Saturday, June 25th, represented a seminal day for Bank of America credit card holders. It was Penalty Rate Increase Day. From that day forward, the penalty rate for card holders who pay their bill as little as one day late could rise to 29.99% on all future purchases. This is in addition to a late fee of up to $25 for the first time and $35 if there is a second slip within six months. Talk about a day late and a whole lot of dollars short...
After the tumultuous past few years of the Great Recession when banks and credit card companies slashed and burned millions of cardholders by closing accounts, lowering credit limits, raising interest rates and fees to unconscionable levels, virtually without warning, this may feel like same stuff, different day, but not this time.
The good news, if it can be considered good news, is that Bank of America's announcement, while not welcome, was made pursuant to new, more transparent procedures mandated by the Credit Card Accountability Responsibility and Disclosure (CARD) Act.
While Bank of America cardholders might not like what they read, it wasn't done in the same flash flood fashion of yesteryear where an unexpected notice could instantly cause an economic sea change that swamped their finances and threatened to sink their credit. Now there is a 45-day notice period; the increase doesn't impact existing balances; and cardholders have the right to opt out of the relationship with some five years to pay off existing balances. That's enough time to find another credit card or to negotiate with their other credit card companies to increase credit lines on existing accounts to make up the shortfall that will be caused by terminating their relationship with Bank of America.
Greater transparency, clarity and fairness in financial procedures and disclosures represent a genuine step toward raising the level of financial literacy in our nation. It begins to level the playing field in what has been a very unbalanced adhesive relationship. Though the new rules are not the silver bullet and definitely are a work in progress, this is how you eat an elephant—one bite at a time.
Why Another Regulatory Agency?
The CARD Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act were designed to address the imbalances and excesses of the past decade, and as I've argued before, the centerpiece of Dodd-Frank is the Consumer Financial Protection Bureau.
You might be saying to yourself, "OK, so even if I buy into the CARD Act, why do we need a new regulatory agency? Isn't that more money and greater bureaucracy at a time when we need to be cutting the budget and reducing government?" That is the position of the US Chamber of Commerce, the financial services industry and the GOP.
The reality is that, historically, federal regulatory authority in the financial services area has been dispersed among so many agencies with so many conflicting jurisdictions, fragmentation, decentralization and a lack of focus—all of which fostered a laissez-faire approach to oversight and enforcement. Put simply, until recently, the U.S. didn't have a regulator whose sole job was to protect consumers from financial predators. That's ultimately why the CARD Act and Dodd-Frank were necessary—because there were so many players with varying mandates, no one was paying attention.
For some GOP pro-business members of Congress, like House Financial Services Chairman Spencer Bachus, that wasn't such a bad thing: "In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks."
Enter the CFPB
The CFPB is the brainchild of Professor Elizabeth Warren. It was created to be the principal education, advocacy and enforcement vehicle in America's war on financial illiteracy and predatory practices that contributed mightily to the economic abuses of the past.
It is funded by a percentage of the Federal Reserve Budget. It is designed to be tough, independent and cutting-edge in its approach. It was created to help consumers make sense of the intricacies of economic relationships. It is "the cop on the beat" that looks at conduct and practices in the mortgage, credit card, payday lending, debt collection and allied areas. Its mission includes review of how these businesses do business and communicate with consumers. It is not a paper tiger. Undoubtedly, its director will be a powerful figure in the consumer protection and regulatory world. Were there justice in politics, which there clearly is not (and I speak as a former politician), Elizabeth Warren should have been appointed its first director months ago. No one person has fought as doggedly and passionately for consumers as she. Brilliant, committed, tenacious and outspoken, with decades of experience, there is no stronger candidate for the position.
However, the qualities that make her the logical choice to lead the Bureau are precisely those which terrify the business community and Congressional conservatives.
Forty-Four of forty-seven Senate Republicans have stated unambiguously they neither want Professor Warren, nor will they agree to the appointment of any director without significant tinkering to the powers, structure and funding mechanism for the CFPB.
Not to be outdone, the Republican-controlled House Committee on Appropriations, in a budget-slashing frenzy, has slipped a provision into the appropriations bill for 2012, which will limit funding of the agency as a prelude to bringing it under the Congressional budget authorization process in FY 2013—which directly contradicts the legislation that created it.
It is clear no one on the GOP side was listening when Rep. Brad Miller (D-NC) said, "I've talked to a lot of people about whether they like the freedom to be cheated on credit cards, to be cheated on mortgages, to be cheated on overdraft fees, and I found that was not really a freedom they valued. They don't really value that any more than Americans 100 years ago valued the right to buy rancid beef."
They are doing the American people a disservice and continuing to damage their wounded brand.
[Related Article: In Defense of Consumer Protection]
What's at Stake
Another elephant in the room, however, is enforcement. On July 21st the CFPB officially opens for business. From that day, until the business lobby and its Congressional retainers find a way to fully defang and/or defund the Bureau, even without a director, it does have the authority to send its examiners into the more than 110 banks that have upwards of $10 billion in assets. If they discover improper conduct, the Agency can immediately file civil actions against the banks and their executives. Criminal matters will be referred to the Department of Justice.
According to the New York Times, "Even without a director, the bureau can write rules and issue orders on Day 1 about the consumer protection laws it is inheriting from the Federal Trade Commission and the Federal Reserve, among other regulators. For example, the trade commission will hand over authority to enforce certain restrictions on telemarketing, while the Fed is transferring its power to oversee mortgage disclosure rules."
For months, the CFPB has also been working assiduously on simplifying credit card and mortgage forms, as well as evaluating ways to make credit cards more decipherable to the average consumer by creating disclosures akin to unit-pricing.
However, in the absence of a director, the CFPB has questionable authority regarding the oversight of payday lenders, mortgage brokers and other types of credit extenders which represent a huge percentage of the financial predators that have been feasting on countless numbers of consumers, military personnel and their families.
The mission of the CFPB is too important to be delayed another moment by the partisan bickering and paranoia that has pervaded the debate over a director.
Perhaps the biggest elephant in the room is the failure of the Obama Administration to man-up and appoint Elizabeth Warren as Director, bringing the issue once and for all to the table and forcing the conservatives to demonstrate their continuing penchant for trampling consumer rights. Perhaps then their constituents (consumers all) will rebel against being little more than pachyderm toe-jam and send a message to Washington in 2012.
[Related Article: Consumer Protection Fight Erupts Into Allegations of Lying]
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
Adam Levin Chairman and cofounder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.