I had the lucky chance to attend the Senate hearing on credit cards this morning, and to hear Professor Warren take on the credit card giants, just a few seats over. As the first witness, she detailed the tricks and traps of credit cards, a theme that I was excited to see picked up by a number of Senators in the question/answer period. Said Professor Warren, “No one needs to be an engineer to buy a toaster. No one needs to be a crash test scientist to buy a car. And no one should need to be a lawyer to take on a credit card.”

This seemed to hit home with a number of Senators – maybe for the common sense reason that we have created more comprehensive consumer safety regulations for just about every product OTHER than credit cards (food, prescription drugs, cars, household products…) Credit card marketing practices came under the lens too. The JP Morgan Chase rep said defensively “we do not market to minors, nor do we market to dogs.” Not so clear. Senator Menendez mentioned his State Director’s 2-year-old son just got his first credit card application. So it seems “if you have a pulse you can get a credit card.” I wouldn't be so sure about no marketing to dogs either.

30 pages – that’s the length of the average credit card contract today, compared to a single page in 1980. I wonder how many pages that would be in 12 point font? Some of the tricks and traps buried in this incomprehensible mess: [1] Double-cycle billing (where the bank continues to charge you interest on the part of the loan you’ve already paid off); and [2] Universal default (where credit cards wallop you with substantially higher interest and fees, based on your history with other creditors, even if you’ve made every single payment to this one on time.) Then there’s: [3] Abusive definition and timing of fees (notice credit cards hit you with the same $35 penalty whether you make your payment 1 hour late or 3 months late.) Plus there’s: [4] retroactive rate changes (common practice is that credit cards raise your APR not only for future purchases, but also for the entire existing balance on your card.)

Behind all the individual predatory practices is the reality that credit cards companies have no incentive to institute consumer-friendly practices themselves. As Senator Shelby pointed out, if one of the credit cards DID make the move to decrease abusive fees, “others with worse practices would gain a competitive advantage.” All this ties back to the reality that the credit card market is broken. Said Professor Warren, fees are not calibrated to risk, “fees are calibrated to what credit card companies can charge without the customer canceling the card.” She also reminded Senators that the market does not reward clean vs. dangerous cards when a consumer can’t tell the difference. And the sweet spot for credit card companies? “Customers who stumble but don’t quite collapse.”