Testifying on Abuses by Credit Card Companies
This morning Senator Ron Wyden and I are testifying before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit at a hearing in support of a "Credit Cardholder's Bill of Rights." As has been previously discussed on this site, credit card abuses are widespread, well-entrenched and unlikely to end without a legislative ban. I commended the Subcommittee this morning for tackling credit card reform and taking the steps needed to ban unfair practices that are causing so much pain and financial damage to hard-working families; I also commend those of you who have written and commented about these complex (and abusive) practices.
Here's an update on where our legislative efforts stand: over a dozen bills are now pending in the House and Senate to correct credit card abuses.
The Maloney-Frank bill that the House Subcommittee was considering today already has 101 cosponsors. In my testimony today, I supported that bill but recommended including additional consumer protections from my legislation, which I introduced with Senator Claire McCaskill, the Stop Unfair Credit Card Practices Act (S. 1395). Our bill now has ten co-sponsors and has been strongly endorsed by consumer groups, labor unions and the National Small Business Association.
The Levin-McCaskill bill would stop credit card companies from piling on excessive fees; charging interest on debt that is paid on time; charging so-called "trailing interest" that is added between the time a bill is sent out and the date the bill is paid; increasing interest rates on cardholders who pay their credit card bills on time (employing so-called "universal default"); and applying higher rates retroactively to pre-existing credit card debt. While there are differences between our legislation and the other bills being offered, there is a shared focus on provisions to halt unfair practices that attempt to squeeze more money out of even the most responsible cardholders.
Our investigation has already resulted in two credit card issuers voluntarily changing objectionable practices. But it is clear that strong legislation is necessary to ensure fairness to Americans who are trying to keep up with their bills and play by the rules . While the remaining legislative days in this Congress are dwindling, there is still time to enact tough credit card reform.tp
Great, fantastic, about time.
It's a pity, I think, that all this legislation does absolutely nothing to help the victims of the CC companies avarice and greed. You know, those folks that formerly were "Americans who were trying to keep up with their bills and play by the rules."
Now they are just "deadbeats." Right?
:(
April 17, 2008 12:29 PM | Reply | Permalink
Senator Levin,
First of all... I would like to thank you for your good works in this area. It is sorely needed.
However I would like to suggest a more traditional approach to this problem that goes back to at least the 16th century. I am speaking of a Usury Law. To my knowledge there is no federal Usury Statute and our courts have pretty much made the enforcement of state usury laws impossible by allowing the lending institutions to forum shop among the various states and by forcing any usury action to made in federal court.
It occurs to me that if we had an enforceable usury statute that dictated a ceiling interest rate and/or require that the lenders state a maximum effective interest rate (ala a after the fact, after the fees APR) it would greatly level the playing field and allow the consumers to enter into such contracts with a better understanding of their worst case scenario.
Under the scenario that I have outlined the lender would calculate interest on the unpaid balance at whatever the nominal (base) rate was on the contract and they could add late fees or overdraft fees or whatever under the terms of the contract but periodically the lender would be required to calculate the effective 'APR' associated with the contract and the APR calculation would include any fees that were in fact related to the time value of money. If the effective APR was higher than the APR in the statute or stated to be the max in the contract then the lender would recalculate the effective finance charge at the APR and refund to the lender the difference.
April 17, 2008 12:47 PM | Reply | Permalink
Sadly, there are no actual political, economic, or technical principles involved here on the Democratic side of this fake-debate other than, of course, "Hold Harmless!".
Democrats -- now "in control" of Congress and riding on a tide of new hires on K-Street -- just love to "Hold Harmless!" and "Jes' He'p Ever'body!", especially their crazy heirarchy of corruption and seniority.
The Democratic Leadership, that would be Majority Leader Joe Lieberman and Speaker Steney Hoyer, harvest campaign contributions by threatening monopolies with regulations which would cost a lot to implement but which, for a fee, Democratic legislators are willing to water-down, modify, or just waive altogether.
So, by the time these negotiations end, "all the parties agree!", complex, meaning flimsy and ineffectual, excuse me, "voluntary", statutes (about 10 k$/page) written by revolving-door staff and lobbyists pass out of commttee that cost the monopolies a litte but actually increase the monopoly rent collected by them, as the chosen instruments of our ruling elite, as government concession-holders and concession-tenders, to use technical language.
Of course, the monopoly rent is shared with the political extortionists like the DSCC/DCCC. It is what they do.
The GOP is somewhat different, doing something of the same at the wholesale level in return for shifting taxes (indirect taxes) onto the middle class. This is ideology-driven, bigger, and more damaging. But, of course, the Democrats do not so much oppose this as just whine about it for, in effect, the GOP submits a corrupt, but low, bid for lobby support.
Remember that when the Democrats took over in 2007, the lobby grew and, since then, not even the most criminal or improvident of "financial institutions" have gone to jail or out of business. That is how the Democrats and the GOP collaborate to redistribute money from ordinary tax- and rate-payers to the Democrats patrons and pimps.
The principle which should be involved, of course, is the extinguishing of monopoly rent through a mix of government and monopoly regulation. Government regulation would (a) increase market entry while upholding technical standards and reliable business practices, while market regulation would (b) extinguish the corrupt or incompetent firms.
Of course, it is the corrupt and competent firms that Senator Levin seeks to protect, since ...
To quote "Lamar" in The Big Easy, ...
"Mah deah, Lamah only defends sleazebags, since sleazebags deserve the best repreeesentation money can by!"
April 17, 2008 1:09 PM | Reply | Permalink
I hope you have Elizabeth Warren there with you.
She's one of the few real advocates for the rest of us, you know, the 90% or so that aren't rich, or well-heeled Senators.
April 17, 2008 1:09 PM | Reply | Permalink
Senator Levin, Last year around this time I stayed up late for 2-3 hours watching your hearings on the abusive and usurious Credit Card industry. Thank you for that hearing. It seems that no one else besides you and Prof. Warren (and Dave Ramsey) have been keeping up the fight since then. (As evidenced by that hearing a few weeks ago where the regular cardholder witnesses were unfairly silenced.)
Thank you for your great work!
I believe ending Credit Card abuses (a majority of their practices) is the key to beginning to hopefully restore the Middle Class.
THANKS AGAIN!!
April 17, 2008 1:23 PM | Reply | Permalink
So, Senator LEVIN has closed how many DoD installations in CT? Again, the very essence of "transactional" politics is providing small- change "protection" for "consumers" while whoring for the credit care issuers and their lobbyists -- the whole basis for the DSCC/DCCC.
Again, who is harmed to the tune of, actually, the term now is "trillions", in exchange for the "billions" or "millions" at stake in the Senator's 100 k$ pool of large donors?
This is pseudo-progressive window-dressing for the DSCC/DCCC.
Trust me populist Democrats a century ago would have seen throught this trivia.
April 17, 2008 1:33 PM | Reply | Permalink
What the heck are you talking about?
Seriously, drop the imperious tone, full of insinuation, and tell us your gripes in plain English.
Also, do you think Levin is a Senator from CT? He's straight-up MI, Great Lakes and Mitten, boy-eee!
April 17, 2008 2:30 PM | Reply | Permalink
I think you are confusing Levin with Biden. Biden is from CT and is absolutely in the pocket of the credit card companies. Snarky commenters refer to him as Biden (D-MBNA).
April 17, 2008 2:42 PM | Reply | Permalink
Wha?
I'M from Connecticut, our Senators are Dodd and Lieberman. Joe Biden is a Senator from Delaware.
Good Grief!
April 17, 2008 6:17 PM | Reply | Permalink
MI - Levin (Esteemed)
CT - Dodd (Esteemed)
Liebertraitor (NOT-esteemed)
DE - Biden
SD and DE issue the most Criedt Cards, so I can't comment on Biden's relationship with CC co's. He's great at foreign policy, I know that.
May 25, 2008 5:02 AM | Reply | Permalink
Sen. Levin, I hope you (or your staffers) are reading these comments because I am very, very much interested in your legislation.
Many, many Americans pay their credit cards online. It's faster, more convenient, saves postage and even helps reduce carbon emissions. But did you know that you often cannot pay your bill on the due date listed on your statement? I found out the following by hard experience:
1) Washington Mutual will charge you a $14.95 fee for an 'express' payment if you try to pay on the same day as the due date. This is NOT the same as paying after the cutoff time for that day; that is a separate matter. (I'll cover that below) Even if you pay at 12:01 am on the due date, they ding you $14.95. I have credit cards from B of A and Chase and a small bank in Nebraska and none of them do this. I called up WaMu to discuss this matter and they could not give me any good rationale for this fee; it's just 'the rules', I was told. I told them it was predatory.
2) Bank of America will NOT accept online payments scheduled for weekends and bank holidays. What, did computers get a fabulous new union which gives them those days off? Again, no other bank engages in this predatory practice.
3) Finally, nearly every bank has a cutoff time for submitting online payments for same-day posting. In some cases this cutoff time is absurdly early, especially if you live in California or in Arizona when daylight time is observed (which means we are on the equivalent of PDT). For instance, one of these banks (I forget which) has a cutoff of 3pm. That's 12 noon for those on the west coast. You can still pay same-day but there is a fee associated, anywhere from $10 to $15. WTF? And as I noted above, WaMu will ding you $14.95 for ANY same-day payments.
I would understand if they would not accept payments at 11:59pm for same-day posting without a fee/penalty. But come on. 12 noon?
To address this issue, I would propose that credit card companies be required to post on their statements, just below the 'due date', the latest date and time which a cardholder can pay their card without additional penalties and fees. That way it is clear, for those who pay online, what the 'real' due date is.
Thank you so much for your attention to this matter of predatory credit card companies. This is one of the reasons why I am a Democrat; a Republican would NEVER be behind this kind of legislation.
April 17, 2008 2:01 PM | Reply | Permalink
how is it enforced?
are these criminal violations or civil?
can they be sued by the cardholder?
you should consider reforming the bankruptcy code to deal with the foreclosure crisis.
April 17, 2008 2:03 PM | Reply | Permalink
oh, one more thing, just in case credit card companies decide to get around any legislation by being clever, I would like to see them required to offer online payment FREE so long as payment is made in a timely manner, that is by the due date (in accordance with the proposals I listed above)
I'm saying this because I can just see the banks doing with online payment, what they did with ATMs. ATMs saved banks tons of money because you used to have to actually go into the bank and stand in line to get your money (I am old enough to remember that, but just barely!) and once they got people used to using them, they started charging for their use. I hope they never are allowed to charge for online payment, considering that it saves them a lot of money by not having to open mail and process checks.
April 17, 2008 2:17 PM | Reply | Permalink
Sen. Levin, constituent here, Kalamazoo, MI.
Thanks for doing something. I've been dealing with credit card debt that snowballed after college. And snowballed some more after a sudden illness and hospital bills. Then snowballed more when a low-rate transfer exploded in interest.
As you likely are aware of, the economic problems of those middle class and under can be sent into a tailspin by any number of factors. Realize that all this indeed does make us "bitter." But we'd be less so if more lawmakers like yourself were able to correct the many economic problems. Or, at least, made an honest effort to serve constituent needs.
April 17, 2008 2:40 PM | Reply | Permalink
No, Biden is from Delaware. And MBNA was bought by Bank of America about 2 years ago.
April 17, 2008 3:22 PM | Reply | Permalink
Thanks Senator Levin!
It is about time that Congress helps consumers, especially since we taxpayers are bailing out irresponsible Investment firms like Bear Stearns.
"applying higher rates retroactively to pre-existing credit card debt." How is this allowed? Why is this not a contract when a purchase is made at a specified interest rate? What other business is allowed to retroactively bill like this? It is unbelievable. I recently had this happen by Bank of America (was my MBNA account) suddenly increasing an existing balance from 7% to 20.99% - really outrageous!
Please use this election year to pressure Senate Republicans up for re-election to enact these changes ASAP. I'd like to see Sen. McCain take a stand on this issue.
I see that campaign contributions from Banks have increased a lot recently - so I will hope for changes, but not hold my breath.
We need Public Campaign Financing - so that Consumers get a fair deal from Congress as much as the Banks do.
April 17, 2008 4:03 PM | Reply | Permalink
Yay! You betcha.
:)
April 17, 2008 6:20 PM | Reply | Permalink
Now, when are we likely to get credit card relief? 2009 at the earliest? And when did "our" Democrats take over the Congress? January 2007?
Election year politicking! Ya gotta love it!
April 17, 2008 4:14 PM | Reply | Permalink
Why not, the sheep are already shorn.
It's not like you can get anymore blood out of them thar stones.
April 17, 2008 7:45 PM | Reply | Permalink
Senator Levin:
We can only hope that the most important change will be enacted: ELIMINATE INSTANT CREDIT!!
If you just get rid of Instant Credit by the CC companies, you'd eliminate Identity Theft, a hideous crime which can ruin your life...
April 17, 2008 4:30 PM | Reply | Permalink
Senator Levin--
Best case scenario, the legislation will do something about existing credit card accounts. People are maxed out and paying ridiculous interest rates; meanwhile, as everyone knows, employment raises tend to not even keep up with inflationary pressures. Americans are caught in the zipper but good, and who wins? Wall Street won't even win down the line if people can't ante up for anything. Everyone's too busy paying for everything to even think about buying anything. So if the legislation misses out existing accounts, then you can plan on about twenty years of austerity and sweat.
April 17, 2008 9:46 PM | Reply | Permalink
Thank you, Senator.
Here's one abuse I hope you are addressing:
I have a Bank of America card.
Once, a couple years ago, I got a "cash advance" of $1000.00 on this account.
The interest on the cash advance is ten percent more than the interest on the remaining balance.
Now as you know, the card companies are allowed to apply my payments first to the "purchases" portion of the balance, so that the "cash advance" portion will not be paid off until last. That lets the cash-advance portion of the balance in effect "fall to the bottom" of the balance. That is bad.
But here's what's even worse:
The interest charged on the "cash advance" portion of the bill is added not to the (lower-interest) "purchases" balance but to the "cash advance" portion of the balance, and so that added interest will also be accruing at the higher interest rate, going forward.
Thus, the "cash advance" portion of my balance is no longer $1000.00. It is now at about $1400.00, and it's increasing every month.
Eventually, if I am not able to pay the whole thing off, the ENTIRE balance of the card will be accruing interest at the much-higher rate.
So this relatively small cash-advance, which I charged several years ago, has become like a cancer in the account: slowly but constantly growing, it is taking over the account until financially, it kills me.
I hope that the legislation you are proposing addresses this matter.
Thanks again for your good work. Too many people in Congress and the Senate are so beholden to the banks that they will not support bills of this nature, that only serve the average, struggling American.
April 18, 2008 6:04 AM | Reply | Permalink