The Fed rolls over on credit cards
AP Photo/Mark Lennihan
We now know — thanks to, among other things, the revelations of whistle-blowers whose warnings went unheeded — that the explosion in home mortgage defaults and the ongoing credit crisis might have been avoided if the Federal Reserve had been mildly attentive to companies that abused their regulatory freedom and to the interests of ordinary consumers and investors.
When everything fell apart, former Fed Chairman Alan Greenspan proclaimed his “shocked disbelief” at the lending institutions’ suicidal greed.
Yet regulators seem to have learned little from the experience. Mr. Greenspan’s successor at the Fed, Ben Bernanke, linked arms with Treasury Secretary Henry Paulson to prop up failing financial firms quickly, but they have been notably slow to address the concerns of strapped individual mortgage holders or to focus on reforms to rein in consumer abuses.
Last month, the topic was credit cards, another area of consumer finance in which companies create a market — and then exploit it to their financial advantage the confusion of ordinary Americans. Indeed, Business Week has pointed to credit cards debt as the likely location of “the next meltdown” as more and more customers fall further and further behind in repaying the nearly $1 trillion they owe.
Credit card operations — in some instances, divisions of the same financial institutions needing multi-billion-dollar federal bailouts — have burned consumers and businesses with practices similar to those of their counterparts in the mortgage lending industry. Both enticed borrowers with endless solicitations. Both extended credit with little consideration of the ability to repay. And like the mortgage debt that has become so toxic that it has frozen the credit markets, much of the credit debt has been bundled into securities and resold to investors in packages for which it may prove impossible to assign a marketable value.
What the Fed did in December, however, was issue new rules that attempt to restore some balance and fairness to the credit card business at the user level, where credit card companies have used a wide variety of pretexts to extract extra payments from consumers.
One tactic relies on fine print in some credit card agreements allowing card companies to jack up interest rates on an account balance, even when the customer has never made a late payment and has kept her account current. That fine print includes “trigger” language permitting the imposition of higher rates if a consumer goes over the credit limit on a different credit card account issued by an entirely different company.
Credit card companies also can get more money out of consumers by the way they apportion payments on an account that has balances for both credit purchases and cash advances. Invariably, the companies apply payments so that they generate the highest possible fees and interest charges.
In announcing its new rules, the Fed said that consumers are being cheated. Card companies now will be required to allocate fairly payments on accounts and will be allowed to raise interest rates on existing balances only in limited circumstances. These rules, the Fed declared, “represent a significant step forward in consumer protection . . . ensuring fairness and making credit terms easier to understand.”
The rules, which were more than 18 months in the making, will be an improvement, but not for another 18 months. The Fed delayed implementation of the new rules after the credit card industry complained about the administrative problems the new rules create.
Consumers must hope that the incoming regulators designated by the Obama transition team will be more attuned to the problems of ordinary Americans than to the problems of the credit card industry.
I think one thing that should be done is that federal legislation should be introduced to force a name change for these cards. Why do we call them credit cards? They are no such thing. What is called a `debit card’ now is actually a `credit card.’ You have to have `credits’ in the bank — figurative money — to use one. From my reading, the first known reference to credit cards was in the novel “Looking Backward: 2000-1887,” by Edward Bellamy. In this novel, credit cards were employed only in this specific manner: to withdraw `credits’ from a bank. It sounds ridiculous that a name change for these cards might change some people’s behavior, but semantics is an emotional business, and emotions are what drives most people’s behavior. So let’s get rid of the misnomer `credit card’ and call them what they really are: `debt cards’ or something similar. Do we have any federal representatives who might be up to the challenge of introducing such a bill in the next session?
“We now know — thanks to, among other things, the revelations of whistle-blowers whose warnings went unheeded —”
It is very important now to advocate for current federal law enforcement & national security whistleblowers. These whistleblowers would like to come back and serve and/or be made somewhat whole again, some of them have been terminated, and some are still serving and subject to constant subtle reprisal.
Given recent “Pay to Play” political corruption indictments in Illinois, the Bernard Madoff Ponzi scheme scandal in which whistleblower complaints went ignored by the Securities & Exchange Commission, the billions of dollars of rescue funds being dispersed with uncertain accountability, and the ever growing threat of terrorism — the new incoming administration can send a loud message early that it will not tolerate whistleblower retaliation, not against future whistleblowers nor against CURRENT whistleblowers.
EJ, I’m all for truth in lending and truth in the media. How about calling Obama our first biracial President instead of first black President. Like your suggestion, my suggestion won’t be heeded either.
I would say a much better step to make is to do a better job in our schools teaching real world lessons. One such lesson would be to teach our children to read all the fine print before they put their names on any type of document. This would include loan papers and credit card applications. In addition, when math is taught, teach our kids what real world applications there are regarding interest rates and how they can affect their lives.
Credit card companies have fed on the ignorance of the consumer..and it has worked. My dad taught me that you don’t get something for nothing..a lesson, I think, that more people should be taught.
When I was in high school, I worked at a retail store. The store offered two kinds of credit, a revolving charge and a more restrictive “easy payment” plan. This large chain was very circumspect about issuing credit. I remember taking a lot of applications for customers, however, many were turned down for the revolving card. You really had to have a good income and good credit to get a “charge card”. The easy payment plan required a phone call to the credit office every time you made a purchase. It was a good way to make sure people didn’t get in over their heads. Today, I get dozens of offers a week. I use only AMEX and one VISA card (only for those times when a store doesn’t take AMEX). Anyone who pays 18% interest is no smarter than someone borrowing money from a thug on a street corner. Credit should be used as a convienience not a slalary extension. We used to have usuary laws. It would be better in the long run to reinstate these laws and exclude many people from getting credit they can’t afford, rather than the more recent trend to make credit available to everyone, but at rates that are unsustainable.
You were warned this administration, including the Republican Federal Researve and the Republican SEC, would steal your pensions, your homes, and your bank accounts…..Welcome to unregulated “compassionate conservatism”.
I agree w/ Logicprevails…We should teach our children to be more careful about the legal contracts they enter into. More than that, I think we should all be more responsible about the ideas we give our kids about money and credit. “Money doesn’t grow on trees” shouldn’t be the whole of our kids education at home regarding finances.
That said, consumer ignorance may not be a defense, but it certainly doesn’t excuse out and out deception and theft. Credit card companies need to be held responsible for their actions as well. They may be legal (sometimes just barely), but rarely are they ethical.
I wish we had never gotten any credit cards, at our most we had 4, I finally got one paid off, and I am working on the other three. Did it get me what I wanted maybe needed when I did, sure, but the price for it has been awful.
Garrison, you may need to look up Barney Frank and Christopher Dodd and their rolls throughout the banking crisis. My suggestion would be to see how much money the received from Fannie Mae and Freddie Mac. I would also suggest you check the reports of forged signatures of all the people who signed the dotted line for ARMs they could not afford.
In addition, with a Democratic-controlled Congress for two years, I believe they should shoulder a significant amount of blame.
Garrison, to be clear..there were no reports of forged signatures. Idiots signed their own signatures to loans they could not afford and now want a bailout.
Logic… I agree. I’ve been arguing for a long time that Obama isn’t black; he’s mulatto, and there’s nothing derogatory about the term. He’s as much white as he is black, for all practical purposes. And if you want to get beyond practicalities, then I have black forebears too, either recently (within the last 150 years or so) or going all the way back to Africa, the cradle of man. Despite what people believe and have been saying, the United States still has yet to elect its first black president. But, then, most people believed the new millenium began with the year 2000 also.
Getting back to so-called `credit cards,’ though… I have a family member who works for Wal-Mart. She has actually claimed that there are people who have come into the store with a recently-issued credit card, the first they’ve ever received, and they will buy items without understanding they have to eventually pay off the charges. Of course I immediately dismissed the suggestion that someone could be so dense. She might as well have told me that these same people believed the moon to be bigger than the Earth, or that they believed they could survive as `breatharians’ — by not eating, but just breathing air. But she claims it to be true. Now, what’s going on there? If this is true, the credit card companies and banks are preying on people who can’t understand the legal arrangement they’ve entered into. So should they be protected? We force people to wear seat belts while driving. We outlaw dangerous drugs, like methamphetamine. But we hand over a loaded gun to someone in the form of a credit card who doesn’t know any better. So, my question is, when will the people of this country stand up and say, `This is enough!’ These types of predatory shams have gone on for decades in this country. The latest and most notorious manifestation of this is the sub-prime mortgage mess, coupled with the Wall Street bailout. Now we have the U.S. automobile manufacturers `borrowing’ money. Give me a break. That money won’t be paid back. It will be put on the taxpayers’ tab, like it always is. It’s just another guise, with a different face. The automobile manufacturers just realized that the public and press wasn’t going to let itself be hoodwinked like they were with the Chrysler Corporation bailout in 1978. A lot of the money involved there wound up in the wrong pockets. The one thing all these things have in common is a transfer of wealth from the larger population to a relatively miniscule part of the population. Just ignore the details; that’s how the plutocracy and the lawyers (including those on Capitol Hill) confuse the average person. Pay attention to the overall picture, which is always the transfer of wealth. Or, as the source Deep Throat said in `All the President’s Men’: `Follow the money.’
Logicprevail,
RE: Your suggestion that America should refer to Obama as the U.S. first Bi-Racial President.
The reason that Obama and ALL other bi-racial children of any Black heritage is referred to as Black is because of the racially bias hearts of human beings.
Notice when a White female gives birth to a child that was produced due to a partner of Black heritage or in a situation where a White male has fathered a child due to impregnating a woman of Black heritage, White people almost always say, “he/she has a Black child and Blacks almost always say, “he/she has a bi-racial child?
There are racially bias Blacks who would out of prejudices call the child White, but it is extremely unusual.
The reason why such individuals of this type mixed heritage is considered Black is because this is how White Americans view them and treat them. In fact, it was the law in America for until recently. Until recently there was not even a box for other on documents concerning race. Even today there is no box for bi-racial individuals who has one White parent and one Black parent.
My suggestion is let’s just treat people as human beings regardless of their appearance or heritage, it truly shouldn’t matter.
A CENTRIST stated long ago that when she looks at Obama, the only thing that she could see was a Black man.
Frankly, it doesn’t appear that Obama cares what anyone sees him as, his race or character because he has worked and overcome all of that and, truly knows who he is according to who God states that he and everyone is who is in Christ. So you see, when one really believes that they are who God says that they are according to what we Christians believe according to what has been revealed to us in scripture, it truly doesn’t matter to us what anyone else say or think that we are.
My hope is that every human being comes into a state of such an existence and belief because that alone would solve most of societies ills. It appears that even most that I personally know who proclaim the Christian faith has not come to such maturity in Christ. I not long ago mistakenly thought that Obama was not a mature Christian, how wrong I was.
Lastly, do you really think that Obama is this country’s first “Bi-Racial” President? (Lol). How realistically naive you are.
Logic prefails….Reagonomincs got us here. For the last 30 years you couldn’t say regulation and Republican in the same sentence. Now, the economic crisis is suddenly caused by Barney Frank and Chris Dodd for not doing enough to regulate Fannie and Freddie.
Remember the “depression era laws” the Republican congress tossed in 1999?
Once Republicans gained control of the White House after the 2000 election, Bush and the Republican congress played strip-mine with our economy (you were warned). The Republicans overhauled this nation’s financial system, repealing laws that restricted the banking, securities, and insurance companies from expanding into one another’s businesses.
Blaming Frank and Dodd for our current economic crisis is like blaming the deck attendants on the Titanic….This ship belongs to Bush and Company.
Logicprevails
Don’t waste you time. Been there, seen that. According to Garrison anything wrong in this world is the GOP’s fault. If a meteor fell from the sky he would have 5 reasons why it was the Republican’s fault.
`A partner of black heritage?’ Nice designation; not unwieldy at all. And it’s so much quicker than writing `black.’ Come on now. What’s wrong with `black’ and ‘white’? Really.
EJ Rotert,
Re: Using the term Black heritage and not just Black.
The term was used because when some hear Black, they think Black Americans. There are many different types of Black people.
Black Americans
Black Africans
Black Hispanics
Black Cubans
Black etc.
Even stating Black of African heritage doesn’t seem quite fitting due to the fact that there are now a great many White Africans.
It has become so easy and transparent to see and understand why race has never been important after since Christ. There were never ever anything other than two races according to God, Jew and Gentile.
The evil in man has caused such to be forgotten. Treat your child or any child you bring up as he/she is inferior to any of your other children or unfairly and continuously let them understand that they are not as valuable to you as your other children and see what kind of human being you shape. Well, this is exactly what American society has done to a certain population of its own people. Now we must remember, there will always be a few exceptions, those who can and will succeed and have a healthy self esteem in spite of circumstances, but the mass number will not because they will believe the lie you have created within their psyche. It is quite impossible to overcome such brain washing apart from believing all of God’s truths.