Credit Card Industry: Obama Says You Went Too Far … Credit Card Laws Being Tightened
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Delaware, United States, 14 May 2009. Critics have accused the Obama administration and Democractic representatives of being in the pockets of the banks. There were fears that their ‘bank-centric’ views on the economic recovery and the influence of donors and lobbyists would mean little meaningful financial regulation. The truth seems to be a little more nuanced.[br]
Delaware, United States, 14 May 2009. Critics have accused the Obama administration and Democractic representatives of being in the pockets of the banks. There were fears that their ‘bank-centric’ views on the economic recovery and the influence of donors and lobbyists would mean little meaningful financial regulation. The truth seems to be a little more nuanced.[br]
It is true Democrats bowed to pressure and allowed a bill that would give judges the right to negotiate ‘cramdowns’ on homes in danger of foreclosure to fail. A cramdown means that the principal amount of the loan is reduced. To be fair, it may have been legal concerns that prompted this back-down, since there was some concern that it set a dangerous precedent in allowing contracts to be invalidated. However following on from the perceived easy ride with federal money that banks had been given, and with the desire of the Treasury to get back the money it has invested with interest, and you could sense a kind of Hail Mary pass being given.
If current indications are true, however, it seems to be more a case of President Obama and his allies picking battles. Today there has been an announcement that the shady ‘Over the Counter’ derivatives that played such a prominent role in the financial meltdown, such as the trillions of dollars of Credit Default Swaps, will be regulated – surely a key part of the legislative reform needed.
Of more immediate interest to consumers in the US, and ultimately in the world, is the legislation on credit card reform currently in progress through Congress. The perception that banks mislead customers in the credit card industry is an area that Barack Obama campaigned on, and it is something that has caused wide-spread anger.
It was, however, not entirely clear that this would translate into action. Credit card companies employ large numbers of people in Delaware and South Dekota, and had counted on bi-partisan support from those states, including Vice President Joe Biden. No more.
Ed Mierzwinski, a lobbyist for consumer groups, says that for 19 of the last 20 years the bankers lobby was so powerful that they couldn’t even get a committee to debate a credit card bill, much less get it on the floor. “The industry has become lawless. Owning a credit card has become a license to print money by robbing people” he says.[br]
A bill has just passed in the House of Representatives that will curtail much of the common industry practices that have caused so much anger. The Obama administration is supporting an even tougher bill that is currently going through the Senate, the Credit Card Accountability and Disclosure Act, or CARD Act. Not surprisingly, the American Bankers Association is against the CARD Act, and says it will make credit hard to get and more expensive.
The reform of Credit Card law would require credit card companies to give 45 days written notice if interest rates are to be changed (ie raised). They would need to give full advance disclosure of due date, late penalty fees and any changes in terms. The CARD act will also stop credit card providers from arbitrarily changing interest rates or fees.
At the moment, if you are even 1 hour late in paying a bill, some credit card companies will raise your interest rate to 35 per cent, effective immediately. This is known as ‘universal default’, and will effectively be banned.
The bill also seeks to prevent what many see as the praying on ill-informed young people and students, who often get mired in debt from an early age. No-one under the age of 21 will be able to get a credit card unless they complete a financial literary course, or unless they can prove they have the financial means to pay their bills.
Where the US goes, the rest of the world often follows, so if this logic holds true then you can expect credit cards to become a much more regulated market worldwide in the months and years to come.
Vascoe Borten-Smith, EconomyWatch.com
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