Obama vows reform of credit card market
President Barack Obama met top credit card executives Thursday and vowed reforms to purge their industry of abusive rate hikes and fees and to restore "strong" protections for consumers.
As millions of card holders struggle with high balances amid a deepening recession, Obama said the under-fire sector played a vital role for families and small businesses but warned its relationship with customers was "out of balance."
"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," Obama said.
"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," Obama said after meeting 14 executives from companies including American Express, Visa and MasterCard and a representative of the American Bankers Association.
The president said credit card agreements should be "written in plain language" and warned against hidden conditions which could trap customers with sudden rate increases or costs.
White House plans would force firms to ensure contract terms were easily accessible and provide consumers with information they need to go online to compare various services.
Officials said the industry will faced beefed-up penalties for deceptive practices and called for greater punishments for those who break the law.
There was no immediate comment from any of the executives, none of whom spoke to the press after the meeting.
On Wednesday, Democrats in Congress widened their crackdown on the industry, which stands accused of tempting borrowers with easy credit in good times and clamping down hard with high rates and reduced credit lines when the economy went sour.
The House of Representatives Financial Services committee voted to send a bill tightening rules on the industry to the full chamber.
New York Democratic Congresswoman Carolyn Maloney, who wrote the Credit Cardholders' Bill of Rights, said the legislation would level the playing field between cardholders and card companies.
"For too long the relationship has been one-sided; but markets function best when all sides know what they're getting into -- and these deceptive practices need to be stopped," she said.
"The Credit Cardholders' Bill of Rights brings more transparency to the contractual relationship and give consumers the tools they need to responsibly manage their own credit," Maloney said.
The legislation protects cardholders against arbitrary rate increases, ensures those who pay bills on time are not unfairly penalized and shields them from misleading terms and conditions in the small print of card contracts.
It also empowers cardholders to set their own credit limits and forces card companies to fairly allocate payments.
The White House has signaled that it plans to propose some changes to the legislation before it goes before the full House for a vote where it is expected to win significant support.
The American Bankers Association (ABA) said it had "real concerns" with the legislation, warning of a "negative effect on lenders' ability to offer reasonably priced credit to consumers and may make matters worse for the broader economy."
Prospects for similar legislation in the Senate are more uncertain, but two key Democrats, Senator Chuck Schumer and Senator Christopher Dodd, Thursday called on federal regulators to implement an emergency freeze on interest rates tied to existing balances on credit cards.
"Over the past year, the Federal Reserve has cited the financial crisis as one of the reasons for acting quickly to implement new lending facilities and programs to protect financial institutions," the senators said in a letter to Federal Reserve Chairman Ben Bernanke.
"It is long past time for the regulatory agencies to act with the same sense of urgency to protect consumers from the behavior of those same financial companies," the senators wrote.
Obama's meeting included executives from HSBC, USAA Savings Bank, Citi, US Bancorp, MasterCard, Wells Fargo, Capital One, American Express, Visa, JPMorgan Chase, Bank of America, Barclaycard, and the ABA.