Investigation Reveals Government-Sponsored Credit Card Rip-Off

March 19, 2008

The Facts

Last night, March 18, PBS of Houston Texas re-aired a program on their “Frontline” series about the credit card industry. The program, called “Secret History Of The Credit Card”, was the result of an investigation by Frontline and the New York Times in 2004. The investigation revealed a lot of things about the industry that is generally unknown by the public, but the most interesting was how the “Office of the Controller of the Currency” (OCC) responds to complaints by states about the practices of the credit card industry.

My View

First, some rip-off headliners by the credit card industry that was brought out in the investigation.

• Credit Card penalties have become a huge profit stream for the companies.
• One credit card company in California realized 50% of its income from penalties.
• Credit Card companies set due dates on Sundays and holidays in order to affect a late fee.
• There is no limit on the amount a credit card company can charge even if you are just one hour late on a payment.
• Some credit card companies will cash your payment check but not credit your account for up to several weeks in order to charge you a late fee.
• Credit card companies raise your credit card rate if you are late on payments elsewhere even though you have never been late on a payment to their credit card company.
• Credit card holders are legally held to the contract between them and the credit card company, but the credit card company is not legally held to the contract.
• There is no federal limit on the interest rate a credit card company can charge.
• Credit card companies have moved their headquarters to states that have lifted the ceiling on interest rates.
• Increased interested rates take your credit card over the limit, and then the credit card company can charge you an “over the limit” fee.

States have tried to take action against devious credit card companies where there are millions of complaints about that company, but they are met with resistance from our federal government.

• Providian Financial of San Francisco targeted the riskiest creditors with the lowest credit score.
• After Pat Wallace of the Better Business Bureau of San Francisco got so deluged with consumer complaints about Providian Financial, he got in touch with the local District Attorney’s office. June Cravett, assistant DA who knew little about OCC, contacted OCC, but they simply were not interested. Instead of cooperating, OCC issued a challenge to the DA’s authority over the banks saying the state did not have jurisdiction to investigate Providian. Only when the publicity hit about Providian and OCC’s refusal to help, did OCC become involved. When Julie Williams, acting Comptroller of OCC, was questioned on why OCC did this, she would only address “how it finally worked out”. She would not talk about the early part where they refused to take action or them challenging the states authority.
• Since the Providian episode, OCC has been increasingly asserting its authority by limiting consumer action by local prosecutors. They are trying to squeeze out state presence on credit card companies. Banks are telling states that OCC has told them not to deal with states.
• In January 2004, OCC declared itself the exclusive regulator of all national banks, thereby taking away any rights that consumers have of getting the states to protect them from banks.
• OCC has a policy of keeping their existence and what they do out of the public eye, thereby, limiting the complaints they get.

Other interesting facts.

• The US Supreme Court passed a law that said banks could export their interest rate to other states with no caps on interest rates.
• The 1996 Supreme Court case of “Smiley vs. Citibank” allowed banks to charge any amount they wanted to on fees with no limits imposed.
• Credit cards have become the most profitable sector of banking.
• Citibank is more profitable than Microsoft.
• 1.5 trillion dollars were charged on credit cards in 2003.
• Of the 7 million individuals who have filed bankruptcy, most were the result of lost jobs.
• Credit card companies solicit families who are in bankruptcy with offers of 0% interest rates with a $50,000 line of credit, even though those same companies had told the people that they would never have credit with them again.
• Andrew Kahr become involved in late 1970′s with the credit card industry. He convinced them to lower minimum payments from 5% in order to make more money; convinced companies to go to a 0% interest introductory rate to lure them in.
• Professor Elizabeth Warren who teaches contract law says she can not figure out the contract that credit card companies issue.
• There are more complaints about the credit card industry than any other industry. Out of 1000 industries the BBB tracks, they are the worst. Julie Williams of OCC is surprised. She thought it would be the cable industry or used car dealers.
• Edward Yingling, credit card lobbyist and president of the American Bankers Association says passing disclosure laws to inform consumers about credit card policies is a bad bill for consumers.

In light of all this, Visa took its credit card company public yesterday in the largest IPO in history.

If you care to see the PBS program you can go here to see the video. Or you can read the transcript. Another article, entitled “Blueprint for Financial Prosperity” has some other very interesting facts about the credit card industry.