Obama, Credit Card Execs Face Off Over Practices

President Barack Obama, fulfilling a campaign pledge, brought credit card company executives to the White House to talk about changing their ways. Lending practices of American credit card companies have triggered adverse reactions from consumers hit with high fees and interest rates.

Obama's efforts are in tandem with a move by lawmakers to rein in abusive credit card practices. He expressed his views at a White House meeting with 13 executives from top banks and companies that issue the cards.

The president's stand on lending practices may be a political win for Obama as many consumers are fed up with deceptive practices and a lack of transparency, and increased penalty fees.

Among those at the White House meeting were executives from Bank of America, American Express, Citigroup, Wells Fargo, JPMorgan Chase, Capital One Financial, Visa and MasterCard.

The meeting came a day after a bill to curb credit card fees and limit penalties cleared a key House committee. The bill, the Credit Cardholders' Bill of Rights, would place into law restrictions on deceptive practices issued by the Federal Reserve in December.

The bill would stop credit card issuers from imposing arbitrary interest rate increases and penalties, and also halt certain billing practices. A separate version of the bill is under review in the Senate.

Bankers have said this will hurt them, as the tighter rules for card issuers would lower fee income at the time when they are trying to climb out of a financial hole created by the collapse of the housing boom.

The American Bankers Association, a trade group, also voiced its concerns that the House bill could reduce the availability of consumer credit and make it more expensive for individuals to borrow. More workers are losing their jobs and credit card defaults are rising to record heights. Lenders have tightened credit limits and closed accounts, moves that fuel anger toward them from consumers and lawmakers.

Summary: Credit Cardholders' Bill of Rights

The proposed "Credit Cardholders' Bill of Rights," provides crucial protections against unfair, but unfortunately common, credit card practices.

Ends Unfair, Arbitrary Interest Rate Increases.
Prevents card companies from unfairly increasing interest rates on existing card balances - retroactive increases are permitted only if a cardholder is more than 30 days late, if a preagreed promotional rate expires, or if the rate adjusts as part of a variable rate.

Requires card companies to give 45 days notice of interest rate increases so consumers can pay off their balances and shop for a better deal.

Lets Consumers Set Hard Credit Limits, Stops Excessive "Over-the-Limit" Fees.
Requires companies to let consumers set their own fixed credit limit, as well as prevents companies from charging "over-the-limit" fees when a cardholder has set a limit, or when a preauthorized credit "hold" pushes a consumer over their limit. Limits to three the number of over-the-limit fees companies can charge for the same transaction - some issuers now charge virtually unlimited fees for a single limit violation.

Ends Unfair Penalties for Cardholders Who Pay on Time.
Ends unfair "double cycle" billing - card companies couldn't charge interest on debt consumers have already paid on time. If a cardholder pays on time and in full, the bill prevents card companies from piling additional fees on balances consisting solely of left-over interest.

Requires Fair Allocation of Consumer Payments.
Many companies credit payments to a cardholder's lowest interest rate balances first, making it impossible for the consumer to pay off high-rate debt. The bill bans this practice, generally requiring payments to be allocated proportionally to balances that have different rates.

Protects Cardholders from Due Date Gimmicks.
Among other measures, requires card companies to mail billing statements 25 calendar days before the due date (up from the current 14 days), and to credit as "on time" payments made before 5 p.m. local time on the due date.

Prevents Companies from Using Misleading Terms and Damaging Consumers' Credit Ratings.
Establishes standard definitions of terms like "fixed rate" and "prime rate" so companies can't mislead or deceive consumers in marketing and advertising. It also gives consumers who are pre-approved for a card the right to reject that card prior to activation without negatively affecting their credit scores.

Protects Vulnerable Consumers From High-Fee Subprime Credit Cards.
Prohibits issuers of subprime cards (where total yearly fixed fees exceed 25 percent of the credit limit) from charging those fees to the card itself. These cards are generally targeted to low-income consumers with weak credit histories.

Bars Issuing Credit Cards to Vulnerable Minors
Prohibits card companies from knowingly issuing cards to individuals under 18 who are not emancipated minors.

Swift Implementation of Provisions
Legislation would be implemented three months following the president signing the legislation into law.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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