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NEXT CRISIS….Credit Card Debt!

obama_biden-credit1For years, credit card companies have been fattening their bottom lines and making huge bonuses by creating an ever-widening array of fees. Late fees, cash-advance fees, over-the-limit fees.

In 2007, lenders collected over $18 billion in penalties and fees.  JPMorgan Chase, the nation’s top credit card lender, recently began charging many of its customers $10 a month for carrying a large balance for too long a time — that’s on top of the interest they are already collecting on those balances.

In December 2008, the Federal Reserve cut its target interest rate to historic lows between 0% and .25% 

BUT…..the credit companies are not passing the interest rate cut the Federal Reserve is offering to them along to you, the consumer.  In fact, they are doing the exact opposite!

Interest rates are escalating.

Earlier this month, Citibank warned customers that if they miss a single payment, they could see their interest go up to 29.99 percent (so nice of them to shave off the .01 to keep it from being 30 percent, isn’t it?). The company also recently raised rates by 3 percent on millions of non-payment-missing customers. Citibank is not alone: Capital One raised its standard rate on good customers by up to 6 points, and American Express raised rates by 2-3 percent on the majority of its customers.

Sen. Chris Dodd, chairman of the Senate Banking Committee has accused the banks of “gouging,” saying, “the list of questionable actions credit card companies are engaged in is lengthy and disturbing.”  Really Senator Dodd?  If you believe that to be the case, why not write legislation that places a cap on the amount of interest credit card companies can charge consumers.  This could be done in the same way an ARM (adjustable rate mortgage) is done by simply placing a percentage above the interest that the credit card company is borrowing.  For example, if a credit card company is borrowing money from the federal reserve at 0% – make a law that would allow that company to charge no more than 10% above the interest they are borrowing, in this case, the maximum interest allowed would be 10%. 

Listen to this…..Chris Dodd is actually saying that he has been fighting these companies for 20 years?  Really, then why is the abuse still happening? 

Perhaps he should send the bankers a Bible bookmarked to Deuteronomy 23:19: “thou shalt not lend upon usury to thy brother.” Indeed, Sen. Bernie Sanders told me last week that he is working on “anti-usury” legislation.

For their part, the bankers have tried to cloak their behavior with corporatespeak. A Citibank spokesman called the rate hikes the result of “severe funding dislocation,” and said, “Citi is repricing a group of customers in our Citi-branded consumer credit card business in the U.S. to appropriately manage these risks.” An AmEx spokeswoman chalked up its rate hike to “the cost of doing business.”

Making such pronouncements particularly galling is the fact that many of the banks summarily raising interest rates and piling on the penalties have received billions in bailout money. Our money. We gave Citi $45 billion, Bank of America $45 billion, JPMorgan $25 billion, AmEx $3.4 billion, Capital One $3.6 billion, and Discover $1.2 billion. In fact, American Express, Capital One, and Discover all converted to bank holding companies to make themselves eligible for bailout funds.

Yet that money seems to have been delivered with no strings attached. Banks cash their bailout checks, then turn around and gouge their most vulnerable customers. Priceless.

One of the ironies of the credit card crisis is that the financial industry laid the foundation for much of the trouble we are seeing with its full-throated — and deep-pocketed — support of the cynically named Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a truly loathsome piece of legislation that opened the door to many of the banking abuses we are witnessing. It made it much tougher for Americans to file for bankruptcy — even the millions of hardworking Americans whose bankruptcy is the result of a serious illness (fully half of all bankruptcies are the result of crushing medical expenses). It also did nothing to rein in the kinds of lending abuses that frequently turn manageable debt into unmanageable personal financial catastrophes.

The financial industry spent $100 million lobbying to get the bill passed — and millions more in campaign contributions. The result was a sweetheart law for the financial industry — with 18 Senate Democrats voting for it.

And the banking lobbyists are at it again.

There are currently several bills in Congress designed to roll back some of the worst provisions of the 2005 legislation. In the Senate, Chris Dodd has introduced The Credit Card Accountability, Responsibility and Disclosure Act (“the Credit CARD Act“). In the House, there is Rep. Carolyn Maloney’s Credit Cardholders’ Bill of Rights. 

The banking industry is pushing back hard. But wait, you might ask, aren’t the banks broke? So where’d they get the money to lobby against credit card reform?

From us. There may not be much transparency about the hundreds of billions of taxpayer dollars doled out through the TARP program, but we know where at least some of the money has gone: into making sure that none of the Bankers Gone Wild behavior that led to the current disaster is curtailed.  

In December, the Fed approved new rules that will, among other things, limit arbitrary rate increases on credit cards, cap some fees, and require the credit card companies to more clearly disclose the often confusing — if not downright misleading — terms customers are agreeing to. But these rules won’t go into effect until July 2010.

Why would the Fed make rules that won’t go into effect for a year and a half? We can’t afford to wait until then.

Congress needs to tell the bankers that their Beltway credit has been denied and pass laws reforming the credit card mess — before the credit card blaze turns into another economic conflagration.

6 Responses

  1. Chris Dodd and Barney Frank are two of the biggest culprits in this entire mess. Remember when the Fresh Prince of Berlin was galavanting all over Europe and he said that the banking committee was HIS committee? These guys are all just as corrupt as the Republicans and the fact that they flaunt themselves as Democrats is repulsive.

  2. I agree Puma SF, both parties share the blame for destroying our economy…..how is it that the American People continue to “re-elect” these liars?

  3. simply brilliant

  4. Ved-dy in-ter-es-tink.

  5. Did O’logo really say “because nobody messes with Joe”?

  6. Yepper, Puma-SF, he most certainly did.

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