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Tilting at Windmills

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February 14, 2008
By: Kevin Drum

POPULISM!....Some excellent bashing of credit card issuers from Barack Obama here. It's frankly incomprehensible to me that the second bullet was ever legal in the first place, let alone that it would be even remotely controversial to ban it now. It just goes to show how completely the GOP (and, admittedly, a few factions in the Democratic Party) are in the tank for the financial services industry.

Kevin Drum 3:39 PM Permalink | Trackbacks | Comments (56)

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It's frankly incomprehensible to me that the second bullet was ever legal in the first place, let alone that it would be even remotely controversial to ban it now.

Let me explain why you're wrong, in modern American political parlance:

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Posted by: Grand Moff Texan on February 14, 2008 at 3:46 PM | PERMALINK

Why limit your complaint to the grip financial services have on Congress? What of Big Pharma, petro/mining/chemical, military-industrial, insurance and a host of other sectors? It's all about writing checks and lots of people write the checks.

Posted by: steve duncan on February 14, 2008 at 3:48 PM | PERMALINK

Kevin

Every day I interview debtors who have been sunk by credit card debt. Nearly all of them point to surprise fees and hidden charges as being the culprit. Nobody seems to be able to get out under credit card debt once they are a month or two behind.

If anybody ever deserved waterboarding, credit card executives, and their Congressional enablers like Joe Biden, would be at the top of my list.

And yes every listed abuse is real and a real problem for millions of card users.

Posted by: Corpus Juris on February 14, 2008 at 3:58 PM | PERMALINK

The problem with doing away with retroactive interest rates, is that you then couldn't do what I have frequently done: ask for and get a lower interest rate that applies to your old debt. It goes both ways.

Posted by: Joe on February 14, 2008 at 3:59 PM | PERMALINK

Since Obama's core supporters are all latte drinking, wine guzzling internet addicts, I will be demanding a platform of cheap Bordeaux imports and along with my free lifetime internet access.

Posted by: swarty on February 14, 2008 at 4:01 PM | PERMALINK

Joe, why not? There is nothing reciprocal about a Credit Card Agreements. There are only bad terms for the user that are constantly made worse.

Posted by: Corpus Juris on February 14, 2008 at 4:03 PM | PERMALINK

Corpus: why not what?

Posted by: Joe on February 14, 2008 at 4:06 PM | PERMALINK

Joe,

The fact is Sen Obama is prohibiting people from changing the interest rate on money already loaned.

Now, if you want a third party to take over that debt for better terms than you currently have, you can do that.

What he is saying is that you can't have arbitrary undefined retroactive changes in interest rate unless both sides agree.

Posted by: exhuming mccarthy on February 14, 2008 at 4:07 PM | PERMALINK

Kevin,

You are really surprised? When you borrow from a credit card company, you are not borrowing at a fixed rate. Of course, I should not be surprised with all the talk about freezing adjustable rate mortgages, as well.

Posted by: Yancey Ward on February 14, 2008 at 4:10 PM | PERMALINK

It seems like a wash to me. Credit card companies will fight it tooth and nail without any practical benefit to consumers. If people want to get out of debt, they could declare bankruptcy. Oh wait, they can't really do that anymore. Obama tried to go after Hillary on that score during a debate or two, but he hasn't followed up. Instead, he comes up with this? Same old, same old.

I mean, if you're gonna get into a battle royal with big money interests, make it over something worth fighting for.

Posted by: Phil on February 14, 2008 at 4:13 PM | PERMALINK

Joe,

Why not do away with retroactive interest rates?

If you think about it retroactive interest rates are horribly unfair. You buy a product for X. You put it on your credit card, calculating it is going to cost you X+Y. You figure you can pay for the product over 6 months given your income. You make all of your payments on time, every time, but suddenly the product costs you X+Z. If you had known in the beginning you would never have purchased the product. There is no reason for the increase except to bolster the credit card company's profit.

Posted by: Corpus Juris on February 14, 2008 at 4:14 PM | PERMALINK

"Instead of letting you freely negotiate for credit, Barack Obama will tell you what you want and need, citizen."

Posted by: Al on February 14, 2008 at 4:16 PM | PERMALINK

The difference is that you asked for it. They had the option of not giving it to you.

Let's give the credit card companies the same deal. They can ask you if they can raise the rate on your old debt, and you can decide whether to accept.

Posted by: DR on February 14, 2008 at 4:17 PM | PERMALINK

Oh, I know. I'm just saying, sometimes it's to your benefit. But yes, both parties should have to agree. On the flip side of the coin, I have no problem with credit card companies saying: you are a risk, or, we want to raise your interest rates, do you agree? If not, we freeze your credit line and you finish paying off your debt at the old agreed rate.

Posted by: Joe on February 14, 2008 at 4:17 PM | PERMALINK

Most of us find that negotiating with credit card companies is rarely ever to our benefit. The only time they are willing to deal is when they are worried we will file bankruptcy.

Posted by: Corpus Juris on February 14, 2008 at 4:20 PM | PERMALINK

BTW, huge kudos to Obama for this.

Posted by: DR on February 14, 2008 at 4:20 PM | PERMALINK

Yancey,

The problem isn't that you aren't borrowing at a fixed rate, it is that you are borrowing at an undefined rate that can change at any time for any or no reason.

With an adjustable rate mortgage, it is tied into LIBOR or some other objective measure. That is fine, but if you have an undefined measure, without limit, how can you plan for that?

Posted by: exhuming mccarthy on February 14, 2008 at 4:23 PM | PERMALINK

Not true Corpus. As every money counselor will tell you, it pays to call and negotiate. It works almost every time for me. Just call every 3 months or so and say, my rate is too high. Lower it or I was transfer the debt to another card. And they almost always lower it. I even got a letter in the mail from one card company saying they were arbitrarily raising my rate, and my wife called and not only got them to lower the rate by 3%, but to increase our credit limit. But I guess you have to be in decent shape financially to have leverage. I imagine most card companies won't lower the rate if you've missed a bunch of payments. Oddly enough.

Posted by: Joe on February 14, 2008 at 4:24 PM | PERMALINK

exhuming mccarthy,

If you think you can't plan for it, then don't carry a balance.

Posted by: Yancey Wardq on February 14, 2008 at 4:26 PM | PERMALINK

Corpus, that is why I think simply reinstituting the old bankruptcy law would be preferable. It concentrates a credit card issuer's mind when it knows that a bankruptcy filing is relatively easy.

Posted by: Will Allen on February 14, 2008 at 4:27 PM | PERMALINK

Universal Default is particularly evil.

And Joe -- if they can't just raise interest rates on me any time they want, for any reason, I'm less likely to need to call them and beg for an interest rate reduction.

Posted by: thersites on February 14, 2008 at 4:31 PM | PERMALINK

Joe

You would think that what you say is accurate. In a rational world you would be. Sadly my experience is a little different.

I can't tell you the number of times in the past several months I have been told that credit counseling services can't do a thing until the debtor is several months behind. The companies just aren't in a mood to deal until they think the debtor is about to fold.

Posted by: Corpus Juris on February 14, 2008 at 4:31 PM | PERMALINK

My comment is perhaps more appropriate for the previous threads criticizing Obama for not being "liberal enough". The easy way of expressing my reaction to these calls is that I'm worried that if Obama goes any more populist he's going to get himself shot.

Obama has already talked about reducing our dependence on foreign fuels and the need to address global warming adding (and this is the dangerous part) that it won't be easy because Exxon-Mobil made $11billion in profits last quarter. A hit on the candidate wouldn't even coast 0.001% of their profits. Then there are the medical insurance companies (the middlemen) that Obama wants to eliminate (but Hillary wants to keep - thanks for contributing to her campaign!). Then there are the Lobbyists (and every company or interest group that generate returns thousands of times greater than their investment in those services and campaign contributions). The military contractors. The mercenaries we employ in Iraq. The general contractors we employ in Iraq. Now the credit card companies?

It's not hard to imagine that if Obama wraps up the nomination he'll wind up like Archduke Ferdinand with a dozen or more would-be assassins lining his parade route.

Will we all be shaking our heads regretting that he was too liberal? Probably not - the usual routine is to blame it on a lone crazyman.

Posted by: Augustus on February 14, 2008 at 4:34 PM | PERMALINK

Banks are in much better position than borrowers, that was the reason for limits on interest rate for many years. Long ago, the courts effectively gutted the state laws about usury, but Congress, being a wholly owned subsidiary of the banks, has never done anything to add usury limits at the national level.

Very simply, Congress needs to impose a usury limit of 15-20% APR over the fed funds rate. That limit would count all interest, fees and charges of any sort imposed by the banks in calculating the APR. Real numbers, easily enforced are much better than the alternative soft rules.

Posted by: freelunch on February 14, 2008 at 4:40 PM | PERMALINK

Oh, but the card holder agreed to the terms. Just because they were printed in tiny font in a low contrast color, and in hard to parse legalize is no excuse. the consumer signed the statement. They have been playing a very clever gotcha game here, and a lotta people are getting caight in it.

Joe, they are more than happy to raise your limit. From their standpoint the higher the better. They are trying to make sure you have enough rope to hang yourself with. Then they gotcha! Maybe you are one of the clever ones who can avoid the trap. But, they know that statistically they will entrap enough people that the deal is worth it to them.

Posted by: bigTom on February 14, 2008 at 4:40 PM | PERMALINK

I was at a bankruptcy seminar last week. The theory behind the new bankruptcy law was it would force more people into chapter 13. The number of 13 filings in my district is down from 2003, 2004, and 2005, but not that much. The number of chapter 7 (liquidation) filings is down dramatically from 2005, but is coming back. It is now up to about 2000 levels. Given the code section that says a debtor can have only one discharge every 8 years that we have returned to 2000 levels is an interesting coincidence.

One thing is clear, the costs associated with filing a bankruptcy are up, way up. Poor people are really finding it hard to save the money needed to pay the higher filing and attorney fees, and the additional credit counseling costs.

Posted by: Corpus Juris on February 14, 2008 at 4:41 PM | PERMALINK

It's a good issue for Obama, since on one level it's a kind of goo-goo process reform question about changing the way the budget works, but on another level it's a very bread-and-butter question of sustaining the demand for workers in the construction sector and building infrastructure to keep America plugging along. Yes, we want all those illegal aliens in the construction industry to thrive.

Posted by: Luther on February 14, 2008 at 4:44 PM | PERMALINK

Yancey,

Now you are being absurd. That arguement could be made about anything. Examples:

If you don't like monopolies, start your own company.

America: love it or leave it

etc, etc, etc,

Posted by: exhuming mccarthy on February 14, 2008 at 4:46 PM | PERMALINK

Yeah, there is really good stuff there. If Obama means it (and is there any reason to think he doesn't? - tell me if there is, really) that clinches it for me. Look at this goodie, against the practice long sticking in my craw:

Require Prompt and Fair Crediting of Cardholder Payments: Barack Obama will require credit card issuers to apply payments first to the credit card balance with the highest rate of interest and to minimize finance charges.

Then there's Hillary, who doesn't even want to raise the FICA cap.

Posted by: Neil B. on February 14, 2008 at 4:48 PM | PERMALINK

Augustus,
I'm embarrassed to admit that I missed it when Obama said he wanted to get rid of the insurance companies.

Then again, I was going primarily by his website. Can you show me where he said that?

Posted by: DR on February 14, 2008 at 4:49 PM | PERMALINK

Yes, I am being quite absurd when I advocate people not spend money they don't have, or don't borrow money on terms as bad as that offerred by credit card companies. What was I thinking?

Posted by: Yancey Ward on February 14, 2008 at 4:53 PM | PERMALINK

Not to defend the credit cards or anything, but that's how floating rate lending works, whether consumer or corporate.

If you have a home equity line of credit tied to to changes in the prime rate, then any increases or decreases in the rate apply to the whole loan not just future borrowings.

Posted by: David68 on February 14, 2008 at 4:53 PM | PERMALINK

but that's how floating rate lending works

That would be tolerable. But the rates on some of my credit cards just go up arbitrarily, even when the prime rate doesn't change and I'm not late with any payments.

Posted by: thersites on February 14, 2008 at 4:57 PM | PERMALINK

"A few factions in the Democratic Party"? C'mon, Kevin, "a few factions" start with Sen. MBNA, former presidential candidate Joe Biden.

And, Augustus, if you think Obama is really that liberal, this one posting on credit card interest rates aside, you're an obvious Obamiac.

On financial issues, a real progressive (was never mentioned last year in either House or Senate) would have made a COLA part of the min-wage hike; would have seen the debt and credit crunches coming a year ago, when Dems first got in power, and done something then, etc.

Posted by: SocraticGadfly on February 14, 2008 at 5:00 PM | PERMALINK

...he'll wind up like Archduke Ferdinand with a dozen or more would-be assassins lining his parade route.

If that happens I will be first in line to join the revolution...

Posted by: elmo on February 14, 2008 at 5:02 PM | PERMALINK

Obama is stealing from Hillary once again.

Hillary proposed the Fair Credit for Families Agenda on her website in late January.

Obama is still not going to oppose capping interest rates at 30% !!!!!!!

(&%$^#^%#%@@!!!!!!!

Do your homework. Hillary is the only progressive now.

Posted by: Chrissy on February 14, 2008 at 5:08 PM | PERMALINK

Maybe someone has already beaten me to it, and that’s fine, but wanted you all to know that the House Democrats finally found some balls and have declared Josh Bolten and Harriet Miers in contempt of Congress. White House spokeswench Dana Perino angrily noted that “the 'people's House' should reflect the priorities of the American people, not the fantasies of left-wing bloggers." Are you listening, Kevin?

Posted by: The Conservative Deflator on February 14, 2008 at 5:10 PM | PERMALINK

Chrissy: Hillary is the only progressive now.

Hillary is now considered a progressive? How standards have fallen.

P.S. I feel the same way about Obama.

Posted by: alex on February 14, 2008 at 5:19 PM | PERMALINK

Credit Card companies = debt=holders

debt is a form of financial slavery

It's possible to have debt payments exceed income.

when this happens, savings are a moot point

Posted by: Tom Nicholson on February 14, 2008 at 5:20 PM | PERMALINK

re Obama, if this is such a big deal, why isn't he actually talking about it rather than burying it in some policy paper?

Maybe he's afraid of tapping too deeply into Sara Robinson's "pressurized steam of repressed fury."

Of course, if he would just divide the loaves and fishes and feed the 5,000, we wouldn't need credit cards at all now, would we?

Posted by: SocraticGadfly on February 14, 2008 at 5:48 PM | PERMALINK

Cool it, Barack. Now is not the time to rile up the sharks. You are on a roll. Unless these type statements can result in significant gains in the big states, I cant see any advantage to them until you are elected with strong congressional support. Too bad we can't do some wiretapping of financial 'services' CEOs and their henchpersons. I doubt they will take this kind of communist talk lying down.

Posted by: Michael7843853 G-O/F in 08! on February 14, 2008 at 5:51 PM | PERMALINK

Yes, I am being quite absurd when I advocate people not spend money they don't have, or don't borrow money on terms as bad as that offerred by credit card companies. What was I thinking?

Since you don't believe people shouldn't spend money they don't have, I assume then that you don't have a mortgage but only rent, or, if you own a home, paid for it up front with cash?

Posted by: Stefan on February 14, 2008 at 5:53 PM | PERMALINK

SocraticGadfly, if you had read the Matthew Yglesias piece Kevin links to, you'd know that Obama *did* talk about it during his speech in Jamesville, Wisconsin.

Posted by: casey on February 14, 2008 at 6:17 PM | PERMALINK

Theres a big difference between ones rates flucuating by a couple of points because of changes in a benchmark interest, and suddenly being declared that your old balance is now subject to subprime interest rates. The later is what the credit card companies have been doing. Give someone a low interest rate, wait for them to accumulate a serious ly large balance, then up his rates. Not much different from mafia supported loan sharks in executive clothing, I say.

Posted by: bigTom on February 14, 2008 at 6:22 PM | PERMALINK

Yes, I am being quite absurd

You could have stopped there, Yancey.

Of course, we're all real impressed by your rugged individualism.

Posted by: Gregory on February 14, 2008 at 6:36 PM | PERMALINK

Gadfly

I reported on Obama's Janesville speech this morning at WTWC. Here is what Obama said on the subject of credit cards.

"We need to help families who find themselves in a debt spiral climb out. Since so many who are struggling to keep up with their mortgages are now shifting their debt to credit cards, we have to make sure that credit cards don’t become the next stage in the housing crisis. To make sure that Americans know what they’re signing up for, I’ll institute a five-star rating system to inform consumers about the level of risk involved in every credit card. And we’ll establish a Credit Card Bill of Rights that will ban unilateral changes to a credit card agreement; ban rate changes to debt that’s already incurred; and ban interest on late fees. Americans need to pay what they owe, but they should pay what’s fair, not what fattens profits for some credit card company."

I don't think he is hiding anything. Just because it hasn't been reported in the news isn't his fault.

I am hurt you don't read every word I write. I read all of your stuff.

Posted by: Corpus Juris on February 14, 2008 at 6:51 PM | PERMALINK

I'm with thersites: Even among such a fine list of ways people can get jacked, Universal Default is the worst. If I fail to pay a bill (any single bill, to any source) a different creditor can raise my rates? I pay my BusinessWeek subscription late, and my Capital One rate goes up? I can't figure out how that's legal.

Then again, I am also horrified that it's legal for an insurance company or employer to see my credit, much less hold it against me.

Posted by: filosofickle on February 14, 2008 at 8:18 PM | PERMALINK

Stefan,

I was writing the context of credit cards and the high floating rates people are complaining about here, including Exhuming McCarthy's assertion that it is absurd to advocate not carry a credit card balance.

There is nothing wrong with borrowing for the right purposes, and a mortgage is one of them as long as you don't overextend yourself. Borrowing on a credit card, and not paying it off at the end of the month, with interest rates as high as 20-30% is just simply stupid, and sounds like something that Gregory might do.

And to Everyone Else,

And even more stupid is complaining about floating interest rates on floating interest rate loans. If you don't like them, then don't use them. I certainly don't.

Posted by: Yancey Ward on February 14, 2008 at 9:53 PM | PERMALINK

Yancey,

My husband and I have been financially cautious our whole lives. We pay off all credit card bills as soon as they show up. Credit cards basically save us the trouble of having to withdraw money from the bank on every shopping trip. We also live in an anti-consumerism fashion. Do we really need the flat-screen TV? Do we really need to remodel the kitchen? Consumerism in itself is a habit that should be carefully examined by everyone. It seems to be an obsessive/compulsive disease in the 21st C.

Posted by: nepeta on February 14, 2008 at 10:46 PM | PERMALINK

What I find disgusting is banks offering high credit limits to students and others with little or no income and little or no experience with credit (not wise, you'd think); and then seeking more punitive bankruptcy laws because of high default rates. This isn't much above the level of subscription magazine scams and the like. Captains of industry, indeed. Yes the victims are stupid (that's the point); yes the perpetrators are corrupt.

I'm shocked, shocked! at the default rate.

And yes, this pattern is replicated across a number of industries.

Is it a free market we have, or just a free-for-all?


Posted by: J. Myers on February 14, 2008 at 10:50 PM | PERMALINK

There seems to be a certain naivete that such measures would somehow be costless.

The likely result would be that banks would just raise interest rates for everyone.

Posted by: Robert Merkel on February 14, 2008 at 11:02 PM | PERMALINK

J. Myers: Yes the victims are stupid (that's the point); yes the perpetrators are corrupt.

In years gone by, I believe it was politely known as "loan sharking".

Posted by: alex on February 14, 2008 at 11:14 PM | PERMALINK

Robert Merkel,

The likely result would be that banks would just raise interest rates for everyone.

Well in that case I think we should vote to allow the banks to kill all the poor and vulnerable, seize what little property they have, sell their organs and send their bodies to the glue farm.

That should bring down interest rates.

Oh, yeah, bring back slavery. That should lower prices a bit too.

My point is that I am sick to death of the capitalistic idea that everything is okay if it brings down prices.

Posted by: Tripp on February 15, 2008 at 11:24 AM | PERMALINK

Awesome. I agonized over whom to vote for on Super Tuesday, but this makes me thrilled that I chose Obama.

More power to him!

Posted by: Nancy Irving on February 16, 2008 at 4:48 AM | PERMALINK

Hm, I see that HRC has a program on her website which is quite similar, as Chrissy notes above.

The vote is cast, hwr.

Posted by: Nancy Irving on February 16, 2008 at 5:56 AM | PERMALINK

In case there is still confusion about it, the point of regulation of things like credit is to make the available choices better, since of course we always can choose among whatever options there are at the time - so what.

Posted by: Neil B. on February 16, 2008 at 9:25 AM | PERMALINK




 

 

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