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Stuart Whatley Headshot

Obama's Credit Card Dog Day Afternoon

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At Thursday's meeting this week with President Obama to discuss controversial credit card practices, one hopes that card-issuer CEOs will receive hospitality of the stiff-backed chair variety, rather than, say, plush leather. It will be a standoff similar to the hostage situation Obama dealt with in the Gulf of Aden last week, only this time it's tens of millions of Americans who are endangered (financially speaking). The importance of Thursday's meeting should not be understated. It marks a crucial occasion for Obama to fully uphold the middle-class-championing he promised during the campaign. He will have to stand strong against an industry whose typical defense is to hold a gun to the head of the American consumer. It will probably be a regular old 'dog day afternoon'.

In reality, relatively few Americans have any immediate concern for collateralized debt obligations, and their role in the larger economy; or for a relaxed mark-to-market accounting rule, and what it means for frozen credit and the financial impasse.

No, what many Americans are abundantly familiar with is the stress-induced insomnia of overwhelming credit card debt. Or the vein-popping rage associated with unexplainable, unprovoked and widespread rate hikes, as Huffington Post's Arthur Delaney has reported on extensively. Or the rebarbative inundation of credit card offers sent to every man, woman, child, invalid or dependent, such as the Chicago family who received 445 offers in one year.

Sure, many in this situation dug their own grave with irresponsible spending and living beyond their means. But others did not. And though the irresponsible debtors may deserve their financial prison cells, the others deserve reprieve from a system that condones and invites abuse. This latter group is described by White House economic advisor Larry Summers as, the people who "have been deceived into paying extraordinarily high rates that they wouldn't have paid if they knew what they were getting themselves into."

This gets to the heart of the issue, as well as to the heart of the credit card companies' primary argument -- of which the White House will get an earful soon enough. The companies will justify their practices by claiming that they provide an invaluable service to consumers. When questioned about rate hikes and exorbitant, abusive fees, they will insist that such measures are necessary for managing risk. And when changes in their practices are demanded (this is the "hostage situation" part of it), they will threaten more stringent creditworthiness parameters and even higher rates for those who do make the cut as the only way to stay afloat -- thus reducing overall access to credit for everyday Americans.

Indeed, the perception that credit card companies are providing a "service" is why most Americans pick one up in the first place -- only for many to then find themselves in a debtor freefall after the rules spontaneously change. It's true, a more humane credit form, such as from a credit union, does provide an extremely useful service. But most people don't have this luxury. They instead have credit card "service" in the most perverse sense, as if Habitat for Humanity were to build a home for an impoverished family, only to then slather the walls with asbestos, leave the toilets without seats and urinate on the rug (the one that really ties the room together) on the way out -- except with credit card debt, the family in this metaphor has no choice but to inhabit the hell hole forever.

So no, in the current system, credit card companies do not provide an essential service anymore; it's more a societal stranglehold -- a gun to the head of the middle class, demanding a fully fueled plane and no cops.

In December 2008, the Federal Reserve established more rigorous rules to stymie the rampant increase in consumer exploitation, but these measures will not take effect until July 2010. Moreover, House members returned to the Hill this week with their own anti-credit card rampage, led by New York Democrat Carolyn Maloney. But, at best, the proposed legislation will only slide the Fed's July 2010 date up on the calendar by a few months. Neither effort will put credit card companies in check immediately, hence the crucial need for strong leadership from Obama in the here and now to compel voluntary easing of these practices by the CEOs -- or at least voluntary with a reasonable quid pro quo.

So what kind of White House greeting can we expect for some of these other villains of the current era? (We don't yet know who all is invited, at the time of this writing.) The administration has assumed a strong posture in the days leading up to the meeting, but will it then fold to the credit card companies' usual threatening ploys against providing reasonable credit? Indeed, this is how it's worked with most soft-handed Wall Street policies so far. Everything from Geithner's PPIP toxic asset plan to the mark-to-market relaxation may as well have been decided by the bankers. The 'too big to fail'-systemic cataclysm threat has effectively kept the same people in the driver's seat.

So will the same self-important threats of pulling the gum out of the dam continue to work for the credit cards too, or will the administration put its foot down against this coterie of entrenched economic kingpins once and for all?

We'll know on Thursday.

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