Obama's Credit Card Dog Day Afternoon

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.

Comments

[Jonathan Watmough]

Junk mail offering credit cards to our household has almost completely ceased. I see perhaps one offer a week if that, when a year ago it was a large proportion of my mail.

Has something changed?

[enriquecaliente]

The Mob couldn't have done any better.

http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

[MsMandy]

Embarrassing to admit, but I was a credit card junkie. As a 22 year old single mom, I went back to college and applied for a student loan. Like magic, with the loan came the credit card offers. I graduated heavily in debt from the loans and credit cards (I had been supplementing my income). Soon a new cycle began. I made payments religously, but I had no money left to live on, so I charged more. Fast forward...nearly $40,000 of credit card and personal loan debt (tried to consolidate and didn't quit using) later, I went to a non-profit credit consolidation company. If my companies agreed to the terms (no activity , reasonable interest rates, and no penalties as a payment is made every month) I could pay off my debt in 4 years. 1/2 of the banks who had gladly "given" me the money, would rather I go into bankruptcy than agree to those terms. I refuse to not pay for the mess I created, so even with up to 30% intrest, I am still paying. These companies knew my debt to income ratio was too high, and yet continued to increase my limits and offers from other companies were in the mail daily. Mr. Whatley is right on the money. Once they suck you into their vortex of debt, it feels almost impossible to get out, especially when you are trying to do the right thing, and resistance is at every turn.

[nooner68]

My Thanks to Mr. Whatley for his well thought article. I suggest a look at the Frontline documentary - The Secret History of the Credit Card.
I teach at a junior college in northern appalachia and use this video in both my Management and Ethics classes. It may spin to the left, but I think it captures the sociopathy now so worshipped among bankers and those well appointed in government.
Credit Card companies have devolved into predatory lenders; similar to those finance companies that so effectively exploited the poor in the time of our fathers.
I wish that I could share the hope implied by those looking to their elected representatives; I happen to think that they are far too beholden to the banking lobby to represent their people.
The one type of ballot that still counts in this country is green. Pay cash, put off the big purchase until you have to spring. Avoid any interaction with these people, they represent a perversion of what business people used to be (and still can be).
Both parties to a transaction should proceed with full knowlwdge of what is involved and should do so under an assumption that human trust still exists. This is how the world moved from mercantile to capatalist methods, we have regressed, but have not failed totally. As they notice their revenues decline and their bonus dollars affected, they just might park their Hummers in The Hamptons and understand that the word consumer is not a dirty

[MsEngineer]

It is very easy for people to say they don't have credit card debt and pay in cash. That is great until you lose your job or someone in your family has a medical emergency. Wait until one or both of your parents have Alzheimers or someone in you familty gets cancer. You can kiss off paying in cash for everything.

I have a very good credit score but I paid one card one day late so the bank jacked my interest rate from a fairly reasonable 9.9% to 27.9%. They then retroactively apply the higher interest rate for the previous month. This tacked on $160 in additional interest payments and doubled the minimum I was supposed to pay. I called the bank and got this reversed which they did because of my good credit rating and I have a checking account with them.

How is someone already in financial trouble supposed to pay an additional $160 in interest a month? Why do the banks think this is a good policy? Credit card debt is unsecured which means the issuers cannot go after your assets. I know several people including one of my relatives who were trying to pay down the debt, gave up, and walked away from it. It ruins your credit rating for a few years but at this point that doesn't seem to matter much.

[itmaybetoolate]

"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?"

I predict the former rather than the latter.

[CentristScientist]

my favorite part is how i pay on time in full and have no credit card debt.
because of this i cannot get enough credit.
this has nothing to do with risk

what a crock of usury

[Goliadkin]

If you're in trouble with debt, overspending, or under-earning, go to your local Debtors Anonymous group. Modeled after Alcoholics Anonymous, DA offers fellowship, spiritual support, and the shared experience, strength and hope of others like you. DA can help you recover from compulsive spending and debting. It's a great program, IMHO. http://www.debtorsanonymous.org/

[Otaku1031]

I'm one of the people the CC issuers hate - I pay my balances in full each month. It wasn't always that way, but I was careful and maintained a good credit rating. Much good may it do me. We all know why the banks want everyone to use CC's; they don't make any money on a transaction if you pay cash. Remember that VISA (I think) ad where people are waiting in a pay line to pay for "something" and all are using their CC's to pay, quite cavalierly I might add. One poor guy tries to pay with cash - and everybody (including the cashier) glares at him for some reason and he gets a chagrined look on his face while he gets his change. It used to be the opposite - if you paid your bills in cash you were respected. Having to ask the local grocer for credit was shameful.

[Piatt]

Has anyone else noticed that the credit card companies have reduced the minimum payment due on principal...the better to keep you paying those outlandish interest rates for ever and ever.

[givesflack]

Only a true few can say they can stay out of debt and pay off their cards on time. Credit cards however have become the defacto safety net, once a government role, for most americans who's jobs were shifted to freelance titles from permanent ones, from steady jobs to seasonal and from W2s to 1099s. Increases in prices, wage stagnation and government assistance elimination started CC dependence and the bankers created this. Their influence destroyed bank regulations, fair and decent CC standards, welfare cuts, jobs losses, wage decreases because they were allowed to plan for Americans while we championed the wealthy and worshiped their pluck and financial wizardry that was supposed to make us all rich if only we had the drive and ambition as them and stopped being lazy- basically telling everybody that the only way to prosperity was through them. And now they bankrupted the country, are getting bailout welfare, wages and bonuses are going up despite further wage reductions for everyone else and on top of it they're raising interest fee's and stopped lending of our money? Can you smell the the tea on my breath of infuriation? And I'm not with the t-baggers as the true party is the same one we have been fighting since the Boston Tea Party. only most Americans don't know how to stick up for themselves or their rights like they used to.

[nooner68]

well put, let's boycott the bastards

[OohBaby]

I agree with Nosybear. As long as people are using the cards and paying the rates credit card companies will continue to exploit. Beyond credit cards and consumers, this is an American cultural problem. We want what we want, when we want it, and sometimes will pay an enormous fee to get it.

And this goes to the heart of what credit card companies exploit-"Live Richly, Priceless Moments." They play to our vanities and dreams we cannot afford on our paycheck. Until, as a society we can get past overwhelming consumerism and learn to value quality of life-we're going to keep using credit cards.

This problem goes a lot deeper then consumer irresponsiblity versus credit card company exploitation. This is a cultural problem of materialism and superficiality.

[PragmaticStatistic]

What we need is a Credit Card Bill of Rights to protect us from the banks. Check out my proposal that deals with issues the government is ignoring:

http://pragmaticstatistic.blogspot.com/2009/04/proposed-credit-card-bill-of-rights.html

Please help by suggesting things I missed.

[vippy]

I have a credit card and I use it sparingly, mostly when I order from the internet with a $ 5,000 limit.
I pay it off as soon as the merchandise arrives and long before the bill comes. I am ahead with my
utility companies because I don't want to check due dates and making sure I am never late.
I have no credit rating at all and I have to use my husband's. I had bought a car and I paid it off
long before it was supposed to be paid. So I don't understand why I don't get a rating and when I
apply for something I get turned down. Well, but then I don't really care but it is odd to say the least.

[TrekBear]

You don't carry a balance on your card. That's why you don't have a credit score. If you pay off the balance - as you're clearly able to do - in two or three installments, you'll have an excellent credit score.

[Lemeritus]

If vippy paid down her balance in two or three installments, she would be forced to pay interest, essentially paying for a credit score. Here's the rub -- why should that be?

[propitiousmoment]

Even if you pay it off every month it still shows up on your credit report. The problem is that she does not have any other payment history to report.

[Sundialsvc4]

It's called "usury." And it's a reprehensible crime ... as it has been for five thousand years.

I could, of course, quote the Book of Deuteronomy here, but I think that Charles Dickens said it better:

"Business!" cried the Ghost, wringing its hands again. "Mankind was my business. The common welfare was my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!"

And then:

"They are Man's, and they cling to me, appealing from their fathers. This boy is Ignorance. This girl is Want. Beware them both, and all of their degree, but most of all beware this boy."

And then:

"I don't know. But before that time we shall be ready with the money; and even though we were not, it would be bad fortune indeed to find so merciless a creditor in his successor."