The credit card industry needs more accountability, transparency must be improved and unfair rate increases need to come to an end, President Barak Obama urged on Thursday at a White House meeting.
We want to preserve the credit card market but we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with, Obama told reporters after meeting with 13 executives from top banks and companies that issue the cards.
Obama said he wanted new legislation being considered by the U.S. Congress to protect consumers against unfair rate increases and ban abusive fees and penalties.
He also wants the legislation to ensure that credit card forms and statements are in plain language. No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out, Obama said.
Obama felt confident that a solution could soon be reached as he works with the lawmakers on the details.
Cracking down on credit-card practices is a priority on Obama’s agenda as unemployment continues to rise making it harder for consumers to settle monthly balances.
At Thursday's meeting, Mr. Obama outlined a series of principles he believes should be included in any overhaul, including a ban on abusive fees and penalties and unfair rate increases. He said firms should be required to use plain language in all forms and statements and subject to beefed-up monitoring and enforcement.
We want to preserve the credit-card market, Mr. Obama said. But we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with. You know, people finding themselves starting off with a low rate, and next thing they know their interest rates have doubled.
Credit card companies will have strict rules to live by, limiting card companies' ability to raise rates on existing customers and banning certain controversial practices.
New credit card rules for issuers were adopted last year by the Fed but will only become effective in July 2010.
The banking industry has warned that more rules could restrict the flow of credit to consumers at a time when they need it most.
Mr. Obama described the current relationship between consumers and credit-card companies is out of balance.
We think we need to create a new equilibrium where credit is flowing; those who are issuing credit are able to make a reasonable profit, but they're doing so in a way that is responsible, and consumers are not finding themselves in a bad situation that they didn't anticipate, he said.
The legislation advancing in the House would bar issuers from applying payments to the portion of a borrower's balance with the lowest interest rate. It would also prohibit them from charging interest on parts of the balance that were already paid on time, a practice known as double-cycle billing.
In addition, it requires card companies to give customers 45 days' notice before raising rates and prevents them from raising rates on existing balances in most circumstances.
The Senate legislation would go further by placing a host of restrictions on credit-card transaction fees.