Credit Card Companies to Discover “Enlightened Self-Interest”
Monty Python and the Merchant Banker
Back in the late 1960s or early ’70s, Monty Python’s Flying Circus aired a sketch in which a collector for an orphans’ charity asked a merchant banker for a donation. At first, the banker was enthusiastic, saying that his bank was keen to get into orphans because they were an emerging market. But, as it gradually dawned on him that a donation didn’t provide an attractive–or, indeed, any–return, he grabbed the collection tin, and dropped the collector through a trapdoor in his office floor.
If that sketch contained enough truth to be funny 40 years ago, how much more must it apply to the current generation of Wall Street’s big hitters?
Credit Card Regulation Gains Limited Traction
Rep. Carolyn Maloney has a remarkable record as a consumer advocate on financial issues, including sponsorship of the Credit CARD Act of 2009. But with so many wounds to lick after her countless battles with credit card companies and banks, you might think that she’d be a tad skeptical about their potential to change voluntarily.
After all, she was one of the legislators who granted those credit card companies a nine-month grace period between the signing of the Credit CARD Act, and the implementation of its key provisions. The card issuers had claimed that they needed the time in order to re-engineer their highly complex systems and processes to comply with the new law. They then promptly used the period to hike credit card rates, impose fees, and generally do their best to undermine the tough regulation that the legislation was supposed to bring.
Credit Cards and Wishful Thinking
But in Friday’s Huffington Post, the Congresswoman wrote:
A new attitude and a new ethic–enlightened self interest–on the part of financial institutions (many of whom were salvaged by taxpayer support) must view customers as the basis for further prosperity.
Really? Of course, on one level, this makes sense. An issuer that produced a truly consumer-friendly card might well quickly attract a huge customer base.
But for decades issuers have used “confusion marketing” techniques to ensure that it’s difficult to compare products, and imposed similar credit card terms and conditions that generated the maximum revenues. After all this time, why would they change now?
The Reality of Credit Card Regulation
Of course, Rep. Maloney understands this really. She said: “Card companies will seize on any loophole to achieve their growth targets.” And she went on to quote a past CEO of a card issuer as saying in a television interview: “You make the stupid laws, and I’ll comply, and I’ll make money.”
Which is why she’s backing a new wave of credit card regulation in the form of the Consumer Financial Protection Agency (CFPA), a new, permanent regulator (or “sheriff,” to use her word), tasked with:
…enforcing the rules and establishing the overarching principle: treat customers fairly and prosper; but assume more risk and treat them solely as an ATM for your bottom line and you’ll suffer more than you could possibly have gained.
Congress has already passed legislation to create the new regulator and is currently hoping that the Senate will take up the cause.
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