By Brian O’Connell
After meeting with the chief executives from the top credit card companies, the Obama Administration has clarified its plan to simplify and even cap high interest rates on consumer credit card programs.
In a White House speech following up on the April 23 meeting with credit card executives, President Obama laid out his four-point plan in tackling high card rates.
Above all else, Obama seems to want to “dumb down” credit cards so consumers won’t get whacked with high fees and rates they didn’t see coming. "Every credit card issuer has to issue a plain vanilla easy-to-understand, simplest possible credit card that would be the default credit card that the average user can feel comfortable with," noted the President.
Past that, banks and credit card companies can soon expect reform proposals coming out of Washington in four key areas:
1. Strong consumer protections against “any time, any reason” credit card rate hikes.
2. “Plain Jane” credit card statements, especially regarding how fees are structured. The President went out of his way at his White House speech to warn card companies about hiding big fees in the “fine print”.
3. A central, online platform where card customers can compare credit card terms from competing vendors.
4. More regulations and oversight on credit card companies. Somewhat cryptically, Obama allowed that card companies should be able to earn a “reasonable” profit – but no word on what “reasonable” means.
Right now there is no law that says credit card companies cannot raise rates, although legislation, called the “Credit Cardholders’ Bill of Rights,” is winding its way through Congress. The Pew Foundation is out with a new study saying that 93% of credit cards offered by the largest 12 issuers have contract terms that allow them to hike rates at any time, for any reason.
Consequently, look for Washington to craft legislation that would do the following:
While the credit card industry gears up for a fight to thwart any major reforms, consumers continue to struggle to pay their card bills. Credit card delinquencies reached 8.5% in March, the highest since 1984.
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