman said the interest on her card has gotten so outrageous - jumping from 1.9 percent to 29.99 percent - that she's "at the point now I will not pay at all."
The credit card issuers include the same big banks - Bank of America, Citicorp and JPMorgan Chase - that have gotten billions in bailout money meant to stimulate consumer lending, reports Plante.
At issue is how to protect consumers, particularly in a severe economic downturn, while not imposing the kind of rules that could make it harder for banks to offer credit or that put credit out of reach for many borrowers. Industry advocates are wary of those consequences and hopeful Mr. Obama will listen.
Kenneth Clayton, senior vice president for card policy at the Americans Bankers Association, said the concern is that new legislation may make economic matters even worse by shrinking lenders' ability, resulting in "less credit available to vast numbers of Americans" at just the wrong time.
The rising credit default rate has led some banks to increase interest rates or limit customers' credit lines. Credit card delinquency, which measures how many customers are 30 days or more late on payments, hit 5.56 percent in the fourth quarter of 2008, CBS News' Stephanie Condon. The rate has risen 60 percent since 2005, according to the Federal Reserve.
The Federal Reserve has already ordered new rules, to take effect in July 2010, that are designed to enforce a host of new consumer protections.
On Thursday, Sen. Chuck Schumer, D-N.Y., a member of the Finance Committee, and Sen. Chris Dodd, D-Conn., chairman of the Banking Committee, wrote a letter asking the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration to use their emergency powers and put next year's planned rules in place immediately.
"Congress is working on legislation to strengthen these rules and provide additional protections for consumers," the senators wrote. "As Congress works to pass this legislation, and before your rules become effective, issuers continue to operate using unfair and deceptive acts and practices."
Almost 80 percent of American households have credit cards. The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008, according to CreditCard.com, an online marketplace designed to link consumers and card issuers.
The White House says Mr. Obama is aware of the importance that credit cards hold in many families, particularly as a last option during hard times.
White House economic adviser Larry Summers said over the weekend that the administration wants to curb pitches that addict people to plastic.
"Individuals are going to have to save more. That's why savings incentives are so important," he said. "That's why we need to do things to stop the marketing of credit in ways that addicts people to it and so that our households are again saving and families are again preparing to send their kids to college."