Having long argued that credit card practices need to be cleaned up, this afternoon the President brought representatives from the credit card industry in to talk about the need for greater consumer protections, a need made all the more urgent by the economic crisis.
A few facts: Almost half of American families currently carry a balance, and for those families the average balance was $7,300 at last check in 2007 (the median was $3,000). Meanwhile, penalty fees on credit cards are around $15 billion annually, an estimated 10 percent of total credit card industry revenues -- one-fifth of those carrying credit card debt pay an interest rate above 20 percent.
Against that backdrop, with Congressional negotiations on legislation getting off the ground, and having acknowledged that neither credit cards not credit card companies are inherently bad, President Obama made clear
that some new lines in the sand needed to be drawn.
There are going to be some core principles, though, that I want to adhere to, and I mentioned these to all the credit card issuers involved.
First of all, I think that there has to be strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties. The days of any time, any reason rate hikes and late fee traps have to end.
Number two, all the forms and statements that credit card companies send out have to be written in plain language and be in plain sight. No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out.
Number three, we have to make sure that people can comparison shop when it comes to credit cards without being afraid that they're going to be taken advantage of. So we believe that it's important to require firms to make all their contract terms easily accessible online in a fashion that allows people to shop for the best deal for their needs.
Not every consumer is going to have the same needs. And some may want to take on a higher interest rate because it provides them more convenience or it provides them with a higher credit line. But we want to make sure that they can make those comparisons themselves easily. And we think that one of the things that needs to be explored is the possibility that every credit card issuer has to issue a plain vanilla, easy to understand, simplest terms possible credit card as a default credit card that the average user can feel comfortable with.
Finally, we think we need more accountability in the system. And that means more effective oversight and more effective enforcement so that people who are issuing credit cards but violate law, they will feel the full weight of the law.