Congress’ Response To The Credit Card Outrage

In my last post I discussed some of the outrages perpetrated on the American public by a banking industry that appears to specialize in predatory lending, and that because it can get exorbitant profits by lending without regard to credit-worthiness, takes on increasing risk by lending to people who can ill afford such loans. This was true in the mortgage crisis and it is equally true in the credit card business.

I discussed some of these practices, which result in borrowers paying fees and interest out of all proportion to their debt, charging what, in any context, are usurious rates worthy of the Mafia, and enticing people into becoming victims with teaser rates and minimal monthly payments. Needless, to say this started to cause an increasing number of defaults even before the mortgage crisis exploded.

The banks had an answer to this rising tide of default and it wasn’t by becoming more responsible lenders. Instead they decided that their victims must not be allowed the customary means of discharging their debt through bankruptcy protection, which is provided for in the US Constitution, Article I, Section 8 which says, that Congress shall be empowered “To establish … uniform laws on the subject of bankruptcies throughout the United States and by Title I of the US Code.

But in 2005 after many years of lobbying they pushed through an amendment to the bankruptcy act that made it much more difficult, if not impossible for people to discharge their debt. The late, great, Molly Ivens, who wrote for the Fort Worth Star-Telegram until 2001 and as an independent syndicated columnist until her death in 2007, wrote in various publications, including Creators Syndicate, and I quote in part:

“The bankruptcy bill was a gift to big bankers and credit card companies to begin with, in return for copious showers of campaign contributions to our very own elected representatives in Congress. Same old, same old…

“According to a study by two associate medical professors at Harvard, published in Health Affairs, bankruptcies are indeed shooting up. Between 1981 and 2001, personal bankruptcies rose by 360 percent, but those caused by medical debts rose an astronomical 2,200 percent. Only job loss now slightly leads medical crisis as the reason for bankruptcy -- it's ahead of divorce.

“Another cause, as well the usual usury, is that the card companies push accounts on people whose credit is only marginal -- your teenager has doubtlessly been offered several. Ooops, it turns out many of those with shaky credit can't pay (!), so of course the banks want the law changed even more in their favor. Poor little card companies -- only $30 billion in profits last year.

“Elizabeth Warren, a Harvard law professor, pointed out in testimony before Congress that the bill assumes everyone is in bankruptcy because they're spendthrifts. “ A family driven to bankruptcy by the increased cost of caring for an elderly parent with Alzheimer's disease is treated the same as someone who maxed out his credit cards at a casino. A person who had a heart attack is treated the same as someone who had a spending spree at the shopping mall. A mother who works two jobs and who cannot manage the prescription drugs needed for a child with diabetes is treated the same as someone who charged a bunch of credit cards with only a vague intent to repay."

In the House the bill passed with 229 Republicans and 73 Democrats voting for it. Not one Republican voted against it. Opposing it were 125 Democrats and one independent, Vermont's Bernard Sanders. In the Senate it passed by a vote of 74 to 25. Not one Republican voted against it. Sadly, 18 Democrats voted for it. Even more sadly, among them was our V-P elect, Sen. Biden of Delaware, where most of these banks are incorporated, and Sen. Reid of Nevada, the Democratic majority leader. President Bush promptly signed it into law. President elect Obama, who voted against it, has his work cut out to get anything decent out this coalition.

On the other hand, reform was attempted in March of 2008 when two bills aimed at protecting consumers, especially young consumers were introduced by Senator Menendez D-NJ, entitled the "Credit Card Reform Act of 2008" S2753 and Representative Maloney D-NY HR 5244. Although both bills have there own nuances, a look at the Senate’s version reveals that it has the following provisions:

-Consumers under the age of 21 would be allowed to choose whether to receive credit card solicitations. Cardvissuers could only solicit young consumers if they receive affirmative consent in advance.

-Card issuers could not use the widespread practice of charging higher interest rates on balances incurred before a rate increase went into effect.

-Credit card issuers could not alter credit card agreements while they are in force without specific written consent from the cardholder. This will stop issuers from giving themselves the right in cardholder agreements to increase interest rates and fees at any time, for any reason.

-The bill would require that penalty fees be reasonably related to the costs that credit card issuers incur because of a late or over-limit transgression.

-Credit card issuers could not increase a cardholder's interest rate based on adverse information relating to other creditors they find on the consumer's credit report.

-Card issuers would be required to limit penalty interest rate increases to 7 percent above the previous rate if a consumer fails, for instance, to make a payment on time.

-The Act would prohibit late fees on payments that have been postmarked by a designated date.

-The bill prevents issuers from offering credit or raising credit limits to consumers unless they determine that the consumer will actually be able to make the scheduled payments based on their current income, obligations, and employment status.

-The bill requires lenders to make a firm offer of credit that includes specific — not deceptively low — terms, including the interest rate, fees, and credit line.

It appears that the bill dealt with a serious problem.

It passed in the House by a vote of 312 to 112. 228 Democrats and 84 Republicans voted for it. 1 Democrat and 111 Republicans voted against it. It never got out of committee in the Senate.

Yes, we really NEED CHANGE WE CAN BELIEVE IN. I hope and pray that our new President and our new Congress can and will deliver it.