Before we get to the specifics, here’s what you need to know about the credit card companies: They’re out to shaft you. They’ll shaft you every chance they get.
They’ll shaft you six ways from Sunday. They’ll shaft you with bells on, while whistling the “Hallelujah Chorus.” If they could, they’d shaft you from a helicopter while playing “Ride of the Valkyries,” like Robert Duvall in Apocalypse Now.
This is the essential, salient fact to be learned about credit card companies. It must inform every discussion we have as a nation about financial reform.
Case in point: The White House is announcing the implementation of new consumer protections for cardholders, and guess what? The companies are already finding ways around them. A Presidential statement released on Monday included the following lines: “For too long, credit card companies have had free rein to employ deceptive, unfair tactics that hit responsible consumers with unreasonable costs. But today, we are shifting the balance of power back to the consumer and we are holding the credit card companies accountable.”
But, as a recent Wall Street Journal article says, “card issuers are already deploying new tactics that could prove costly for even the most cautious cardholder.”
The credit card companies are reacting to the fact that the new rules – which, to be clear, are a good thing – will cost the industry an estimated $12 billion per year in revenue. And what are the now-forbidden practices that used to bring the credit card companies their $12 billion every year? Retroactively raising rates. Misleading late fees. Traps that change due dates and then raise rates based on a single missed payment. Double billing. Usurious fees. Soliciting underage consumers.
They were making a billion dollars a month from these scams, and they want that money back. Know what that means? Crooked behavior isn’t just bad behavior anymore: It’s their business model. Locked doors are nothing but a challenge, to any bandit worthy of the name.
“Consider the new offer from Citigroup Inc,” writes the Wall Street Journal. “The bank will give cardholders a credit of 10% … if they pay on time. That sounds enticing, except if you don’t pay on time, your interest rate is 29%.” And card companies can still raise rates on new purchases, as long as they give you 45 days notice.
Card companies are also planning to switch more borrowers to variable-rate cards, which are linked to an index like the prime rate. Those rates are low now, but allow the card companies to charge more when the prime goes up. The WSJ reports that “many card companies have already sent out notices” informing fixed-rate cardholders that they are being switched to a variable-rate plan.
No choice. No options. No “what would you, the customer, prefer?” Face it: They’ll shaft you like the Isaac Hayes song of the same name. That’s right: I’m talking about “shaft” …
The card companies are also starting to charge for transactions that were previously free, like purchases from foreign merchants. Even if the products are sold using US dollars as the currency, they’ve begun sticking their customers with new surcharges: 2% for Discover and 3% for Citi and Bank of America.
American Express has another new strategem, too. Their popular rewards program now has a little twist: You can lose your points – all of them – if you’re late even once with your payment. Thought you were getting something extra for staying at that Hilton or flying Delta? Guess again.
And more fees are coming. Many more cards will start charging annual fees. Fifth Third Bancorp, for example, has started charging $19 if customers don’t use their card during a year.
The moral of the story? We don’t just need consumer protection legislation. We also need a consumer protection agency – one with enough resources to stay on top of the credit card companies and ensure that they do the right thing, and with enough teeth to punish them if they don’t. All the actions described above are legal under current legislation, but the ways card companies carry them out can be abusive without proper oversight. Companies could phrase notices evasively or send them deceptively packaged envelopes. They could impose penalties even when proper notice hasn’t been given at all. Consumers need the ability to report abuses to a single agency with the ability to act.
Barney Frank understands this. That’s why he sent out a link to notification letters that credit card companies issued in response to the new rules (pdf), together with this statement:
“”These letters indicate that Americans are now seeing the benefits of the CARD Act. It was unfortunately the case that some banks tried to game the system after we passed the bill into law, but their actions provide further evidence of our need for a Consumer Financial Protection Agency. While the House did pass a bill to speed up the implementation date of the CARD Act, there was an inevitable delay in the legislative process and Republican objections in the Senate blocked the bill. Had the CFPA been in existence we could have moved right away to block the banks’ egregious actions.”
Without the CFPA, legal protections will never keep pace with the new tricks credit card companies will deploy to keep profits at their usurious pre-CARD Act levels. The new law is a good idea, but only a robust agency can put an end to credit card chicanery.
The taxpayers bailed out some of the same institutions that are now involved in these credit card hustles. They deserve thanks, good customer service, and their government’s protection. What they don’t deserve is … the shaft.