With credit card delinquencies ramping up and the words “credit” and “crisis” welded together in economic reports, the three remaining major candidates for president have different ways to attack the problem. Democratic Sens. Barack Obama and Hillary Clinton propose activist regulatory solutions, Republican John McCain is mostly mum, but if his overall record shows a greater inclination to let market forces work.
The Democrats are taking aim at card issuer practices including “universal default” — the raising of interest rates after a late payment to any creditor — hidden transfer and interest fees, retroactive application of raised interest rates to existing balances, and payment allocation procedures that keep consumers in debt longer.
Jeannine Kenney, senior policy analyst at Consumers Union, the nonprofit organization that publishes Consumer Reports magazine, says that it’s no surprise that the Democrats are eyeing credit card reform.
“Credit cards and the economic burdens that they impose when issuers use unfair practices affect millions of consumers in a very real way,” Kenney says. “When issuers hike rates when a consumer already has substantial debt greatly increases the monthly financial burdens that they face. And lots of consumers are feeling that pinch since the economy has softened.”
Tamara Draut, director of the economic opportunity program at Demos, a nonprofit organization that examines economic security and democratic reform issues, agrees. “Credit cards are often a safety net for households and current industry policies make it harder and harder for consumers to climb out of debt.”
To help mitigate these burdens, Sens. Clinton and Obama have crafted policies to address what they see as unfair credit card practices.
Clinton’s version is the Fair Credit for Families Agenda. The agenda proposes prohibiting universal default, unilateral changes to interest rates, improving consumer education about credit cards, the creation of a federal Financial Product Safety Commission to oversee lenders and a 30 percent cap on interest rates for credit cards, payday loans and refund anticipation loans.
Obama has put forward a five-star credit card rating system based on issuers’ lending policies that would help consumers select the right card for them, as well as a credit card “Bill of Rights” that would also disallow universal default and other questionable fees and payment systems.
McCain mum on credit card reform
McCain, the presumptive Republican nominee for president, does not have an announced plan in place that addresses credit cards.
“Traditionally, this is an area where there is a very clear difference between Democratic candidates and Republicans,” Draut says. “By and large, Republican members of Congress are much more against the idea of providing consumer protections in this area.”
Linda Sherry, national director of priorities at Consumer Action, a consumer advocacy group concurs, “I think it’s not something that is important to [McCain] at this point in time,” she says.
Not that McCain has no experience with credit cards: According to his most recent personal finance reports, his wife Cindy has a pair of American Express cards, one platinum, one Black, each of which has incurred debt of $100,000 to $250,000.