Monday, September 29, 2008

Banks love bailout, hate credit card curbs

Banks love bailout, hate credit card curbs

David Lazarus

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You've got to love the banking industry.

As our friends in the financial sector were passing the hat among taxpayers last week for $700 billion in bailouts to cover their crappy mortgage investments, they were simultaneously condemning the House of Representatives' passage of a "Credit Cardholders' Bill of Rights," which aims to crack down on some of the industry's more troublesome practices.

The legislation -- HR 5244 -- would, among other things, end card issuers' self-proclaimed right to change interest rates at any time. Instead, a 45-day notice would be required for any increase.

It also would give cardholders more time to pay by requiring issuers to mail bills at least 25 days before the due date, as opposed to the current 14 days.

Similar measures are being considered by the Federal Reserve, the National Assn. of Credit Unions and the Office of Thrift Supervision. But they wouldn't carry the force of law and could be weakened by more industry-friendly regulators down the road.

The House bill still needs to be tackled by the Senate, and it's unclear what its chances are there. The Bush administration has signaled its opposition to the legislation.

"The timing of all this couldn't be more glaring," said Bill Hardekopf, chief exec of LowCards.com, a website that tracks credit card rates and trends. "While banks say they would be tanking without taxpayer money, here comes a bill that would help taxpayers, and the banks say it isn't right.

"I'm amazed that there's not more humility at a time like this."

Humility? The banking industry couldn't have been bolder in its opposition to the House bill. Within minutes of the 312-112 vote approving the legislation, American Bankers Assn. President Edward Yingling issued a statement denouncing the move.

He said the bill would "increase the cost of credit for consumers and small businesses across the country, result in less access to credit for consumers and businesses alike, and may further roil the securities markets -- all at a time when our economy can least afford it."

JPMorgan Chase & Co., which became the largest U.S. bank by deposits Thursday when it acquired much of Washington Mutual Inc., similarly wasted no time in blasting the House bill as the wrong medicine at the wrong time.

"In today's turbulent economic times, consumers deserve a careful and balanced approach when considering potential changes to consumer credit and the credit card industry," the bank said in a statement. "Consumers have benefited from a competitive marketplace that allows for pricing based upon risk."

The banks essentially are arguing that enactment of the Credit Cardholders' Bill of Rights would make plastic more expensive for consumers by preventing issuers from imposing higher rates on riskier customers, although the bill includes no such language.

"We are very concerned that this bill would significantly hinder our ability to price the risks of lending and would result in less credit being made available to creditworthy borrowers at the worst possible time, with generally higher prices for those who do receive credit," said Bank of America Corp. spokeswoman Betty Riess.

Nonsense.

"They're using the I'll-take-my-toys-and-go-home argument," said Linda Sherry, a spokeswoman for Consumer Action. "But that won't be the case. They'll keep fighting for our business."

She said banks would still be able to offer competitive terms for preferred customers. And for riskier customers, she said, banks could still raise rates or even do the unthinkable: turn them down for cards.

Maybe that wouldn't be such a bad thing. According to the Consumer Federation of America, the 50 million U.S. households that carry a credit card balance from month to month face an average debt load of $17,000.

With the economy going down the toilet and home foreclosures at record levels, I can think of more than a few families that would benefit from less plastic in their lives.

A Credit Cardholders' Bill of Rights would level the playing field by protecting consumers from questionable late feesand sudden rate hikes, and requiring clear disclosure of terms and conditions.

That doesn't seem too much to ask of an industry that has no problem asking taxpayers to cover its bad bets.

Enjoy the bailout, boys. This isn't over yet.

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