Oversight in action: A credit to Congress

With 51 votes in the Senate, Democrats fall far short of the numbers they need to break a filibuster (60) or override a veto (67), so their legislative record this session is likely to be meager. But they are already making their mark in another way – oversight.

As the majority party in both houses, Democrats control committee agendas, hearing schedules and witness lists. Perhaps their most important power can be summed up in one word: Subpoena.

An excellent example of this power occurred last week when the Senate Subcommittee on Investigations, headed by Carl Levin of Michigan, summoned three executives of credit card companies to explain some of their more outrageous and abusive practices. Even before the hearing, two of the companies announced changes in those practices and issued apologies to their customers.

Citigroup ended “universal default,” which allows companies to raise credit card interest rates when a customer is late in paying any bill, say from an electric utility or cable provider. Citi also dropped their practice of arbitrarily raising rates at any time for any reason. Now, charges can rise only when a card expires or a customer defaults.

Chase Card Service shelved a particularly pernicious trick, called “double cycle billing,” which allows card companies to level late charges even on customers who pay promptly. Richard Srednicki, the company’s CEO, also apologized to another witness, Wesley Wannamacher, who was socked with huge penalties for slightly exceeding his credit limit to pay for his wedding. “In this case we simply blew it,” Srednicki admitted.

The companies claim they are acting voluntarily, but that’s absurd. As Travis Plunkett, legislative director of the Consumer Federation of America, told the Web site MarketWatch: “Credit-card issuers are announcing unilateral changes in their practices ... because they are now fearful that Congress will legislate in this area and they don’t want that to happen.”

In fact, when Congress passed a bill in 2005 making it harder to declare bankruptcy (a change strongly supported by the credit card companies), Democrats tried and failed to attach amendments correcting some of the very abuses that have now been changed. Republicans, who then ran the Senate and receive large contributions from banking interests, rejected any new regulations.

“The lobbying dollars are all on the side of industry,” says Harvard law professor Elizabeth Warren, an expert on bankruptcy law. “That’s why they get to make the rules.”

No longer. Democrats have their own campaign contributors to pay off – from trial lawyers to trade unions – but when it comes to correcting business malpractice, they are tougher and more independent than the GOP.

Not all the credit for raising these issues goes to politicians, however. Writer and director James Spurlock has made a major contribution with a new book and movie, both called “Maxed Out,” that document the worst excesses of the credit industry.

Spurlock starts with some stunning statistics: Bankruptcy rates are 20 times higher than during the Depression; credit card companies earned $79 billion last year from interest payments and fees; debt causes more college students to drop out than academic problems.

In Spurlock’s view, bankers have made a basic change in their approach: Instead of targeting solid customers who can handle loan payments, they market to poor and vulnerable card carriers who need credit desperately but often fail to meet their payments.

As Spurlock told Steve on NPR’s “The Diane Rehm Show,” the companies don’t want people to pay their bills promptly, they are “setting their customers up for failure” because their real profits come from late fees and confiscatory interest rates than can exceed 30 percent. In the banking business today, he said, “it’s much more profitable to get people to spend money than to save money.”

Two caveats. Credit card companies certainly have a right to use “risk-based pricing.” But they don’t have a right to entrap people with confusing and deceptive practices that bury them under mountains of debt.

More importantly, there is a huge role here for personal responsibility. In the end no one is forced to accept or use a credit card. A caller to NPR, named Kathleen, made a good point, saying she had cut up her credit cards and returned to paying her bills “the way my dad used to do it.” With cash.

But not everyone has Kathleen’s self-discipline or role model. Many consumers need a measure of protection from predatory credit card companies. Congressional oversight provides a good start, but if the banking industry refuses to reform itself, stronger regulation should be the next step.

Steve Roberts’ latest book is “My Fathers’ Houses: Memoir of a Family” (William Morrow, 2005). Steve and Cokie Roberts can be contacted by e-mail at stevecokie@gmail.com.

Copyright 2007, Newspaper Enterprise Assn.

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