Credit Card Abuses

Jake is out today, so I thought I'd take a shot at the Friday NDN Backgrounder. It addresses a critical question that most of us face everyday: whether to spend or save?

With consumers reeling from the recession (and many forced to turn to credit cards to make ends meet), President Barack Obama signed bipartisan legislation today instituting the most significant credit card reforms in 40 years.

The banking industry isn't exactly popular these days, and with so many Americans struggling, Congress finally acted to reign in some of the worst abuses, including massive rate hikes and hidden fees.

The credit card crackdown and Americans' soaring credit card debt is part of a larger question that Simon, Rob and the rest of the team have been asking: to spend or save? Today's NDN Backgrounder provides some of our analysis and commentary on this very important issue:

• The Economic Conversation Enters a New Phase: Putting Consumers Front and Center Now by Simon Rosenberg, Huffington Post, 5/14/09 - Rosenberg writes that the Administration's turn in the national economic conversation from the plight of big institutions and the financial system to what is perhaps the most important part of the story of the Great Recession still is not adequately understood - the weakened state of the American consumer prior to the recent recession and financial collapse.
• Why Obama Is Right to be Focusing on Credit Card Debt by Simon Rosenberg, 5/11/09 - Rosenberg raises a fundamental question NDN has been addressing for months: what is the best course for consumers now? should they borrow and spend, helping fuel a recovery, or should they pay down their debts and clean up their own balance sheets? The answer will help determine how deep and long the Great Recession will be.
• The Housing Crisis and Our National Attititudes Toward Saving by Dr. Robert Shapiro, 4/17/2009 – Shapiro observes that, as a result of the burst of the housing bubble, the Millennial generation will likely be more interested in saving than investing in homes.
• Spend? Save? The debate continues by Simon Rosenberg, 2/11/2009 - Building on a previous post, Rosenberg follows the growing debate about whether American families should be focusing on saving.
• Spend? Save? What Is the Right Course for Everyday Americans? by Simon Rosenberg, 2/3/09 - Rosenberg asks that while there has been much discussion about the need to put money in people's pocket so they will go out and spend, accelerate economic activity and help end the recession, is this really the best course for American families now?
• A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
• Making the Struggle of Every Day People the Central Focus of the National Debate by Simon Rosenberg, 8/17/2008 - As the 2008 presidential campaign entered a crucial phase, Rosenberg argued that political leaders must focus on raising the wages and incomes of Americans.

Let's say you lose your job at a construction company because not as many Americans can afford to buy a house right now. Just because you don't have that job doesn't mean your son doesn't need braces or your daughter needs to go the doctor. So how do you pay for it? Many Americans reach for their credit cards.

Credit card debt has exploded exponentially over the years and is growing even more as people lose jobs and aren't able to turn to family or friends for financial help. In some cases, credit card companies have taken advantage of this recession, raising interest rates to make more money or tacking on hidden fees.

In past years, Congress has tried to do something about this. From 1995 to 2002, I worked for U.S. Sen. Assistant Majority Leader Dick Durbin who feels strongly about this issue. He proposed legislation that required what he called "nutrtional labels" for credit cards. Nothing complicated about it. Labels on boxes of cookies have more information that credit card companies are required to disclose. Durbin's legislation would have required companies to spell out just how much you'd be paying over how long if your balance was X or Y.

Well, the credit card companies won that round, but Durbin has kept at it, as he always does, and his former Senate colleague, now the POTUS, is betting that a public tired of greed and corruption are going call on their Members of Congress to do something about abusive credit card practices.

In his weekly radio and Internet address, President Barack Obama does just that. While the president says our economy shows sign of improvment, we still have a long way to go. And credit companies shouldn't be making a mint off of this recession. The House has passed such legislation; now it's the Senate's turn.

Associated Press' Phil Elliot has this write up:

Obama: Send me credit card legislation this month

By PHILIP ELLIOTT – 3 hours ago WASHINGTON (AP) — Send me a bill that stops credit card companies from taking advantage of consumers, and do it by month's end, President Barack Obama is demanding of Congress.

But there's no guarantee lawmakers will deliver by Memorial Day, and the banking industry is fighting back.

"Americans know that they have a responsibility to live within their means and pay what they owe," Obama said in his weekly radio and Internet address Saturday. "But they also have a right to not get ripped off by the sudden rate hikes, unfair penalties and hidden fees that have become all too common."

Legislation known as the Credit Card Holders' Bill of Rights has passed the House and awaits action in the Senate, possibly in the coming week.

"You shouldn't have to fear that any new credit card is going to come with strings attached, nor should you need a magnifying glass and a reference book to read a credit card application. And the abuses in our credit card industry have only multiplied in the midst of this recession, when Americans can least afford to bear an extra burden," the president said.

The House measure would prohibit double-cycle billing and retroactive rate increases, and prevent companies from giving credit cards to anyone under 18.

Obama wants to sign the legislation by Memorial Day. "There is no time for delay. We need a durable and successful flow of credit in our economy, but we can't tolerate profits that depend upon misleading working families. Those days are over," he said.

President Obama is headed to Albuquerque, New Mexico, this coming Thursday for a town hall meeting to drum up support for the legislation. In the meantime, you can watch the address here.