rabble blogs are the personal pages of some of Canada's most insightful progressive activists and commentators. All opinions belong to the writer; however, writers are expected to adhere to our guidelines. We welcome new bloggers -- contact us for details.

Weekly Audit: Curbing credit card abuses

Please chip in to support more articles like this. Support rabble.ca for as little as $5 per month!

by Zach Carter, TMC MediaWire Blogger

While the bank lobby continues to hold significant clout in Congress, President Barack Obama entered the fray on behalf of consumers Thursday, demanding that lenders put an end to abusive fees and predatory interest rates.

Writing for Air America, former Clinton Labor Secretary Robert Reich highlights parallels between credit card problems, which are just now starting to take a serious toll on bank balance sheets, and the subprime mortgage meltdown that triggered today's economic crisis. In both cases, Reich notes, banks used a vast array of traps to trick people into high-interest loans they couldn't afford. Now that credit card loans are also going bad and eating up bank profits, lenders have deployed another set of fine-print gimmickry to gouge borrowers and make up for the losses.

Banks are currently jacking up interest rates on previously accumulated credit card debt and charging outrageous fees for simple mistakes, like exceeding the credit limit. There is no law that says credit card lenders have to charge such fees—when a borrower hits the credit limit, the company could simply deny the transaction.

Lawmakers have protected the unfair credit card playing field for years. In 2008, a House bill to ban retroactive interest rate hikes, limit abusive fees and rein in deceptive marketing techniques passed by an overwhelming margin, but the banking lobby successfully prevented a similar measure from coming to a vote in the Senate. Sadly, as Mike Lillis emphasizes in The Washington Independent, policy observers are experiencing déjà vu on the current round of credit card legislation.

Earlier this year, the Federal Reserve finalized new regulations that would ban many abuses by credit card lenders, but the rules don't go into effect until July 2010. This absurd delay was the source of much of the initial support for the legislation in Congress: lawmakers had hoped to protect consumers in the middle of a dangerous recession. While versions of the bill have cleared key committees in both the House and Senate, Lillis notes that the bank lobby has already exacted its pound of flesh, convincing members of Congress to delay the effective date of the legislation until—you guessed it—the middle of 2010. Lawmakers insist that the battle isn't over, but we won't know the result until the bills actually go to the floor for a vote, if they get voted on at all. No vote on the legislation is currently scheduled in either chamber.

Amid this Congressional stalemate, Obama met with credit card executives last week to emphasize his administration's support for stronger regulations. Ezra Klein argues that the meeting bodes well for consumers in The American Prospect. The banking lobby routinely fights tighter regulation by claiming that stricter rules will lower profits, which, in turn, will force them to raise interest rates on other loans. If you reign in these abusive practices, the lobbyists say, we'll have to raise interest rates on other borrowers. No administration in recent memory has bothered to challenge banks on the issue. A reporter raised the question at a press conference following Obama's meeing with executives, asking whether the president believes there is a trade-off between credit card industry profits and consumer protection. Klein notes that Obama's answer in the affirmative ("We think that it's been out of balance.") is a statement that has enormous implications for the policy debate, especially in the context of the president's other comments on ensuring the extension of economically productive credit.

"We are confident that we can arrive at something that is commonsensical, something that allows the industry to continue to provide loans and to run a stable business model that's not dependent on bubbles, that's not dependent on people getting over-extended or finding themselves in over their heads," Obama said.

Credit card companies clearly make a lot of money from these tricks and traps, otherwise they wouldn't deploy them. If lenders could easily replace what they currently rake in with income from responsible loans, then there would be no trade-off between consumer protection and bank profits. But for lenders to argue that they need money earned by conning their customers is to admit that their business is dependent on predatory, economically destructive lending. This is not something that a company dependent on taxpayer support wants to acknowledge.

Obama, who has been very lenient with the banking industry, is essentially saying that banks have to earn their profits by playing a useful role in the economy, acknowledging that they have real obligations not just to their shareholders, but to the general public.

Obama's sheer popularity will make it harder for members of Congress to water down regulations, but his willingness to play legislative hardball has already score a major victory over another key bank lobby priority: student loan subsidies. As Steve Benen notes for The Washington Monthly, the government has been giving money to private student loan companies for years in hopes that the funds are used to make responsible loans. In reality, the subsidies are squandered on executive compensation and shareholder dividends. As a solution, Obama proposed eliminating the bank handouts and replacing them with direct government loans to students.

The plan hit a temporary roadblock when Sen. Ben Nelson, D-Neb., tried to scuttle the legislation to benefit lenders in his home state. As Benen explains, the student loan proposal wouldn't have cleared the Senate without Nelson's support. With 60 votes needed for any proposal to clear a filibuster, Obama usually needs every Democrat he can get. But instead of diluting the plan to win over Nelson, Obama just went around him by forging an agreement with negotiators in the House and Senate. The student lending changes will be pushed through the budget reconciliation process, allowing the measure can pass the Senate with just 51 votes, a situation which all but guarantees passage of any measure.

If Obama can win so easily on student loans, he can win on credit cards, but he has to move quickly. Unemployment call centers are being completely overwhelmed by the volume of laid-off workers seeking relief. As Marty Durlin notes for High Country News, The Colorado Department of Labor and Employment is currently taking more than 10 times the call volume it received during the recession of the early 1990s. As job cuts continue to escalate, people are relying more and more on credit cards to fund necessities. The recession is happening right now. Reform can't wait.

This post features links to the best independent, progressive reporting about the economy.

Visit StimulusPlan.NewsLadder.net and Economy.NewsLadder.net for complete lists of articles on the economy, or follow us on Twitter.

And for the best progressive reporting on critical health and immigration issues, check out Healthcare.NewsLadder.net and Immigration.NewsLadder.net.

This is a project of The Media Consortium, a network of 50 leading independent media outlets, and was created by NewsLadder.

Thank you for reading this story…

More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable.

rabble.ca has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.

So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.

And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.


We welcome your comments! rabble.ca embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on rabble.ca and your privacy here. Please keep in mind:


  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.


  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.