Help for Mainstreet comin’ Right-Up (uh, em, in July 2010)

fuck-with-me-fellasTo hear the credit card companies tell it, curbing their predatory lending practices i.e, raising interest rates on pre-existing balances, and implementing rules allowing consumers a reasonable amount of time to make their credit card payments is no easy feat.

“Compliance with the new rules,” wrote American Express’s President of the Consumer Card Services Group Jud Linville in response to Menendez, “is an enormously complex undertaking that will take us some time to fully implement. Because the new requirements are so tightly interrelated, it would be difficult to implement some of the rules in isolation of the others.”

Citi Cards Executive VP John Carey said : “A radical transformation of the industry business model will be required to sustain industry health under the new regulations… None of these changes can be made hastily if the industry is to act prudently and responsibly.”

But what would be imprudent or irresponsible about deciding immediately — today — that there will be no increases on pre-existing balances, or that monthly statements will be mailed at least 21 days before the payment due date (two requirements of the new rules)? What about those changes are “so tightly interrelated” to the other new rules that they couldn’t happen “in isolation” without the whole house of credit cards tumbling down?

Yet the bankers warn of dire consequences. “It would be impractical,” according to Citi’s Carey, “to implement new rules immediately without imposing significant risk to the systems, not the least of which might be serious inconvenience for our cardmembers.”

You mean more seriously inconvenient than cardmembers having their interest rate jacked up to 29.99% (or higher) if they miss a single payment?

Capital One President Ryan Schnieder pointed that the Fed’s own Director of Consumer and Community Affairs, Sandra Braunstein, said that “considering everything that needs to be done and the interconnectedness of the different rules, [18 months] is a very reasonable time period. In fact, 18 months is a challenge.”

18 months?  Cnsidering how many families are currently struggling with the “challenge” of making ends meet, and how many will sink further into credit card debt between now and July 2010, it doesn’t make sense to — as the president put it in another context — “…make the perfect the enemy of the essential.”

Card members falling behind need relief, and they need it now.  Those changes that can be made now, should be made now (some credit card companies are already in compliance with a number of the new rules; and doing so “in isolation” didn’t destroy the industry).

What’s more, the rules the Fed adopted in December had been proposed in draft form in May 2008 — so it’s not as if the banks hadn’t been forewarned. But something tells me they spent the seven months between May and December trying to derail the new regulations as opposed to getting a head start on getting their ships in order.

Congress needs to make sure the credit card companies are not dragging their feet (the 2nd thing they do best, the first is lying) and “passing reform into law,” as  Senator Menendez puts it, “is the most effective way to do it.”

It’s a compelling argument, one raised at a National Press Club luncheon last week when a questioner asked Fed Chair Bernake.  “Isn’t there something very wrong when banks can borrow at the Fed’s window at less than one percent, but are charging credit card holders interest rates as high as 29 percent?”

Genius (not), Fed Reserve Chairman Bernake didn’t directly take on the point about cheap money for banks but high interest for customers. But, in his letter to Sen. Menendez, Capital One’s Schneider argues that credit cards are typically not financed by money received by the Fed but by packaged credit card debt sold to Wall Street as securities — so the drop in the prime rate has not eased the burden on lenders. “Capital One’s funding in the securitization market,” says Scheider, “is not tied to the Prime rate or any similar index… Thus, notwithstanding decreases in the federal funds rate, when credit losses rise as they have done so dramatically, pricing for our market-based funding rises as well.”

What he doesn’t say is that the market for “credit card receivables” is another example of Wall Street creativity gone awry — and that the hunger for ever-greater profits motivated many credit card companies to offer cards to risky borrowers and to allow customers to accumulate higher and higher amounts of debt. The greater the debt, the more there was to sell off to investors — consequences be damned. So it’s more than a little disingenuous for the bankers to now be blaming “the securitization market” for the credit industry’s woes.

Banks lent irresponsibly and marketed over-aggressively and are now asking their customers — even their “non-delinquent” customers — to pay the price…..and while they’re at it – hand over billions in tax dollars to bail “them” out!


2 Responses

  1. ha, ha, ha — love the photo — this is a great post !!!!!

    You should write for the WSJ !!!

  2. You have a great mind and I will make it my duty to get you more exposure.

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