Tip:
Highlight text to annotate it
X
Jesse Lee: Hey, everybody, my name is Jesse Lee,
I'm the White House online programs director.
We're happy to welcome readers of creditcards.com
today for a chat with Austan Goolsbee here of the Council of
the Economic Advisors, he's been one of the point people on our
policy on credit card reform which the President signed last
year, it's kicking in today, so we wanted to take some questions
on exactly how this works, how this is going to affect your
relationship with your credit card company.
And maybe I'll toss it over to Austan for just some quick
remarks on the day, and we'll get right into your questions.
Austan Goolsbee: Yeah, it's a pretty big day.
Thanks, Jesse, and thanks, everybody, for, you know,
taking the time.
The credit card legislation that we passed last year and the
rules that are going into effect today really start to reverse
the trend that we've seen in the credit card industry where some
credit card companies began engaging in even deceptive
practices or turning fees and penalties into a business model
where they collected more than $20-something billion of fees
last year, and so I think it's a -- you know,
it's going to be a good day for the American consumer,
and it's fitting in with our -- with our broader financial
regulatory reform agenda.
Let's try to prevent the kind of excesses and practices that got
us into this biggest mess since the depression.
Jesse Lee: All right.
Thank you.
So we've been taking questions for about a week,
but there's also a live chat going on right now on creditcards.com,
which I'm keeping an eye on that chat,
we'll be taking as many questions from that as we can.
So let's start from when they came in a couple minutes ago
during that chat.
Let's see.
Jessica Whiat, how will enforcement of the act be
handled, if the consumer feels that the issuer has not
complied, what is the reporting process?
Austan Goolsbee: Well, basically the bank regulators of the bank that
issues the credit card are the ones charged with enforcement.
Now, that is why the administration has pushed for a
single consumer financial protection agency to make it easier.
But for most credit cards, it's the OCC,
and if you go to the OCC's website,
or there's a website called, I believe, dealwithmybank.gov,
in which if you feel that they are still -- if they are
breaking the laws that we're going to talk about here today,
if you say, hey, wait a second, they're not supposed to be able
to raise the interest rate on balances I already charged,
for example, that's forbidden as of today,
if they did that to you anyway, if you go to that,
that's where -- that's where you'd report it,
and I think -- I think you're going to see heightened interest
in that issue from a regulatory perspective.
Jesse Lee: All right.
One of the questions we got over the last week was from Chad in
Utah, and this kind of touches on the question of, you know,
what's the role of personal responsibility in this.
It says, what makes the White House think that the new
disclosure rules will really prevent people from making bad
choices or borrowing too much money,
tell me where else disclosures have worked.
Austan Goolsbee: Well, I think there are a lot of places disclosures
have worked, so rather than go through a list of
those, let's think for a second about what's happening with this
credit card reform act.
It's got two styles of things.
There are many different rules that it puts in place,
but there's two styles of rules.
The first are certain practices that various credit card
companies engaged in that were at the least sneaky,
and in many cases outright deceptive.
So it says they have to send you a bill at least 21 days before
the due date.
They can't raise the interest rate in the first 12 months of a
card, offer you a teaser rate and then pull it back, you know,
five days after you got the card.
The annual fee, if it has an annual fee,
can't exceed 25 percent of the initial credit limit of the card.
So a series of -- series of prohibitions of the kind of
activities that companies had engaged in that are very hard
for people to figure out that they exist.
And then the second style of thing it does,
as Chris -- it was Chris, right, from Utah?
Jesse Lee: It was Chad.
Austan Goolsbee: Chad.
As Chad pointed out, it also puts a big emphasis on
disclosure and transparency so you can hold your credit card
company accountable.
So if they are going to raise the rates,
they have to send you 45 days in advance we are going to raise
your rate for this reason, you have the right to cancel your
card, to switch to a different card, et cetera.
Now, this isn't intended to change the basic dynamic of a
credit card, which is somebody gives you a loan and you're
supposed to pay the money back.
What we're trying to do here is change the most egregiously
deceptive practices and to give consumers,
change the balance of power between you and the credit card
company so that you can take responsibility and hold them accountable.
And I think in many areas you've seen that style of disclosure
and responsibility work very well,
and I think that that's an important building block,
because as me and as Jesse and as everybody else knows,
if you have a credit card, the balance of power is like this
now, you don't -- you lack information,
they've sent you a terms of use that are in legalese,
they are not in plain language, nobody -- nobody knows what
they're -- what they're required to do,
and they are administering fees to the tune of 20,
$30 billion a year, including things like if you -- they set
your credit limit, if you exceed your credit limit,
they don't tell you, they let you exceed it and then apply a
penalty to you for exceeding it.
And so now they simply have to get your -- you have to check a
box that says, I want to be allowed to go over my credit
limit, and then administer a fee.
If you don't check the box, then if you try to purchase over your
credit limit, it just says no, you can't do that.
So I think disclosure plus banning deceptive practices is
actually a pretty strong combination.
Jesse Lee: All right.
And by the way, one of the benefits we have here doing
these chats is we get some instant feedback.
I think it was Rob pointed out that it's not dealwithmybank.gov,
it's helpwithmybank.gov
Austan Goolsbee: Help with my bank.
Jesse Lee: So there you go.
All right.
Austan Goolsbee: That illustrated my mentality,
it's help with the bank, not deal with the bank,
helpwithmybank.gov
Jesse Lee: Yeah.
Austan Goolsbee: That's where you go if you -- for any of the
practices that I'm describing, if you feel like, hey,
wait a minute, that's supposed to be illegal and my bank is
doing that, if you go to helpwithmybank.gov,
that's where you can inquire about it,
you can report it, you can do any of those things.
Jesse Lee: All right.
And I think that's good teamwork, Rob.
All right.
One of the questions we just got was from Judith Anna.
She asks, as these things usually go,
the credit card companies are already creating new ways to
gouge the consumer, will there be follow-up addendum rules to
plug the new greedy grabs that they create to get around this bill.
And this is the kind of question we get with a lot of the reforms
we try to pass around here, so.
Austan Goolsbee: Okay, so I'd say a couple of things.
It's a good style of question, there's an insight in it,
which it says, okay, well, look, they came up with this stuff and
now we're going to get rid of a lot of these things,
what if they start doing a whole bunch of new things.
A, we've got 10 or 12 really significant practices and a
significant change in the balance of power of regular
people vis-a-vis their credit card company,
which I think are really important,
and I invite anybody to go look at them and I think you'll agree
with me that they're very important steps that are being taken.
Several of the things we're doing,
like requiring the credit card companies to put out their
documents in plain language, leave open the possibility of
enforcement, that the principal of the rule can be enforced in a
way that just a specific letter of the law, you know,
they might get into some technicality.
And I do think that the emphasis the administration has put on
consumer financial protection shows you we're trying to think
about the current difficulty that we've got consumer
protection and looking out for consumers in seven different or
eight different agencies, various kinds of financial
regulators, and it would be better if we had one streamlined
process to do that.
But we're going to enforce these 10 or 12 major rules that we're
talking about here, we're going to have a different style of
regulation which allows us to stay after them and say, now,
wait a minute, you're engaging in a new deceptive practice.
And number three, as part of broader regulatory reform,
I think we're going to definitely keep a watchful eye
on maintaining the balance of power.
Jesse Lee: All right.
And, yeah, plenty of questions coming in here on the chat and
keep them coming.
Austan Goolsbee: Getting realtime fact checking,
that's kind of disturbing here.
(laughter)
Jesse Lee: That's transparency for you.
All right, well, so, another thing that creditcards.com
has going here is they're doing kind of an instant poll of
the people in the chat, and the question they've asked is,
I'm afraid that the new law will make it more difficult for me
to get credit.
And you can kind of see the results here where --
Austan Goolsbee: A lot -- you know, 58 percent or something in some
form agree.
Jesse Lee: Right.
Austan Goolsbee: Okay, look, so the issue of tightened credit,
it's not a secret to anybody in this country that's had to go
out and try to get a loan, dealing with a credit card,
try to a get a mortgage or any of those things,
that credit to consumers in the midst of the worst credit crunch
since 1929 has not been an easy place to be.
I do not believe that there is any convincing evidence that
doing things like preventing them from being able to charge
you interest retroactively on balances you already incurred or
engaging in a series of sneaky practices in which they
administer fees that you didn't know about,
I guess the way to say it is, if that's the only way that they
make a business model, then we've got a really pretty
fundamentally broken credit system.
I believe that it's not -- what we are describing here is not
changing the balance of who is credit worthy in any way.
What we're trying to do is require credit card companies to
disclose what their practices are,
that there's nothing wrong with charging fees for being late on
your payments, people, it is their responsibility to pay back
their bills.
But if you have to, for example, notify the customer how long
will it take for them to pay off their balance if they just make
the minimum payment, and they have to put that on your bill,
why would that lead them to tighten the credit on you?
It doesn't -- I don't think that that makes sense.
So I think that better disclosure and transparency in
many ways is going to make this market operate better,
because when we're operating in a land of the sneaky,
a lot of bad things can happen, because people just don't
understand what they're up against.
Jesse Lee: All right.
You touched on this earlier, but we've got a couple of questions
asking for follow-up.
Somebody asked can you please elaborate on how the card act
will help young people specifically.
Austan Goolsbee: Okay.
So for young people, as you know,
I'm -- I'm on leave as a professor at the University of
Chicago, so you -- anybody who is in or around schools,
colleges, high schools, any of those circumstances,
knows that there are some credit card companies who have a --
they target that group specifically,
and there has been a problem -- there have been at least a few
problems where they get people who will not be able to pay the
bill are very likely to run into difficulty,
and they kind of can't get -- they get off on a bad foot at
the very beginning of their credit rating,
that they are going to get them in trouble,
expecting the parents to pay, et cetera.
So what it specifically does for underage customers,
for anybody under 21, there is a heightened rule of documentation
or a requirement of an official cosigner on the card,
so that we are less likely to get people into situations where
they're signing them up for cards and they get on the
treadmill where they kind of can't get off.
Jesse Lee: All right.
Now, we've gotten several questions about this.
Jeff says, I run a small business and our credit card
fees that we pay to banks for transactions have doubled in the
last two years, any chance we could regulate those fees like
most countries do?
And in general, we've got a bunch of questions about how
this affects small businesses.
Austan Goosbee: Okay.
I would say a couple of things, not knowing more detail about
that specific small business.
There are some kinds of fees that, as of today,
they can't have fees like that anymore, including restrictions,
as I've said, on fees if you go over your credit limit,
that they have to give you the opportunity to stop the charges
rather than charging you going over your limit and applying a
fee, that there would be a limit on the annual fee,
that it can't be more than 25 percent of your credit balance,
and a series of a few others.
I think it's important that we think about the fees,
because as I outlined at the beginning,
they collected some $20-something billion of fees
last year, and there are some companies that appeared to have
tried to turn sneaky fees into a business model,
rather than just using we're making you a loan,
you pay it back with interest as the business model for a credit card.
So I think focus on fees is a major component.
On small business, a lot of small businesses use credit
cards as their financing.
Now, I want to just make a plug for the rest of the Obama's --
the Obama administration program on dealing with financial and
job market matters, that we've got numerous aspects trying to
increase the credit to small business,
either through use of TARP resources to give money to local
and community banks to make more lending to small business,
the President has called for a tax credit to encourage small
business and reward small businesses for hiring new people
or for expanding their payroll, cutting the capital gains rate
to zero for small business owners.
So a series of things outside the credit card world we're
doing to try to stimulate the economy,
small business specifically.
In the case of credit cards, small business will be protected
by the same kind of disclosure requirements and forbidding of
fees that individuals are, but it doesn't go farther than that
specifically on small business.
Jesse Lee: All right.
This could probably be a very simple one, but Moe S. asks,
are these reforms permanent or do they expire after a certain
time period?
Austan Goolsbee: No, no, they are permanent.
Some of the permanent reforms relate to things that are time
limited, like if they offer you a teaser rate,
that has to stay in place for 12 months.
But these reforms are definitely permanent.
Jesse Lee: All right.
One of the questions that we've gotten a few times,
which is reasonable, but it's a tough one in any kind of
situation like that, is in the time between when this bill got
signed and now, it seemed like a lot of credit cards kind of,
you know, saw it coming and jumped ahead and tried to raise
up rates as much as they could get away with now.
I mean, is there anything to do about that or was there any way
to prevent that?
Austan Goolsbee: I think it was -- there needed to be a transition period.
We've actually seen -- you may find it hard to believe,
but we documented many of the biggest banks publicly announced
that they would start abiding by the rules that were to come
before the rules went into effect.
Now, it is my understanding that there are some credit card
providers who said, we got to try to get out there and get as
much money as we can before these rules come into effect,
and if that is, I can see that's frustrating.
We're going to end those practices where we are going to
give the opportunity that you can cancel the card,
change the card to someone else if ever they want to raise fees
further, and one of the core components of this is no raising
rates on past balances.
So that will still apply now, so they can try to raise the rates
on stuff that -- that has happened thus far.
But if you have a balance coming forward,
they can't go do anything to essentially the contract you
already signed with them.
Jesse Lee: All right.
Let's see.
The questions are flying fast and furious,
I want to get one of these that --
Austan Goolsbee: Not furious.
Fast and friendly.
Jesse Lee: All right, no, yeah, very friendly.
Let's see.
All right.
You just asked -- Steve had been asking about the existing
balances and existing accounts, I think you just touched on that.
You know, I think another question we've gotten is why not
just flatly put a cap on interest rates that credit cards
can charge.
Austan Goolsbee: Okay.
So the -- as I said, the centerpiece of the -- of the
laws that are coming in today have two parts.
One are getting rid of fees and practices that are very
difficult for consumers to understand or where they engage
in something sneaky.
The second are on a series of things like rate increases,
that they give power to the consumer,
in plain language to the consumer that they can decide,
you know what, I don't want to deal with this card,
if they want to jack my rate up to 30 percent or whatever,
forget them, I'm going with somebody else.
We haven't engaged in the government getting into the
business of declaring these folks are credit worthy,
these folks are not, here's the rates that you have to charge,
instead it's the borrowers got a responsibility to pay,
credit card company has a responsibility to disclose and
to deal with customers honestly and let them operate,
so I think that's the style that we came at it.
Jesse Lee: Got ya.
Well, another question we got, we asked early on,
somebody had a question about personal responsibility, and,
you know, is this bailing out people that kind of by their own
doing got into trouble.
The kind of flip side that we've heard from several people now
is, you know, a lot of people are out of a job,
a lot of people are -- you know, find themselves in, you know,
frankly health issues, you know, health reform is another issue
we're obviously dealing with now,
and really it's just kind of by no fault of their own,
it's because of the economy that they find themselves, you know,
deep in debt.
Is there any kind of way that, you know,
the White House approached that differentiation between those
who are kind of irresponsible and those who, you know,
no fault of their own?
Austan Goolsbee: Well, yes or no.
Here's what I would say about that.
This, and again, I invite everybody to go on and read the
changes that we made last year that are coming in place today.
I think you will agree that these 10 or 12 fundamental
practices that credit card companies will not be allowed to
engage in any longer, and the requirements of disclosure and
transparency that allow you to hold your card company
accountable are really important,
they're important that they do these things.
This credit card reform bill is not going to fundamentally
change, however, the basic relationship of a credit card,
which is you're taking a loan and you got to pay back --
you got to pay your bills.
There is no question that through unemployment,
through getting sick and the massively high cost of health
care, that a variety of things, people get into financial trouble.
Health care costs in particular can often lead to personal bankruptcy.
I don't think we expected, and it wouldn't be realistic to
expect the credit card reforms to fundamentally change that,
it's not going to pay your bills for you,
you still got to pay your bills.
What this thing is about is try to reestablish a level playing
field balance of power of you with the credit card company,
that they got to tell you here's how it's going to operate,
if we are going to jack up rates on you,
they got to notify you in advance,
you have the opportunity to say, whoa, wait a minute,
that's -- this is not appropriate,
I don't want to do business with you.
For the things like dealing with unemployment,
health care costs and things that might drive you to personal
bankruptcy, that's where really economic recovery is the only --
I think is the only answer, we're not going to be able to do
that as part of this reg reform.
Jesse Lee: Right, right.
Okay, so what -- this might be a little in the weeds,
I don't know if you'll know this off the top of your head,
but one of the debates that's going on in the chat is this
question of, you know, you might be able to quit your credit card
if they, you know, kind of do you wrong as it were,
but some people are contending that that will have negative
effect on your credit card score if you do so.
Austan Goolsbee: Well, your FICO score relates to -- I mean,
it's a complex formula, but it relates to how much debt you have.
If you cancel credit cards, that can reduce your FICO score,
though you can sign up for new cards at the same time you're
canceling old cards, and this gives you the opportunity to
switch out of somebody who is engaging in abusive practice.
The thing that I'll just say to anybody thinking about this,
I think if you contemplate it, you know you want this ability
to do this, that you don't just get the bill -- right now,
remember, under this -- as of yesterday, if you got your bill,
they could jack up your rate and they could apply that higher
rate to balances you already incurred,
so you open the bill and say what in the world is this,
and now they cannot do that.
They're not allowed to raise rates on things you already --
balances you already have, and if they are going to raise your
rates, they got to notify you 45 days in advance.
So let's say you got two different cards,
if they tell you, I'm going to raise your rates, okay, well,
you know, you can choose where you're going to take your
business and what cards you're going to use.
Jesse Lee: All right, thanks,that sounds like some
reasonable practical advice.
I think we got time for one more question.
I think we've managed to cover kind of the most frequently
asked ones, except for one, which is that some people are
observing that, you know, a lot of people are now using debit
cards more than credit cards, and that can come with its own
kind of set of, you know, traps and whatnot.
Austan Goolsbee: Yeah.
Jesse Lee: Is there anything that addresses that in this bill
or is that something that might be a future concern?
Austan Goolsbee: Look, the issue of debit cards is important.
These are really credit card rules.
There is some on debit cards, and in any consumer financial
protection agency which the administration has backed,
one clear point of that is to deal with -- let's call it
responses to regulation, that if we put in sensible oversight and
then that leads people to shift, let's say you start seeing new
shenanigans by companies in the area of debit cards,
that we have the ability to look at those practices and say,
whoa, wait a second, you know, this is abusing customers in
this or that way, I think that would be something that we would
be able to take a look at.
Jesse Lee: All right, well, again,
I'm sorry if we couldn't get to your question,
as I see a new poll just opened up, but --
Austan Goolsbee: Yeah, how are we doing in this poll?
Jesse Lee: Well, I --
Austan Goolsbee: Oh, no, this is a what have you experienced.
Jesse Lee: They switched it up, I can't claim that you --
Austan Goolsbee: Look, the thing is what this poll is,
which of these have you experienced in the past year?
My card issuer cut me, cut my credit limit, et cetera.
And what you can see is that a large fraction of at least the
people here on this survey have experienced exactly the kinds of
things that the credit card reform is going to prevent.
Okay.
So getting interest rate jack-ups on previous balances,
having massive fees when you sign -- having teaser rates
that they give you and then you sign up,
and a month later they jack the rate back up,
all of that kind of thing is why we did this.
And I think if you go look at these reforms that are coming in
place today, I think you will be -- if not pleasantly surprised,
you will be happy that this is now the law of the land.
Jesse Lee: That's right.
And, you know, somebody just asked if there was a good
website to learn more about this.
I'll say there is a blog post right up -- up right now at
whitehouse.gov/blog.
It will lead you to more information from the White House,
it will lead to you a USA Today piece that came out, that,
you know, gives a kind of more objective -- nobody is more
objective than us, but objective take on what's in there.
And, yeah, thanks so much to creditcards.com
for, you know, helping us out with this,
it's been a great chat, it's great to talk to people that
are, you know, as Austan says, living with this stuff and
dealing with it day to day.
And thanks, Austan, for doing it.
Austan Goolsbee: Thanks, Jesse.
And thanks everybody for sending in questions.