April 23, 2009 -- Surrounded by some of the country's top credit card company executives, President Obama today called for an end to "unfair rate increases," "abusive fees" and "confusing terms and conditions" facing American consumers.
"I think there has to be strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties," Obama said. "The days of anytime, any-reason rate hikes and late fee traps have to end."
Top White House brass were also in attendance, including economic adviser Larry Summers, who fell asleep during Obama's remarks, according to a White House press pool report.
The president called the meeting "constructive."
"We are confident we can arrive at something that is common sensical, something that allows the industry to continue to provide loans and to run a stable business model that's not dependent on bubbles, that's not dependent on people getting overextended or finding themselves getting in over their heads," he said. "I trust that those in the industry who want to act responsibily will engage with us in a constructive fashion and that we're going to be able to get this done in short order."
In addition to limits on rate increases and late-term penalties, the president called for companies to disclose the terms and conditions of credit cards "in plain language" and "in plain sight."
"No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out," he said.
He also proposed that each card issuer might issue "a plain vanilla, easy-to-understand" credit card "that the average user can feel comfortable with."
There should also be more accountability for card issuers, he said. Those who break the law, Obama said, "will feel the full weight of the law."
Obama's proposals may come as welcome news to people like Trish McComas and Daniel Doucette.
McComas, 69, a retired widow in Indianopolis, and Doucette, 54, an engineer in suburban Cincinnati, both have recently seen their credit card interest rates spike above 20 percent -- 29.4 percent for McComas and 23.9 percent for Doucette -- even though both say they're always on time with their payments.
McComas said she was "appalled," while Doucette said he was stunned credit card companies were allowed to do that.
"Your interest rate goes from 7.9 percent to 23.9 percent because they can," he said. "It just amazes me that the government would even allow that process to happen."
Whether the government will, in fact, allow such hikes to keep happening is a popular topic in Washington, D.C., these days.
The Federal Reserve and other government agencies have already announced new credit card rules, including limits on when banks are allowed to raise interest rates, but they don't go into effect until next year.
Legislation by Congress -- including measures sponsored by Sen. Chris Dodd, D-Conn., and Rep. Carolyn Maloney, D-N.Y. -- could institute similar rules sooner. Obama supports efforts by Congress to pass new regulations, White House press secretary Robert Gibbs said today.
"The president noted that the Fed is going to take a certain amount of action and Congress is likely to take additional action," he said. "The president supports that additional action and will be working in Congress to ensure that that reaches his desk very soon."
Recent rate increases and other fee hikes by banks have been especially unwelcome given the billions that taxpayers have spent shoring up now-profitable banks through the government's Troubled Asset Relief Program, critics say.
The American Bankers Association, a bank industry group that attended the meeting, said in a statement issued today that banks were working hard to implement the rules announced by the Federal Reserve.
But banks contend that they still have recession-related woes: Though several major banks have announced higher-than-expected profits for the first three months of the year, they're also seeing escalating losses in their credit card businesses thanks in part to consumers who default on their credit card loans.
Banks See Credit Card Losses
Last year, major credit card issuers like Citigroup, Bank of America, JPMorgan Chase, American Express and Discover all wrote off hundreds of millions more in bad credit loans than they had the year before, according to Highline Financial, a Texas-based financial analysis firm.
The trend continued this year: Citigroup, which has received $50 billion in TARP funds, saw its credit card business revenue decline more than $800 million for the first three months of the year in comparison to 2008. Bank of America, which got a $45 billion TARP injection, wrote off nearly $3.8 billion in defaulted loans in first three months of 2009, an increase of nearly $1.4 billion over last year.
Increased interest rates for some Bank of America customers "is about properly pricing our portfolio either based on risk or realigning a portion of the portfolio that is priced below what is prudent in the current market," bank spokeswoman Betty Reiss recently told ABCNews.com
Scott Talbot, the chief lobbyist for the Financial Services Roundtable, a lending industry group, said banks need to keep their profits up -- including credit card profits -- to repay the government.
Because the government has invested in the banks, "the taxpayers need the banks to make money from all lines -- that's their job," he said.
While banks may been eager to attend today's White House meeting -- an industry source told ABC News that some banks had been pushing for invitations -- they're objecting to the proposed credit card rules, including one that that will allow credit card companies to raise rates on existing credit card balances only when card holders are more than 30 days late, when they are receiving a promotional interest rate with a defined expiration date, or if the interest rate is tied to a specific market index, such as the London Interbank Offered Rate.
That provision is included in both the Federal Reserve's new rules and legislation sponsored by Maloney that was passed Wednesday by the House Financial Services Committee.
Kenneth J. Clayton, of the American Bankers Association, said in statement Wednesday that the Maloney bill could have "a negative effect on lenders' ability to offer reasonably priced credit to consumers and may make matters worse for the broader economy."
Edward L. Yingling, the association's president, reiterated those concerns in a statement issued today.
The "Federal Reserve itself has indicated these rules are likely to shrink credit availability and result in increased rates for some consumers," he said. "The goal of any additional efforts should be to achieve the right balance between enhancing consumer protections and ensuring that credit remains available to consumers and small businesses at a reasonable cost."
Banks say that if they can't raise rates or take other measures to hedge against risky borrowers, they may end up offering less in the way of credit or instituting higher interest rates on everyone, including low-risk borrowers.
Credit Rate Changes 'When Necessary'
Banks also argue that, notwithstanding the uproar over rising rates, only a small proportion of consumers have actually experienced rate hikes recently -- just 10 percent, according to Talbot.
That statistic would probably come as cold comfort to McComas, a customer with Capital One, and Doucette, who has a JPMorgan Chase credit card.
Both banks told ABCNews.com that they would not comment on specific customer cases, but Capital One said the 29.4 percent rate that McComas complained of is only charged to consumers who paid their bills late twice within 12 months. But the bank said that it had announced regular interest rate hikes for some customers in February.
"Because the credit and lending environments continue to be challenging, the account changes are necessary in order for us to appropriately account for the increased risk of lending to consumers in an economic downturn," Capital One spokeswoman Pam Girardo said in an e-mail to ABCNews.com.
Chase, Doucette's lender, told ABCNews.com that it "is a responsible, careful lender, and we constantly evaluate the risks and costs of funding credit card loans."
"When necessary, we make changes to pricing, terms or credit lines based on borrower risk, market conditions and the costs to us of making loans," the bank said in an e-mail. "... We recognize some customers may be affected by these changes for the first time and, as always, we are working hard to provide consumers impacted by these changes with alternatives."
Doucette said he called Chase about his alternatives but got nowhere. So, instead, he's working on paying the card off and then cancelling it.
"The banks," he said, "will just have to suffer without me as a customer."
With reports from ABC News' Jake Tapper, Sunlen Miller and Matthew Jaffe.