Obama Calls for Credit Card Protections

President Barack Obama said yesterday the nation needs tougher laws to protect consumers who use credit cards. Replying to a question at a town hall meeting in Costa Mesa, Calif., Obama pointed to a study by Elizabeth Warren, a Harvard professor and chairwoman of the Congressional Oversight Panel (COP).  

There’s a woman named Elizabeth Warren…who did a great deal of study around this. And she made a simple point…if you bought a toaster, and the toaster blew up in your face, there would be a law, a consumer safety law, that would protect you from buying that toaster. But if you get a credit card that blows up in your face, that starts off at zero-percent interest…and suddenly, it’s 29 percent; and if you’re late two days, suddenly you just paid another $30—well, somehow that’s okay.

I think generally having some consumer safety, some consumer protection around credit cards, is important.

Obama was referring to one of the COP’s recommendations to Congress in its recent report on the need for regulatory reform of the financial system. Those recommendations reflect many reforms proposed by the AFL-CIO.

In a post at Credit Slips, Christian Weller shows why new credit card laws are needed. He reports that in the fourth quarter of 2008, credit card companies charged off—declared as uncollectible—a whopping 6.3 percent of their debt. This is the second-largest charge-off rate since the Federal Reserve began collecting this data in 1980.

Weller says one of the reasons for the charge-offs is the credit card companies’ greed:

Credit card companies milked every last dollar out of their preferred customers, the so-called “revolvers”—people who carry a balance and make some payments. Higher interest rates, increased fees, and fewer perks were typically in store for these card holders when defaults surged…a number of credit card companies are raising their fees, cutting back on perks associated with their cards, and raising interest rates right now.  Apparently, bilking the customer in the current quarter beats making sure that the customer can still pay the bills next quarter.

In his comments, Obama also reminded consumers to be “more thoughtful” in the way they use credit cards.

I think a lot of people have learned their lesson with credit cards. And credit cards can be an important convenience. But generally speaking, if you’re just running up your credit card and you don’t think that there’s a bill to be paid, you’ve got problems. So all of us, I think, have to be more thoughtful about how we use them, and ultimately we’ve got to take responsibility if we are going on shopping sprees that we can’t afford.

On the other hand, it’s also important that we have consumer safety laws, and that’s something that I want to promote and get done as President of the United States.

Obama’s remarks came the same day Warren and the COP held a hearing on international comparisons on bank bailouts. During the hearing, AFL-CIO Associate General Counsel Damon Silvers, a member of the COP, said the Bush administration policies of buying time in hopes that the nation’s banks and financial markets would return to rational business practices did not work. He adds:

The Obama administration now faces the choice of continuing a failed strategy based on mistaken assumptions, or looking to the lessons of history to craft a new strategy consistent with the values of responsibility, transparency and shared sacrifice that President Obama has rightly asked our nation to embrace.