With Congress already moving to enact tighter restrictions on credit card companies, President Obama met with major lenders today to outline consumer protections that he wants to see.
The administration has expressed concern that credit card companies are tightening the screws on consumers at a time when they can least afford it. Lenders, on the other hand, have said they are merely responding to changing credit conditions and that tying their hands would limit their ability to offer credit to worthy consumers.
Obama reportedly told the executives that he wants to eliminate what many consider to be abusive practices by the industry, such as sudden, steep increases in rates and fees on existing balances. He also called for simplifying the terms and rules governing credit cards so that consumers would find them easier to understand.
"No more fine print, no more confusing terms and conditions," he told reporters after the meeting at the White House. "We want clarity and transparency from here on out."
Meeting comes day after House committee vote
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The meeting came a day after the House Financial Services Committee voted 48-19, with nine Republicans in favor, to forward legislation that would restrict the ability of credit card companies to arbitrarily raise interest rates and fees, and provide other consumer protections as well. Similar legislation is pending in the Senate.
Following the meeting, the White House released a statement outlining some of the elements the President would like to see in the final legislation. Among them:
• A ban on unfair rate increases and abusive fees and penalties.
• A requirement that all credit card forms and statements be in plain language, without fine print, confusing terms or conditions.
• A requirement that credit card firms make their contract terms easily accessible so that consumers can readily go online and do comparison shopping.
• A requirement that credit card firms to offer at least one simple, straightforward credit card that offers the strongest protections along with the simplest terms and prices.
• Increased monitoring and enforcement to guard against deceptive practices, and penalties for any violations of the law.
Industry questions need for new rules
Consumer groups have praised the legislation and the administration's actions, saying they are needed to protect consumers. Industry groups have countered that such legislation is not needed and could actually make credit more expensive for consumers to obtain.
"I haven't heard any evidence that the competitive market isn't working," Rep. Jeb Hensarling, R-Texas, told CNN. "In the absence of that, why are you attacking risk-based pricing?"
Industry representatives have argued that new consumer protections ordered by the Federal Reserve in December are adequate and should be given a chance to work.
Consumer advocates argue those rules don't go far enough and note that they don't take effect for another 18 months and could easily be overturned by a less consumer-friendly administration in the future.
Statistics show rise in consumer debt
In support of its position, the White House released some statistics on consumer credit card debt. It noted that U.S. credit card debt has increased by 25 percent over the past decade, to $963 billion as of January 2009.
Nearly half of all U.S. families carry a balance on their credit cards, with an median debt of $3,000 and an average of $7,300. Of those carrying a balance, one-fifth are charged an interest rate in excess of 20 percent, according to administration figures.
The White House said credit card holders pay a reported $15 billion in penalties and late fees every year, accounting for an estimated 10 percent of all revenue for card issuers.
