Congress nips at heels of credit-card companies
Both the Senate and the House have held hearings this year on what consumer advocates regard as greedy practices by credit-card firms.
from the June 4, 2007 edition
Page 2 of 3
"It has had a little bit of effect on the marketplace," says Travis Plunkett, legislative director of the Consumer Federation of America. "Credit-card companies are trying to stay in front of Congress in order to avoid legislation."
For instance, Citigroup Inc. recently announced it would stop a controversial practice called "universal default." Under the practice, if a customer's credit quality deteriorated with another creditor – say, because of failure to make a timely payment on a car loan – the bank would raise its interest rate on his or her credit card.
Whether Senator Dodd will actually cherry-pick various credit-card reform proposals to push a bill he likes himself remains to be seen. "[It's] too early to tell," says Mr. Plunkett.
One complication is the generosity of the banking and finance industries in making political campaign contributions.
In 2006, for example, commercial banks gave $25 million to federal candidates and parties, according to OpenSecrets.org. New York Sen. Hillary Clinton got the biggest chunk of money given to a senator, $378,000; Dodd was eighth with $176,000. Bank of America alone gave $2 million. In addition, financial and credit companies gave almost $7 million in campaign contributions.
Very few industries in this country have the influence in Congress of the credit companies, says Plunkett. In 2005, he charges, Congress gave the credit-card industry "a gift" – a bill making it more difficult for card users to declare bankruptcy.
Plunkett figures that credit-card companies can afford to trim interest rates and fees. For commercial banks, he says, their card business provides a rate of profit two or three times greater than other aspects of banking.
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