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Coalition takes battle over card practices to the boardroom

Religion-oriented investors, consumer groups file shareholder proposals

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For the sake of the country's economic well-being and their own long-term prospects, America's credit card issuers should immediately and voluntarily halt some of their "harmful practices," a coalition of religious-oriented investor groups and consumer advocates said Thursday.

Card issuers should "Stand with the American people in the difficult months ahead" by ending practices such as universal default, intentionally complicated cardholder agreements and any-time-any-reason rate hikes, said Mark Regier, stewardship investing services manager for MMA Praxis Mutual Funds.

To that end, the coalition's leaders announced that it had placed nonbinding shareholder resolutions on the ballots of Citigroup, JPMogran Chase and Bank of America for their upcoming annual meetings, challenging each to examine and voluntarily end any "predatory" lending practices.

Regier spoke to reporters on a conference call Thursday, along with representatives of the Interfaith Center on Corporate Responsibility, the Center for Responsible Lending and Consumer Action.

'Tipping point'?
If the industry does not heed the call to police itself, "a tipping point will surely occur," said Consumer Action spokeswoman Linda Sherry, resulting in "negative public relations and increased regulations."

The call for shareholder votes, while nonbinding even if approved, adds another point of pressure to an industry already under plenty of it. Federal banking regulators in December 2008 passed a sweeping package of new credit card rules that pull back sharply on issuers' existing freedom to change the rules of their loans at will. The rules go into effect in July 2010.

Both the U.S. House and Senate are considering separate bills that would put into law many of the regulations, and in some cases pile on additional restrictions. And earlier this week, members of a House watchdog panel expressed concern that banks getting federal bailout money were failing to lend it back out.

Card issuers have reacted to the credit crisis by slashinig credit limits and raising rates, even for people with good credit, sparking widespread outrage among consumers. 

In the conference call Thursday, the coalition members said the banks had brought the trouble on themselves by creating a short-sighted business model that relied on encouraging debt with low introductory rates and then piling on aggressive fees and penalty rates through what Josh Frank called "back-end pricing."

"That formula relies on driving up debt," said Frank, the Center for Responsible Lending's senior researcher. That, coalition members said, is why they want the corporations to self-examine and end any predatory practices.

Shareholders to vote on request for report
For example, when Chase holds its 2009 shareholder meeting in New York City on May 19, it will face a resolution co-sponsored by Praxis,  The Sisters of St. Francis of Philadelphia, Friends Fiduciary Corporation, and The Sisters of the Holy Spirit and Mary Immaculate. These groups ask the company, which is the largest issuer of credit cards in the United States, to prepare a report "evaluating with respect to practices commonly deemed to be predatory, your company's credit card marketing, lending and collection practices and the impact these practices have on borrowers."

In its response, filed in its proxy statement sent to all shareholders, Chase's board recommends a vote against the proposal.

"Our vision is to create lifelong, engaged relationships with our customers by being a trusted provider of financial services. We do not engage in the practices cited by the proponents as 'predatory.'"

In addition, the company says:

  • "We have eliminated practices such as universal default, credit bureau-triggered re-pricing and double-cycle billing.
  • "We do not have any 'fee-harvester' card products where we impose activation or maintenance fees.
  • "We do not engage in 'bait-and-switch' marketing or other practices we deem to be deceptive.
  • "We comply with all regulations related to billing practices, time to make payments, and fee disclosures."

Bank of America's board, in its proxy for its April 29 annual meeting in Charlotte, N.C., also recommends shareholders vote against a similar proposal.

The proposal falsely implies that the Corporation engages in certain predatory practices. In fact, the Corporation is a responsible corporate citizen.

-- Bank of America    
2009 shareholder meeting proxy statement    

"The proposal falsely implies that the Corporation engages in certain predatory practices," its proxy reads. "In fact, the Corporation is a responsible corporate citizen. It does not offer 'fee harvesting' cards. It does not engage in any aggressive, questionable or unethical marketing or servicing practices, whether involving teenagers, college students or others. Contrary to what the proposal suggests, the corporation clearly informs its customers of all terms of its credit card products.

"In addition, the proponent's concerns over abusive credit card practices, high credit card delinquency rates, 'subprime borrowing,' 'fee harvesting cards' and universal default have been or will be addressed by current banking regulations."

In its proxy statement prepared for Citi's 2009 shareholder meeting, it offered similar protestations and a "no" vote recommendation to shareholders. Citi's meeting is April 21 in New York City.

The coalition's investors are also in "active discussions" with American Express, Discover, Capital One and Wells Fargo on similar issues, they said.

'We're successful when corporations are'
Laura Berry, the Interfaith Center's executive director, said the coalition is in no way an enemy of the corporations, but wants to make them take a longer-term view. The center an association of 275 faith-based institutional investors which, Berry said, have a total of $100 billion in capital invested.

"We come at this in many ways at the same side of the table as the companies," she said. "We're successful when corporations are successful. We just expect them to do it in ways that are just and are honorable."

Regier agreed that short-term gain can become long-term pain, citing the subprime mortgage debacle that triggered the current credit crisis as an example.

"What is great and profitable today may bite you in the backside not terribly long from now," he said.

See related: Federal regulators finalize sweeping credit card rules changes, Credit Cardholders' Bill of Rights passes 1st test of 2009, Cardholders beware: The terms, they are a-changing

Published: April 16, 2009


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