Congress Changes Credit Cards
In late January, Senator Chris Dodd held hearings on credit card practices, sternly warning credit card companies to clean up their practices or face new legal restrictions. Nearly every senator on the banking committee chimed in with the same message. Today, Citigroup dropped two of the most criticized features: universal default and anytime interest rate changes. No new legislation, but millions of customers will get a better deal.
The Citigroup shift is an important reminder of the power of the Congressional hearing. So long as the folks in charge of Congress didn't want to upset the credit card companies, the companies kept on adding new tricks and traps. But now direction has changed.
A hearing can draw press to a subject, and more voter awareness of a problem makes Congress more likely to act. When a big player like Citigroup moves, it also makes it harder for others to resist. If enough issuers drop universal default, it becomes easier for Congress or the OCC to regulate the practice to stop the last holdouts.
The Citigroup shift is important for other reasons as well. It is a reminder that the card companies can make profits without these tricks and traps. The profits may not be so high, but the business is still very good.
During the January hearings, senators on both sides of the aisle directed tough questions to the credit card issuers. The senators made it clear that they believed they had found an economic issue that matters to a lot of families. Senator Levin is putting on another round of hearings next week on credit cards, and the House has talked about its own hearings. Will the Citigroup change embolden Congress to move more aggressively?
It is easy to make jokes about a do-nothing Congress, but this small change is important--even if it never shows up on a "legislation-passed" scorecard. And it is a powerful reminder that leadership in Congress makes a real difference.
Comments (23)
A word to the wise: legislate it. Majorities change. There's universal agreement that these are bad practices. Once CITI and one or two others do it, all the COngress is doing is codifying commercial practice. Then if the R's get back in power (or the D's ossify and get corrupt) there will hopefully be enough political will to stop a bill from moving--a far easier task than getting one done.
March 2, 2007 3:28 PM | Reply | Permalink
Of course the changes are important. it is equally important to remember that the credit card companies will change back as soon as they think nobody is looking.
Asking a loan shark to be good is just about as effective as asking a Great White shark not to eat a swimmer. You can do it, and if you use a stick, maybe the shark will turn away, but if it gets hungry the shark knows where to find lunch.
Ron Byers
March 2, 2007 3:56 PM | Reply | Permalink
I agree. It needs to be a law, so when the tide changes, we don't go back to the same old tricks. But this is really good to hear. I still wouldn't do business with Citibank though - Citigroup is into a lot of questionable businesses, and is the leader in consolidating the financial industry, reversing laws created to protect banking customers after what we learned in the Great Depression. They also have no respect at all for financial privacy.
Jim Anderson
The Truth About Credit
Facebook Profile
March 2, 2007 9:04 PM | Reply | Permalink
Let me add in my seconding of legislating this. Shaming them is not enough. As with other bad character traits, they will return to the practice as soon as the political wind changes back in the other direction, or when nobody's looking anymore.
Satellite Sky Blog
Find the Truth. Do Justice.
March 2, 2007 9:35 PM | Reply | Permalink
Last year I received a letter from Chase notifying me of a substantial rate increase on a card. I looked up my credit report, which was fine. So, I called them. I was told that it was due to "increased credit risk" because I was past due on another card from another company. This was actually a bogus claim but one which, by the time I found out about it, was already on my credit report.
However, buried in the text of the mailer is the notice that you are "may" refuse to accept the new rate. According to the person on the phone, if you refuse the new rate, they'll cancel the card and you can pay it off at the old rate. I was pretty hot about it, so that was fine with me. I sent in a refusal and an explanation.
I then called Chase again and was told by a second person that my refusal had been noted and that there was no change in my card status -- IOW, it was not cancelled because I rejected the rate change, and the rate change would not go into effect.
I actually had this happen again, on another Chase account, with the same result.
Circumstances vary, but I believe that anyone who comes into the sights of this universal default mechanism should certainly register dissatisfaction with the bank. In my case, the "increased credit risk" amounted to failure to pay a $25 annual fee on a card I hadn't used in over two years and had forgotten about. Except for that, I have an excellent payment record, a good income and low debt load. I was only an "increased credit risk" for the purposes of jacking my fees.
One moral of the story is that it pays to read that "change of credit card agreement" flyer. I probably threw away 90% of those things unopened before this happened. I personally believe it also pays to call the bank's bluff. If your credit really is tanked, you may not be in a position to take your business elsewhere. But otherwise, you do have a strong hand to play.
Of course, it's also true that I never should have gone through this. So, I'd be happy to see a legislative end to "universal default."
Thanks.
mp
If you have to ask what jazz is, you'll never know.
-- Louis Armstrong
March 3, 2007 4:12 AM | Reply | Permalink
That's just plain fraud. They don't just need a warning, legislation etc. They need to give the money back. That's stealing. And, the leadership should come under criminal indictment for fraud, wire fraud, and other counts.
And in the sentencing hearing, I'd like to suggest that the convicts be remanded to an efficiency apartment, working a minimum wage job, have their educational credentials suspended, and be ordered to pay child support for an orphan. If they can't get all of that done, they are subject to arrears on child support; and remand to county jail until they pay their balance on that. Oh, to help them make ends meet, they can also apply for plenty of credit cards.
And just to show how much I care about them, when they're in the jail cell, we can send them a very attractive brochure on how to avoid becoming a victim of violence or exploitation in the prison or jail system.
Honor: Rick's final choice in Casablanca.
March 3, 2007 8:37 AM | Reply | Permalink
Why be in a contractual relationship with a party who continually tries to decieve you and dig into your pocketbook when you aren't looking? It is just plain foolish.
Jim Anderson
The Truth About Credit
Facebook Profile
March 3, 2007 5:15 PM | Reply | Permalink
Another lame way of trying to solve a problem. Let them do it themselves. Like the industry will get around to it. What they need is an overhaul. Starting with not issuing pre-approved cards to every breathing member of the animal specie. They trap people that are of need because they have no other way and get them in the pay for life new Bankruptcy Law. That is where they should begin. Repeal the law so those that do get trapped will at least have a way out. Unfortunately, we have some Senators on the Left with power gained only by seniority who have been kept in office by the largesse of credit card companies. MNBA Biden? I have a grandson living with me working about 12 hours a week in a minimum wage job receiving 3 to 4 pre-approved solicitations a week. I dread him getting a card. He is the person they are looking for. Trap a youngster, he misses payments, the rates go up and before you know it the bill is the size of a 30 year mortgage and he will be working for life for a credit card company. And the interest they are able to charge is higher than what they jailed mobsters for charging. They are absolutely no different. If ever an industry needed regulation it is this one. What is with South Dakota that lures credit card companies? Its just like the OLD WEST. Its the hangout for the bad guys.
March 4, 2007 6:27 AM | Reply | Permalink
Exactly. If only everyone saw credit card offers the same way most people see spam offers. And that is only because the people using the net tend to be more highly educated on average.
If bankruptcy laws get tougher on individuals and families, then the practice of usury should come to an end.
The work of lending money should be paid for. However, I think the price for that work should meet with a reality check. Much is charged for which no real work is done.
Loans for items that count, education and homes, exist at a lower interest rate.
Credit cards, however, may also be used by some families with unskilled laborers as breadwinners for necessities in trying to make ends meet. Their alternative: the payday loan. They use them to obtain a standard of living they can see others have for their children, and the psychological power of that leverage on young families is immense, however unwise credit card contracts are to sign.
Honor: Rick's final choice in Casablanca.
March 4, 2007 8:02 AM | Reply | Permalink
I know you were agreeing with me, but the intent of my comment was to encourage you to close your account.
Contractual problems aside. Credit cards, or any consumer loan for that matter, is NOT a financial tool. That is a myth born out of trillions of dollars of advertising by banks, over the past 50 to 100 years. Debt adds considerable risk, doesn't bring prosperity to the debtor, and isn't used by wealthy people nearly as much as we are led to believe. There is no "wise use" of debt for consumers, except to avoid it. Debt enslaves the debtor to the lender.
It should not be a legitimate for-profit business IMHO. The profit motives makes the problem worse. Lending should be an act of charity and there should be no interest on it. This would reduce the amount of poor we have significantly. If everyone lived on what they earned, prices would not be so high. Debt is a core contributor to inflation for a variety of reasons. Inflation will eventually cause our currency to be worthless, and even fail. It is inevitable as long as we use debt as a "financial tool".
Jim Anderson
The Truth About Credit
Facebook Profile
P.S. these drop down Ford ads that have started appearing on this blog are extremely irritating. Someone needs to reconsider using ads that cover up what your are trying to read. Pop up ads irritate web users.
March 4, 2007 8:15 PM | Reply | Permalink
"failure to pay a $25 annual fee"
When I am charged an annual fee, I call up and say I don't want to pay it. So far, various cards have told me "OK."
March 5, 2007 9:37 AM | Reply | Permalink
It's something on your computer, not part of the web site. I don't get those.
March 5, 2007 1:19 PM | Reply | Permalink
In a late '40s or early '50s English movie, whose title I forget, the family huddled in the "living room" around one of those Dickensian coin-operated gas heaters that worked, like parking meters, only for a few minutes without more coins.
If these people get their way, that's what we'll all do when we come "home" from the feeding station on a cold winter's day.
March 5, 2007 1:33 PM | Reply | Permalink
Your browser must be blocking them, because they are certainly part of the website. They scroll down a few seconds after I access the page. I don't get them on other websites.
Jim Anderson
The Truth About Credit
Facebook Profile
March 5, 2007 5:33 PM | Reply | Permalink
Why be in a contractual relationship with a party who continually tries to decieve you and dig into your pocketbook when you aren't looking? It is just plain foolish.
umm, because i don't want to live in a tent in the woods and cook my fresh kill over a wood fire. i've done that and it ain't that great a way to live. esp not in connecticut.
anyway, it seems like you kind of missed the point. i was looking.
thanks.
mp
If you have to ask what jazz is, you'll never know.
-- Louis Armstrong
March 5, 2007 6:29 PM | Reply | Permalink
Citigroup may have eliminated one or two tricks, but they have a whole bag. Here's one I just discovered: apparently, they can randomly, without notice, change the length of time you have to pay your bill. In the past, I always had 25 days to pay my bill. Last month, though, they shortened the period to 20 days--without giving me any notice. I ended up being two days late. Of course, I was furious, and called to complain. They waived all the fees and restored my old 25-day payment period. I always pay my bills in full on time, so I guess this trick was devised specifically to catch people who follow the rules. They're bastards and I wish only the most burdensome and costly federal regulation upon them . . .
March 6, 2007 4:15 AM | Reply | Permalink
If that is what you think it will be like without a credit card, you have surely been brainwashed! I live without one and I am doing much better on less money. I also pay attention to whom I do business with now, you don't have to accept being screwed as part of doing business. You have a choice. You actually end up much better off. Only a fool would invite a thief to steal from them, by signing a contract that makes it legal. Sheesh!!
I know most people are dishonest in business these days, but that doesn't mean we have to accept it or live as outcasts. It is a basic principle to avoid agreements you don't understand and cannot be sure you can fulfill. The law assumes such. Just because everybody else does it doesn't make it okay to do.
My point was that despite the fact that you did discover it, because you were looking, you have no idea how many other things are going on that you don't know about. It isn't just about what shows up on your statement. There are contractual terms that will eventually come back to bite you, and when you find out about them it will be too late. Take it from someone who has experienced it - fought it in court (with Citibank) - and lost based on contractual terms that are not explicitly stated in the agreement, and on the fact that they used very high powered attorneys to litigate that had some pretty dirty tricks up their sleeves. You have NO idea how vulnerable you are!!!
As a practical matter, credit card companies have no accountability. They have used contract law to exempt themselves from accountability. We waive it all when we agree to their contract.
Jim Anderson
The Truth About Credit
Facebook ProfileMarch 6, 2007 2:08 PM | Reply | Permalink
If you pay all bills every month, and on time, they lose money on the overhead costs of your account, but let's not forget that they charge the merchants a percentage.
March 6, 2007 2:40 PM | Reply | Permalink
I paid my accunt off every month for over 20 years, never carried a balance, never paid late... until they sprung the trap. I quickly found myself, within a couple months, over my limit of $20,000 in charges I never authorized, but were perfectly legal due to credit card policy not explicitly stated in the agreement. If you are a responsible card holder, they still make money off you, it just isn't profitable because the banking industry has to make money on margin between the interest rate they pay the FRB and what they charge. Their overhead has become so bloated, executive salaries sky high, etc.
It has become impossible for banks to be profitable without pickpocketing customers by the billions. Banks have to have delinquent customers to rape and pillage with credit card loan sharking to insure the survival of the industry. Read about the history of the banking industry and how credit cards turned the industry around in the '80s staving off massive bank failures in the book Credit Card Nation by Robert Manning.
Jim Anderson
The Truth About Credit
Facebook ProfileMarch 7, 2007 8:37 PM | Reply | Permalink
How did you suddenly get $20,000 in charges you never authorized?
March 8, 2007 5:42 AM | Reply | Permalink
I had used my personal credit card when I made corporate purchases for my business, reimbursed on my expense report. As a cardholder making purchases for the corporation, I was deemed an authorized purchaser for the corporation by the credit card companies. This happened with Citibank and MBNA. (this can also happen on corporate cards - except you will be under UCC Codes and exempt from consumer protection laws.)
When vendors started charging my credit card unexpectedly for services I didn't want, and my corporation had disputed with the original vendors, the credit card company allowed the charges to my account without even notifying me, based on a "signature on file" policy. Since the vendor had provided the services from their perspective, although they were in dispute, the credit card company refused to accept my dispute of the charges. The disputed debt now became personally guaranteed debt and beyond my control. The credit card company had allowed my account to go over its limit and enforced "universal default." Even if I had paid my account off, I still had new account terms, and overlimit fees to pay.
After learning of this policy, which I could not find in my card agreement, I wrote all the places I could remember using my card to rescind my card authorization. Once you use a card a single time, that company can charge you again if they believe they have cause to, without notifying you (signature on file). The court sides with the credit card company on this because it is indirectly part of the agreement.
After fighting it in court, I have learned that the best way to approach this and win, is to take an affirmative defense that they must prove I authorized the charges and admit nothing myself if possible. Credit card companies don't keep charge card receipts and therefore do not have a signature approving the charge. There is no "signature on file". But, bank collection attorneys are very good at shifting the burden of proof to the defendant (through questionable tactics I might add), and forcing the accused debtor to prove the debt doesn't exist, which is next to impossible. How do you prove something doesn't exist using court rules? The credit card company just squeals to get out of a subpoena of their records, because they claim the requirement unfarily burdens them. Without their records, I can't prove non-existence, especially if they claim the debt is legitimate and the court accepts weak evidence such as a signed credit card application as authorization of the charges made to the account. In the end they can charge your account at THEIR discretion, and it will hold up in court.
Jim Anderson
The Truth About Credit
Facebook ProfileMarch 8, 2007 9:23 AM | Reply | Permalink
Reading some of the comments and I've noticed several have mentioned about receiving unsolicited credit card applications and they seem to be getting more all the time.
There is a way to opt out of this... Simply go to http://www.ftc.gov/bcp/conline/edcams/credit/index.html and select the Opt Out icon.
March 9, 2007 5:37 PM | Reply | Permalink
Closing accounts good. Getting the credit card industry to pay back everything they stole . . .
Priceless.
Honor: Ilsa's and Rick's decisions in Casablanca.
March 15, 2007 8:21 PM | Reply | Permalink