A couple of financial follies follow-ups:
On Tuesday, I wrote about how, in December, the Federal Reserve approved new rules curtailing some -- but by no means all -- of the more egregious practices of the credit card industry. But, surprisingly, the rules are not scheduled to go into effect until July 2010. Why, I wondered, this 18-month long delay before making the banks clean up their acts?
Sen. Robert Menendez, one of the real leaders in the Congressional battle for credit card reform, had the same question. Looking for answers, he sent letters to the CEOs of the six biggest credit card issuers, urging them not to wait. "Because of the great danger facing our economy," he wrote, "it is important that you institute the protections, as outlined in the recent regulations, as soon as possible."
Blogging on HuffPost, Sen. Menendez reports that five of the companies responded "and all but one claimed it was too much of a burden to do it any faster."
To hear the credit card companies tell it, curbing such practices as raising interest rates on pre-existing balances, and implementing rules allowing consumers a reasonable amount of time to make their credit card payments is no easy feat.
"Compliance with the new rules," wrote American Express's President of the Consumer Card Services Group Jud Linville in response to Menendez, "is an enormously complex undertaking that will take us some time to fully implement. Because the new requirements are so tightly interrelated, it would be difficult to implement some of the rules in isolation of the others."
Citi Cards Executive VP John Carey agreed: "A radical transformation of the industry business model will be required to sustain industry health under the new regulations... None of these changes can be made hastily if the industry is to act prudently and responsibly."
(Here are the PDFs of the letters: American Express, Citi, and Capital One.)
But what would be imprudent or irresponsible about deciding immediately -- today -- that there will be no increases on pre-existing balances, or that monthly statements will be mailed at least 21 days before the payment due date (two requirements of the new rules)? What about those changes are "so tightly interrelated" to the other new rules that they couldn't happen "in isolation" without the whole house of credit cards tumbling down?
Yet the bankers warn of dire consequences. "It would be impractical," according to Citi's Carey, "to implement new rules immediately without imposing significant risk to the systems, not the least of which might be serious inconvenience for our cardmembers."
You mean more seriously inconvenient than cardmembers having their interest rate jacked up to 29.99 percent if they miss a single payment?
To be fair, as Capital One President Ryan Schnieder pointed out to Menendez, the Fed's own Director of Consumer and Community Affairs, Sandra Braunstein, said that "considering everything that needs to be done and the interconnectedness of the different rules, we think that 18 months is a very reasonable time period. In fact, 18 months is a challenge."
Maybe so. But considering how many families are currently struggling with the "challenge" of making ends meet, and how many will sink further into credit card debt between now and July 2010, it doesn't make sense to -- as the president put it in another context -- "...make the perfect the enemy of the essential."
Card members falling behind need relief, and they need it now. Those changes that can be made now, should be made now (some credit card companies are already in compliance with a number of the new rules; and doing so "in isolation" didn't destroy the industry).
What's more, the rules the Fed adopted in December had been proposed in draft form in May 2008 -- so it's not as if the banks hadn't been forewarned. But something tells me they spent the seven months between May and December trying to derail the new regulations as opposed to getting a head start on getting their ships in order.
Congress needs to make sure the credit card companies are not dragging their feet -- and "passing reform into law," as Menendez puts it, "is the most effective way to do it."
PS: I want to thank the hundreds of HuffPosters who posted such great comments on my last credit card post (please keep them coming, as I intend to stay on this story). One commenter, Exdittos, raised an important point: "While they've been raising the Price of money to unconscionable 30-ish percentage, the Cost of money has dropped to ZERO. They get all the money from the fed reserve they care to cart away, and then they charge now essentially INFINITE markup. The scale of this fraud defies the mere imagination."
It's a compelling argument, one raised at a National Press Club luncheon last week when a questioner asked Fed chair Ben Bernake, "Isn't there something very wrong when banks can borrow at the Fed's window at less than one percent, but are charging credit card holders interest rates as high as 29 percent?"
Bernake didn't directly take on the point about cheap money for banks but high interest for customers. But, in his letter to Sen. Menendez, Capital One's Schneider argues that credit cards are typically not financed by money received by the Fed but by packaged credit card debt sold to Wall Street as securities -- so the drop in the prime rate has not eased the burden on lenders. "Capital One's funding in the securitization market," says Scheider, "is not tied to the Prime rate or any similar index... Thus, notwithstanding decreases in the federal funds rate, when credit losses rise as they have done so dramatically, pricing for our market-based funding rises as well."
What he doesn't say is that the market for "credit card receivables" is another example of Wall Street creativity gone awry -- and that the hunger for ever-greater profits motivated many credit card companies to offer cards to risky borrowers and to allow customers to accumulate higher and higher amounts of debt. The greater the debt, the more there was to sell off to investors -- consequences be damned. So it's more than a little disingenuous for the bankers to now be blaming "the securitization market" for the credit industry's woes.
Too often, the banks lent irresponsibly and marketed over-aggressively and are now asking their customers -- even their "non-delinquent" customers -- to pay the price.
PPS: Last week, in writing about the foreclosure crisis, I mentioned the ongoing battle in Congress over cram downs (which allow bankruptcy judges to modify the terms of home loans). The House is now expected to pass legislation allowing cram downs (with passage possibly coming as soon as today), with the Senate taking up the matter next month. Elsewhere, a Florida judge ruled yesterday that mortgage providers must negotiate with borrowers before foreclosing on their homes. And HuffPost's Ryan Grim reports today that Sen. Chuck Schumer announced "that two-thirds of the nation's mortgage providers -- the ones associated with major banks that have taken bailout funds -- have voluntarily agreed, during negotiations with Treasury officials, to work to refinance loans for borrowers who are under water."
Follow Arianna Huffington on Twitter: www.twitter.com/ariannahuff
My 80 year-old father, with a credit score in the 800s can tell you what banks are doing with our bailout money, or at least what they are not doing: lending.
He has had a home equity credit line of $250,000 against about $375,000 in equity opened for several years. A few months ago, it was reduced to $150,000 to account for lower property values.
Last week, right after the President’s speech, it was suspended. The equity in the property is now at least $285,000. He has over $200,000 in CDs in that same bank, an impeccable credit record, and because he’s still working, a steady income.
The bank in question is Chase, formerly WAMU. The bank’s explanation: times are tough; as soon as things get better it will be reinstated. How are times supposed to get better if banks are hogging not just their money, but their own depositors and the bailout bonanza? Could it be a deliberate effort for things not to get better - not under President Obama’s watch?
The powers that be seem determined to make sure this regulatory minded administration fails.
Power is never willingly relinquished. The only way to make the cogs move and the wheels turn is by doing the inevitable now. While the political and public will are on the administration side, nationalize the banks; doing so once the smell of failure erodes the public trust will be a lot harder and maybe too late.
What bugs me the most about credit is they only collect negative information about me. The positives should also count. I bought a house once and paid it off shouldn't that count for something? But no, they have no record of that. What? Hey, this is the computer age, what do you mean there is no record of that?
Then I have bought numerous cars and paid them off, that should show up as a big plus somewhere in my credit but no, they also have no record of me ever buying a car. Where are all those frickin' hidden records and why are they hidden? Inquiring minds want to know!
They do know when I was late on a payment to anyone, anywhere, anytime. All the negative stuff they have because it helps the banks justify charging higher interest rates.
This is why we should nationalize the banks. Credit should be all about helping the customer not about the banks helping themselves to your wallet.
My hypothesis: not one of those cards will avoid a fee of some kind. The deck is stacked in the bank's favor, and your intern "consumer" will never be able to "win".
I think this would be a great expose'. Please?
Thanks,
Marcella Hoeflein
My advice, get rid of or pay off your credit cards if possible. Deal only with local banks, or better yet credit unions. They're easier to deal with, more customer friendly and their loan rates are usually better. THINK LOCAL.
Also, the cost of recapitalization securities have stayed high because of the high default rates. So isn't the default rate built into the rate. Otherwise, why can't they just borrow money from the fed? Why sell recapitalization loans at a higher rate if the buyers don't take the risk?
Why are our variable rates based on the Prime Rate if that is not how the loans are funded? If our loans are funded based on recapitalization securities then base it on that rate. This would allow transparency.
Finally, the banks would have a better leg to stand on if they had cut bonuses and outrageous spending during these hard times. If they lost money why were there any bonuses.
Send Bush & Cheney a Thank You card for leaving us such a ' rememberance ' of them !
It took them no time at all to jack the rates and payments up on possibly hundreds of thousands of their unfortunate fellow Americans. They are financially devastating some people who are already hit hard. All they have to do is reverse their actions. It would take maybe a couple of weeks.
YOU can do something about this. I did. I took ALL my money out of citibank (OK so it wasn't a lot) and put it in an excellent local bank. Our car loan is with a local Credit Union. No problem, no hassle, great service.
If you can do it, take your business elsewhere to an institution that deserves it!
Lets do it !
"Help With My CreditSM is a resource provided by leading credit card issuers and payments networks to raise awareness and educate consumers struggling to make their credit card payments about assistance available to them, including the work the companies are already doing individually to assist their cardholders."
Has anyone looked into this? (Maybe the Huffpost can research this more?)
Has anyone received help via this resource?
Note: I noticed that the website privacy policy was made effective as of Feb 18th 2009
http://www.helpwithmycredit.org/index.php
http://www.helpwithmycredit.org/index.php?page=whoweare
http://www.helpwithmycredit.org/index.php?page=privacypolicy
Check it out well. Why not watch Suze Orman on CNBC or get agood book on finance or research online. Good luck
Cut up all of your cards. You don't "need one for emergencies," that's a lie the creditors tell you to keep you in their grip. Pay the MINIMUM PAYMENT for all but the lowest-balance-card. On that one, pay AS MUCH AS YOU CAN AFFORD FOR AS MANY MONTHS AS IT TAKES UNTIL IT'S DEAD. Call the card company and tell them to CLOSE YOUR ACCOUNT (it's not officially closed until it's paid off, even if it's been cut up and you're not using it). Have a small celebration and then move on to the next card. Make minimum payments on all the others and pay ALL YOU CAN AFFORD to the next smallest balance until it's dead. Move on to the next until YOU HAVE NO MORE CREDIT CARD DEBT! Have a party, pay cash for it, and tell all of your guests why you are celebrating.
You can do this. You don't need Uncle Barry to rescue you. If you let him do it, you will be indebted to him. Take charge of your finances. Make them work for you instead of you working for them.
I assume you have a house loan and make payments on it. What would happen if out of the blue your mortgage company came to you and told you the interest rate was going to be 20% instead of 6%. Or how about your house has gone underwater. You owe $150,000 and it is only worth $125,000. So your mortgage company comes to you and says you need to pay us $25,000.
I agree with you that people should not use credit they cannot afford. And the article doesn't ask to forgive people money they owe. All it asks is that people are treated fairly.
Why people continue to use the big banks at all is inconceivable to me. I urge people to put their money in a credit union or local bank with good ties to your community. I actually believe it is immoral to give your money to the big sleaze banks.
Why is Obama protecting these corrupt institutions? I can understand it if he is trying to prevent chaos from taking hold in the country, but he had better have a plan for a full disclosure of what these people did. TRUTH AND RECONCILIATION.
And that includes having Larry Summers and Tim Geithner confess to their part in it, as well as most of the senators on Capitol Hill. And Bill Clinton (that'll be the day when he 'fesses up to anything). The Republican right? Beyond redemption.
My personal confession? I got hip to the credit card casino ten years ago, and so I played the system for a number of years, taking their money, then declared bankruptcy before new, tougher bankruptcy laws came into effect four(?) years ago. But all the time I was so enraged by their pandering and clever tricks that I felt they more than deserved to get screwed.
Sadly- It is all inter-connected. The GOP policies of Reagan / Bush / Paulson allowed these mega banks to get'' too big to fail ' It should have been " If a bank is too big to fail- then it's too
BIG TOO EXIST !
Sorry but I have to say this: you 'playing the system ' charging purchases and then declaring bankrupcy makes you part of our problem.
1 Sen. Tim Johnson (D) $95,300
2 Sen. Hillary Clinton (D) $83,330
3. John Boehner (R) $75,000
4. Sen. Tom Carper (D) $74,620
5. Rep. Richard Baker (R) $72,750
6. Sen. Jon Kyl (R) $70,343
7. Rep. Paul Kanjorski (D) $67,089
8 Sen. Ben Nelson (D) $65,050
9. Sen. Joe Lieberman (I) $64,020
Rep Patrick Tiberi (R) $62,050
Result: every Credit Card Reform bill failed in the last session.
In 1992 the largest contributions by the Credit Finance industry to a Presidential candidate were to George H.W. Bush for $39,000. In 1996, it was Bob Dole at $41,350. But in 2000, the contributions jumped to $418, 875, to George W. Bush. Al Gore only received $48,950, and we all know who won that election. In 2004, Bush got $688,025, and John Kerry $207,366.
The Top 10 recipients for 2008:
1. Obama, Barack (D) $405,266
2. Dodd, Chris (D) $209,100
3. Clinton, Hillary (D) $202,395
4. McCain, John (R) $183,072
5. Romney, Mitt (R) $92,000
6. Giuliani, Rudolph W (R) $58,300
7. Richardson, Bill (D) $30,350
8. Paul, Ron (R) $13,332
9. Biden, Joseph R Jr (D) $13,100
10. Edwards, John (D) $11,975
What did I receive in the mail (at my new address, because I had updated all of my contact info on the Capital One site)?
A notice from a collection agency demanding payment in full for my Capital One account. I called them and they said to disregard it because I was now current. True, I should have let them know what the situation was, but for crying out loud... I wasn't even 30 days late. Draconian measures for long-time customers seems to go hand in hand with legal usury, I guess.
Obama is trying to level the playing field- I give him a lot of credit. Two ( unwinnable ? ) wars
and a financial crisis- if he can just ' stop the bleeding ' that will be a miracle.