President Obama Outlines Core Principles for Protecting Consumers from Credit Card Industry Abuses

President Barack Obama met with representatives from the credit card industry on April 23 to address the need for greater consumer protection from abusive industry practices.  In the meeting he outlined his core principles for improving consumer protection.  The following are remarks he made to the press after the meeting.

Well, I just had a constructive meeting with the heads of many of the leading credit card issuers here in the country. Obviously we’re at a time where issues of credit and how businesses and families are able to finance everything from a car loan to a student loan to just paying their bills every day is on a lot of people’s minds. And Secretary Geithner and our economic team has worked diligently to try to restore confidence in the credit markets, to assure that the non-bank financial sector is stronger, to ensure that banks have the capital they need, and that that money is getting out the door to the ultimate end user — the American businessperson and individual.

We’re still seeing some problems, although we think that we’ve begun to make progress.

One of the areas, as we move forward and look at financial regulation, how do we create a framework where this kind of crisis doesn’t happen again, and how do we create a sustainable model for economic growth and debt that is not based on bubbles and overleveraging on the part of businesses and consumers is the issue of credit cards and how they’re used and how we can create a more stable, more effective, more consumer-friendly system.

President Obama in meeting with credit card executives on April 23: photo by Pete Souza

We had a discussion with some of the top issuers here, and what I communicated to them is that I think credit cards are an important convenience for a lot of people. They are a source of unsecured debt for a lot of individuals and small businesses who are creating jobs; a lot of startups may use credit cards for that purpose. We think that’s important, and so we want to preserve the credit card market.

But we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with — people finding themselves starting off with a low rate and the next thing they know their interest rates have doubled; fees that they didn’t know about that are suddenly tacked on to their bills; a whole lack of clarity and transparency in terms of the terms and conditions of their credit cards.

And so there’s going to be action in Congress. Our administration is going to be pushing for reform in this area. We think it’s important that we get input from the credit card issuers as we shape this reform, but there — and I’m going to leave it up to my economic team to work with Congress to evaluate all the various proposals and to get some very definitive language in place.

There are going to be some core principles, though, that I want to adhere to, and I mentioned these to all the credit card issuers involved.

First of all, I think that there has to be strong and reliable protections for consumers — protections that ban unfair rate increases and forbid abusive fees and penalties. The days of any time, any reason rate hikes and late fee traps have to end.

Number two, all the forms and statements that credit card companies send out have to be written in plain language and be in plain sight. No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out.

Number three, we have to make sure that people can comparison shop when it comes to credit cards without being afraid that they’re going to be taken advantage of. So we believe that it’s important to require firms to make all their contract terms easily accessible online in a fashion that allows people to shop for the best deal for their needs.

Not every consumer is going to have the same needs. And some may want to take on a higher interest rate because it provides them more convenience or it provides them with a higher credit line. But we want to make sure that they can make those comparisons themselves easily. And we think that one of the things that needs to be explored is the possibility that every credit card issuer has to issue a plain vanilla, easy to understand, simplest terms possible credit card as a default credit card that the average user can feel comfortable with.

Finally, we think we need more accountability in the system. And that means more effective oversight and more effective enforcement so that people who are issuing credit cards but violate law, they will feel the full weight of the law.

So we are confident that we can arrive at something that is commonsensical, 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 over-extended or finding themselves in over their heads. 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 be able to get this done in short order.

Please share your ideas on how to protect consumers from credit card abuse by commenting on this post.

Top Credit Card Issuers Provide Payment Relief to Consumers

Responding to the “Call to Action” of the National Foundation for Credit Counseling (NFCC), the nation’s top 10 credit card issuers have agreed to provide additional relief to consumers struggling to repay their debts.

 

“This represents a significant action on the part of the creditors to take additional steps to help consumers, which is our collective mission,” said Susan C. Keating, president and CEO of the NFCC.  “This will provide those in debt with more options to stabilize and rebuild their economic lives.” 

 

For more than 40 years, consumers have avoided bankruptcy and benefited from repayment programs commonly referred to as “debt management plans” (DMPs) through which creditors provided some repayment concessions, including waiving late and over the limit fees and a reduction in interest rates.  However, in these tough economic times, fewer consumers have sufficient income to be eligible for, or the ability to maintain, a traditional DMP, often leaving bankruptcy as the only option. 

 

In response to a need to make better alternatives available to struggling consumers, the NFCC issued its “Call to Action” last fall, calling on more creditors to take additional steps to make DMPs more affordable for people in troubled financial circumstances.  The NFCC also expressed its appreciation on behalf of struggling consumers to those card issuers already providing significant concessions aligned with the “Call to Action.”  The “Call to Action” set the end of the first quarter of 2009 as the target date for adoption and implementation.  Together with the “Call to Action,” the NFCC created a strategic partnership of NFCC Agencies and Association of Independent Consumer Credit Counseling Agencies (AICCCA) to work with the top 10 credit card issuers. 

 

As of March 31, the top 10 credit card issuers have agreed to implement the changes necessary to provide both a more affordable “Standard” DMP and a “Hardship” DMP (together, the “Call to Action” DMPs) for consumers who are seeking to avoid bankruptcy, but who do not have sufficient income to qualify for a traditional DMP.  The key elements of these two new DMPs will allow consumers to maintain a reasonable monthly budget, establish a savings account for economic emergencies, make fixed monthly payments more affordable, and be out of debt within 60 months.

 

Those creditors supporting the “Call to Action” are American Express, Bank of America, Capital One, Chase Card Services, Citi, Discover Financial Services, GE Money, HSBC Card Services, U.S. Bank and Wells Fargo Card Services.  The NFCC urges all other consumer lenders to follow suit.

 

 “Many consumers are facing serious financial problems, and they should be given every opportunity to qualify for an affordable program that meets their individual circumstances and that puts them back on the road to financial stability,” said Keating.  “We applaud these creditors for recognizing the need to do more for consumers who are trying to avoid bankruptcy, and need some additional help with interest rate and fee waiver concessions so they can repay their debt.”

 

Consumers seeking more information about or eligibility for a “Call to Action” DMP should contact the NFCC Member nonprofit credit counseling agency in their area by calling (800) 388-2227 (en Español (800) 682-9832) or visit www.nfcc.org.