Tuesday may have ushered in a historic first for the White House, but that’s not all the 2008 election may bring.
Consumer advocates, credit counselors, elected officials, debt managers and financial planners say the election of Barack Obama as the 44th U.S. president may mean a new era of consumer protection from oft-criticized banking and credit card industry practices.
If his campaign promises are any indication, an Obama administration will embrace efforts to disclose more clearly credit card and mortgage lending terms and rein in interest rate charges and fees. Observers, however, wonder how much the new president can accomplish given the magnitude of problems he’ll face entering office.
‘Major changes’ ahead
“I think we are going to see some major changes,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, a nationwide group of nonprofit credit counseling agencies. “There may very well be a credit card bill of rights. This may be the only time that it will be possible to pull that off. With public opinion and the mood of Congress and the desire for change in the American people, I think now is the time to do that.”
More regulation and oversight of banking and credit card practices is inevitable, Jones predicts. “There’s no doubt that there has been a kind of freewheeling situation that has not been in the best interest of consumers.”
“Based on how the president-elect has managed his campaign, I think that there is going to be a big agenda. There’s a tremendous amount to be done,” says Susan Keating, president of the National Foundation for Credit Counseling (NFCC), a nationwide consumer credit counseling and debt management organization.
Obama, the candidate, put forth a pro-consumer platform that includes:
- Creating a credit card rating system similar to the five-star rating system used for other consumer products to assess card features. Issuers would be required to display the rating on all credit card applications and solicitation materials.
- Establishing a credit card bill of rights to ban universal default, prohibit unilateral changes to contracts and prohibit charging interest on fees.
- Reforming bankruptcy laws to allow families with huge medical bills to have their medical debts forgiven and allow homeowners filing for bankruptcy to adjust the terms of their mortgage so they can keep their homes.
- Capping interest rates on payday loans at 36 percent and requiring clear disclosure of loan terms.
Consumer groups are anxiously waiting for the president-elect to make good on his promises. However, just how much Obama, the president, can do to address these issues — and how quickly — is uncertain.
So much to do; so little time
In his election night victory speech to supporters in Chicago, Obama appeared to try to manage expectations about what can realistically be accomplished. He faces a daunting list of priorities that will demand his attention long before he is sworn into office on Jan. 20, 2009. They include wars in Iraq and Afghanistan, the Wall Street bailout plan and an economy in a spiraling recession.
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“We may not get there in one year or even one term,” Obama told supporters.
“He’s trying to be sure that people don’t expect everything overnight,” says Jones. “A lot of these things can’t be solved in one term. They are difficult, difficult problems not easily solved.”
He added: “The economy should take first priority.”
Obama’s choice of Delaware Sen. Joe Biden as a vice presidential running mate raised concerns among some about how much Obama would be willing to take on banking interests. Delaware is a pro-banking state, and Biden has supported the industry over the years, including voting for the 2005 bankruptcy reform law, legislation that made it more difficult for consumers to file for protection from creditors. Obama voted against the law.
Keating, from the NFCC, says Obama will do well to invite all interest groups to help solve the financial crisis: “The more experience and the broader the perspective brought to the table, the better the solutions will be. There’s an interest in getting the voices of many to the table to try to figure out what the best solutions are for our future, particularly for the economy.”
There may very well be a credit card bill of rights. This may be the only time that it will be possible to pull that off.
|— David Jones |
president, consumer credit counseling association
Sam Gerdano, executive director of the American Bankruptcy Institute, a nonpartisan educational research foundation, agreed that pressure is on for quick results and passage of something to help debt-ridden consumers. He said members of the current, lame duck 110th Congress, may attempt to pass consumer-friendly legislation and hope that President Bush will sign it before leaving office.
Sen. Christopher Dodd, chairman of the Senate Banking Committee, has already indicated a desire to meet in November to consider both credit card and bankruptcy reform for home mortgage holders. The Credit Cardholders’ Bill of Rights, which passed with bipartisan support in the House in September, may get a second look in the Senate. House Speaker Nancy Pelosi and other congress members want to push a second economic stimulus package totalling as much as $300 million by year’s end.
“Bush might sign some of that,” notes Gerdano, who calls anything passed in the remaining weeks of the 110th Congress a “down payment on what the 111th Congress will do after January.”
He added: “The 111th Congress is probably going to favor a more muscular approach to the credit card lending practices and fees and charges that have come under criticism.”
Peter Garuccio, director of public relations for the American Bankers Association, a major industry trade group, says Obama’s victory was “not unexpected given the polls and general trends” leading up to the election. Credit card issuers are awaiting final rules from the Federal Reserve regulating unfair and deceptive credit card practices. The Fed expects to finalize the rules — which govern disclosure, interest hikes, fees and overdraft protections — by Dec. 31.
“The Fed’s expertise puts them in a unique position to address these card practices issues. For that reason we see it as preferable to legislation,” Garuccio said.
Perhaps in anticipation of Obama’s victory or new Fed rules, banks have voluntarily taken steps to ease consumer credit woes. JPMorgan Chase announced it was re-evaluating billions of dollars in home mortgages and adjusting terms for homeowners facing defaults. A coalition of bankers teamed up with the Consumer Federation of America (CFA) in proposing a credit card debt forgiveness initiative to help families enrolled in credit counseling programs.
Gerdano says proposing a forgiveness program is “an acknowledgement that clearly change is coming. To partner with the CFA is clearly seen as a way to try to offset something which may be more aggressive by Congress.”
Keating, the NFCC president, said Obama should focus on changing Americans’ attitudes about credit and debt — an approach that takes a longer term view of the credit crisis.
“The attitudes and thinking around credit, money management and saving is really problematic in this country,” she says. “We have all-time high debt levels, people who are completely overextending themselves, millions of people losing their homes and no savings. People don’t have anything to fall back on at times when there is interruption of income. As a country, we have moved away from some of the fundamentals and we need to get back to basics. And we need to begin by saving and being responsible about managing the debt we are taking on.”
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See related: Obama, Clinton offer credit card reform plans, Credit cards and the gentleman from Delaware, Biden Part 2: From a banking state but it didn’t pay off, Fed backs rules to curb credit card industry practices, Senate chairman: Credit card reform on tap, House passes consumer credit card bill