Credit Card Companies Coming Under Scrutiny

We’ve commented in a couple of recent posts (January 14 and January 23) on how credit card companies’ success in price gouging, ahem, extracting revenue from their customers had gone so far as to run the risk of regulatory pushback. We are seeing some initial shots across the industry’s bow.

Today, MarketWatch published :

Members of the Senate Banking Committee are scheduled to convene their first consumer-oriented hearing of the new Congress on Thursday, and examine ways to tighten rules related to the credit-card industry’s billing, marketing and disclosure practices.

New Banking Committee Chairman Christopher Dodd, D-Conn., has long tried to clamp down on the industry, including by requiring companies not to raise fees and interest rates on card-holders who want to cancel a card. Dodd has also sought increased disclosure about the length of time required to pay off balances when making only minimum monthly payments. Dodd and other Democrats have also aimed to curb companies’ targeting of college students….

Democrats have made pocketbook issues like credit cards, predatory lending and student-loan interest rates high priorities since taking over Congress this year. Dodd, who has also announced his intention to run for president in 2008, has laid out an agenda for the committee including expanding home ownership and reforming huge mortgage-finance companies Fannie Mae and Freddie Mac.

The American Bankers Association, which represents credit-card issuers, says it respects lawmakers’ rights to look into card industry issues. But the group believes that Congress should tread carefully. “We remain hopeful that Congress will take no action that directly or indirectly increases consumer costs, reduces availability of credit or otherwise limits competition or innovation in this very dynamic industry,” said Ken Clayton, the banking trade group’s managing director of card policy, in an e-mailed statement.

The panel’s top Republican, Richard Shelby of Alabama, believes it’s appropriate to take a hard look at the industry’s practices, but hasn’t made a decision about the need to write new rules, his spokesman says. Shelby “recognizes the ongoing importance of conducting oversight with respect to the practices and regulation of the credit card marketplace,” said his spokesman, Jonathan Graffeo.

So far, this looks more like kabuki drama than anything serious. The measures the Democrats are considering have merit, but even if they are implemented, they only scratch the surface of the rapacious pricing that has become the norm for those who make the mistake of using credit card debt and missing a payment. The most interesting part is that the ranking Republican is signalling that ha may be willing to play ball.

If the credit card issuers such as Bank of America (BAC) and Citi (C) would show a tad of restraint and rein in some of their pricing, much, perhaps all, of this pressure would go away. But they have gotten used to the fat profits of this product. And Congress isn’t likely to take tough measures until consumers (particularly middle class consumers) are in a good deal more pain. If we go into an economic downturn, expect even more Congressional interest.

Print Friendly, PDF & Email