Rate Jumps, Fine Print: Is Help Finally on the Way to End Credit Card Woes?

May 14, 2009
RIO RANCHO, N.M.— -- President Obama took his call for credit card reform to a high school gymnasium in New Mexico today, where he told an audience of more than 2,000 people that he wants Congress to pass a bill to protect consumers that he can sign into a law by Memorial Day.

"It's time for strong and reliable protections for our consumers. It's time for reform that is built on transparency, accountability, and mutual responsibility -- values fundamental to the new foundation we seek to build for our economy," he said.

"You should not have to worry that when you sign up for a credit card, you're signing away all your rights," Obama told a cheering crowd. "You shouldn't need a magnifying glass or a law degree to read the fine print that sometimes don't even appear to be written in English, or Spanish."

But the president didn't absolve cardholders of all accountability -- he urged them to to be responsible in their borrowing.

"This is not free money. It's debt and you should not take on more than you can handle," he said. "...Banks are businesses, too, and so they have a right to insist that timely payments are made."

Obama, who was joined by New Mexico Gov. Bill Richardson, spoke at a town hall meeting at Rio Rancho High School. Audience members included 50 local credit cardholders who sent letters and e-mails to Obama, "sharing their frustrations with the credit card industry," according to a statement by the administration.

One of the letter writers, Christine Lardner, introduced the president. Lardner, an Albuquerque resident whose husband runs a small business, said in her letter that the economic downturn forced her to use credit cards to pay for her two daughters' college tuition. After one college charged their bill to the wrong credit card, Lardner's interest rate tripled to nearly 30 percent.

"Raising my rate to 30 percent is ludicrous and corrupt," Lardner said. "I'm proud to say that our president has taken up this cause that has affected so many Americans who are trying to make a living and pay their bills."

Credit card legislation supported by the president, the adminstration said in a statement, will not allow card companies to raise rates on existing balances, which will give Larnder "confidence in her ability to manage her debt at the original interest rate."

The House passed the so-called "Credit Card Holders' Bill of Rights" last week and now the Senate is deliberating its own version of the bill.

The bill would force credit card companies to give consumers 60 days before changing a credit rating because of late payments and give consumers a path to reclaiming their old rate with six consecutive on-time payments. It would also cut down on excessive fees that companies charge for making online payments and would require companies to be clearer about how long it takes to pay down a balance making only the minimum payments.

Credit Card Pain Gets Personal

Debra Neri said she hopes the government will pass new credit card rules soon. For Neri, also a New Mexico resident, getting through the month sometimes means relying on her credit cards. But she hates doing that because they're so hard to pay off, she said.

"Even if you pay more than the minimum you never get caught up because they charge you fees and fees and fees," said Neri, who lives in New Mexico.

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Neri won't be attending Obama's town-hall style meeting, but if she were: "I would just tell him that the credit card companies are getting away with robbery."

Gregory Atkins has three credit cards with nearly $20,000 in debt.

At first, the interest rates were manageable. But then the rates kept being adjusted. Today, Two of the cards are charging him 24 percent. The third rose to nearly 30 percent until he complained and got it lowered.

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"I'm an honest man. I incur debt. I expect to pay it back," said Atkins of Clifton Park, N.Y. "But I also don't expect for them to change the rules of the game every two seconds."

Atkins said he has a "glimmer" of hope of getting out of the hole.

"It is a constant burden. It is something that shortens people's lifespan from the stress," he said. "You can see the disparity between what an American is allowed to earn and obtain compared to what these bankers and Wall Street people and the credit card issuers are allowed to charge."

Given the chance to speak to Obama, Atkins would tell the president not to "allow these vultures to continue to peck away at the everyday workingman's or workingwoman's finances."

He added that these are the very same banks that have come to the federal government seeking billions in taxpayer dollars to stay solvent.

"Give the average American a chance to rediscover the American Dream of owning their own house and having financial freedom," he would urge Obama. "Allow taxpayers to claim the interest they pay on credit card debt against their taxes, and stop the unscrupulous scavengers from having basically indentured slaves that will be repaying their credit card interest … for the rest of their natural lives."

Obama Listens to Credit Card Woes

Others have a similar message for the president.

Mark Williams, of Charlotte, N.C., would tell Obama to "hang in there."

"I appreciate that you are going after abuses to credit card users," Williams said he would tell the president. "During the Bush era, corporate greed was just business as usual and I'm glad you are bringing some welcome fairness and perspective to the credit industry."

Judy Mericle, of Eaton, Colo., would tell the president: "Not everyone who has higher balances on their credit cards are buying large screen TVs. I didn't. What I did do was use mine for groceries and gas and prescriptions while my husband had surgery and then later and while being laid off from his heavy equipment construction job."

For his part, Obama said reform must come and must come quickly. He is urging Congress to pass legislation that he could sign into law by Memorial Day.

"Americans know that they have a responsibility to live within their means and pay what they owe. But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties, and hidden fees that have become all-too common in our credit card industry," the president said during his weekly address Sunday. "You shouldn't have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit card application."

"There is no time for delay. We need a durable and successful flow of credit in our economy, but we can't tolerate profits that depend upon misleading working families. Those days are over," he added.

The House passed the so-called "Credit Card Holders' Bill of Rights" last week and now the Senate is deliberating its own version of the bill.

The bill would force credit card companies to give consumers 60 days before changing a credit rating because of late payments and give consumers a path to reclaiming their old rate with six consecutive on-time payments. It would also cut down on excessive fees that companies charge for making online payments and would require companies to be clearer about how long it takes to pay down a balance making only the minimum payments.

Industry Fights Back on Capitol Hill

But while Obama meets card holders in New Mexico the credit card industry is continuing to lobby Congress against portions of the credit card reform legislation.

The industry has argued that some of the limits that lawmakers are proposing to put on credit card rate increases and other practices would hamper companies' efforts to perform "risk-based pricing" or, in other words, it'll make it harder for companies to compensate for the risk a borrower presents to them with higher (or lower) interest rates. That, industry officials say, would ultimately force credit card companies to extend less credit or provide credit at higher interest rates than they would otherwise.

"What we're hoping to see come out of the (town hall) meeting is an understanding of the importance of credit cards in financing for consumers on a day-to-day basis and the role of the credit card industry in the broader economy," said Scott Talbott of the Financial Services Roundtable, the trade group that represents some of the country's biggest credit card companies. "What we're worried about are restrictions on credit cards that will decrease the availability of credit or increase the cost, or both."

Peter Garuccio, of the American Bankers Association, said the group was particularly concerned with amendments to credit card reform legislation proposed in the Senate, which critics say go further than what's included in the House legislation.

Many of the amendments, Garuccio said, "have not been fully vetted and may have some unintended consequences and may end up harming consumers and small businesses in their ability to get credit cards."