Thoughts & Comments
Chris Dodd's Credit Card Bill Will Help Consumers? Don't Count On It
Unless you think higher interest rates and fees count as help. It's a shameful piece of grandstanding.

Thomas Brown  ( about me )
Posted 05/01/2009
bankstocks.com
tbrown@bankstocks.com

Chris Dodd says he’s doing consumers a favor by pushing his nutty Credit Cardholders’ Bill of Rights, which passed the House yesterday. He’s not. If Dodd’s bill becomes law, some consumers will have a harder time getting credit cards on any terms, while others will face steeper interest rates and fees. That’s a high price we’ll all have to pay just so the Senate’s most vulnerable Democrat can hang on to his seat.

In an article yesterday on The Huffington Post, Dodd claims he’s been fighting the card lenders for twenty years, “waging what was then a lonely fight.” Actually, if you compare what the card industry looked like 20 years ago to how it looks today, you’ll be astonished at how much better a deal consumers are lately getting. And government regulation isn’t what drove the improvement; free-market innovation and competition, did. Twenty years ago, all consumers paid the same interest rate—and it wasn’t low (19.8%). Twenty years ago, everyone paid an annual fee. There were few rewards programs.

So, again, while Chris Dodd was fighting what he admits was a fruitless and lonely fight, card companies were coming up with ways to profitably deliver a better and better deal to consumers. (Some of those deals were so good, in fact, that the lenders that offered them are now out of business.) And, again, Dodd’s lonely crusade on behalf of the consumer had nothing to do with it. 

But if the bill Dodd is pushing becomes law, some of those benefits will disappear. The bill would, for instance, prohibit card companies from changing the rates they charge “at any time, for any reason.” Translation: instead of a borrower’s interest rate varying up and down, it will just stay up. Or fees will rise, to offset issuers’ loss of pricing flexibility.

Dodd’s misbegotten bill would reduce competition and raise costs for the consumer—all so his office can generate press releases that say things like “Dodd Fights Card Companies.” In fact, his fight will end up hurting his own constituents. (In his Huffington Post piece, Dodd writes that his legislation “will prevent card companies from tricking customers.” If the press were better-educated on the topic, we’d also read that Dodd is trying to “trick” consumers into believing his legislation will help them, when it won’t.)

In fairness, the past year has not been kind to Dodd; I can see why he wants to change the subject. First came word he’d received a sweetheart loan from Countrywide—a company under the purview of the Senate Banking Committee, which he chairs. He has yet to provide any details about the loan, despite promises otherwise. Next was the news he’d been ably to buy a cottage in Ireland at a well-below-market price, in a deal arranged by a pal who’s also a convicted felon. Most recently, Dodd snuck language into the stimulus bill that enabled those AIG bonuses—then denied knowing anything about it.

Given all this, you won’t be surprised to learn that Dodd’s poll numbers have been sagging. One recent poll puts his disapproval rating at 58%. In the runup to his reelection bid next year, Dodd trails one potential Republican opponent by 16 points. So, yes, he would benefit from a distraction. 

Unfortunately, the distraction he’s come up with, this cussed cardholder’s bill of rights, will do more harm than good for the people he says he’s trying to help.

As it happens, Chris Dodd is my Senator. But I don’t have a sense that he represents me, or has my interests at heart. (I especially didn’t feel that way when he moved his entire family to Iowa for a year when he was running for president.) He just loves the power that comes from being a Senator, and loves being a professional politician. He’s more than willing to engage in some demagoguery that actually hurts his constituents, if that’s what it takes to get reelected. Just the sort of pol, that is to say, that should be shown the door by voters next election.

What do you think? Let me know!


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Richie Rich Posted On 5/1/2009 1:22:47 PM

You forget one important fact, Tom. The government is going to have a big say in some of the largest credit card issuers in the country by virtue of its forced TARP conversion into common equity. So let's just say that banks like B of A will get an offer they can't refuse in terms of what credit card offers they can offer and to whom. Say hello to ObamaBank, where "economic justice" is going to prevail...

Brad Posted On 5/1/2009 1:50:34 PM

Out of this entire article, there's only one paragraph actually dedicated to providing evidence (and it's pretty flimsy) of how this legislation will hurt the consumer... "But if the bill Dodd is pushing becomes law, some of those benefits will disappear. The bill would, for instance, prohibit card companies from changing the rates they charge “at any time, for any reason.” Translation: instead of a borrower’s interest rate varying up and down, it will just stay up. Or fees will rise, to offset issuers’ loss of pricing flexibility." You may be correct that this bill won't ultimately help consumers, but your article does nothing to further your argument.

tom brown Posted On 5/1/2009 2:04:39 PM

i thought it was self evident that if you cannot reprice a loan that theoretically could stay outstanding forever you have to price it high so as to be able to handle all environments particularly the hostile ones. The price of the product can never come down during the good times because under Dodd's bill it cannot be raised

First Coast Wave Rider Posted On 5/1/2009 2:27:16 PM

To Richie Rich..... you gotta get the political speak right.... it's not "economic justice".... it's "economic fairness and transparency".... with political interest driving the definition of "fair".... which basically means Obama and Congress waking up each morning to read the over night polling results, then determining the "fairness" definition of the day. This country is so much better off with pols deciding what's fair when it comes to credit cards than the big, bad, greedy free market.

MikeV Posted On 5/1/2009 3:15:39 PM

I believe that a version of this bill will get through he Senate. Perhaps not with interest rates caps, but some form of regulattion on proper disclosure on rates, fees etc. The credit card companies need to able to charge higher rates for higher risks and I believe this arguement will flow through to the Senate.

Lngolf Posted On 5/1/2009 3:17:57 PM

Tom: Why is it that some people just don't want to hear that most credit card issuers compete fairly and honestly for customers. The product is a high cost one to provide(bad debt losses, high operating costs, and, of course, interest). It is a great convenience product which cost nothing to those who pay the balance off monthly. The primary variable cost is interest expense, so when interest rate levels rise, card issuers must be able to raise its rates to the cardholder. If an ill conceived law is passed that prohibits an issuer from raising its rates to cover its highest variable cost, then they only have 3 choices -a. charge a very high rate to begin with; b.close out accounts when the cost to provide exceeds the price received, or c. get out of the business. Hopefully, the rest of congress will see what a bad bill this is.

Marge Posted On 5/1/2009 3:31:07 PM

He's my Senator too and he is a disgrace. I'm all for DUMP DODD.

JimBob Posted On 5/1/2009 3:48:59 PM

People wonder why banks are jacking up rates already. Sure, part of it is due to the credit cycle and the repricing of risk, but part of it, in my mind, has to be the fact that they see the writing on the wall and recognize that if they don't raise rates now, they may not get the chance later.

Comet Posted On 5/1/2009 3:49:40 PM

amen, brother

Erich Riesenberg Posted On 5/1/2009 3:57:09 PM

Wow, NEVER raise rates? That is unbelievable! I mean literally, I don't believe even a Congress person would be that stupid. The news article cited states instead: "Democrats, who control Congress, added about a dozen amendments to the bill, including one that would require card issuers to maintain low introductory rates for at least six months... " So, is it six months or forever?

Bob Posted On 5/1/2009 4:23:39 PM

Chris should worry about the BCS and leave credit cards to someone else.

Ken Greenberg Posted On 5/1/2009 4:44:55 PM

A case for term limits! Yet, somewhere we all have to admit that if you're late a few days and get slammed with a default rate north of 30% - that's ridiculous. I was in banking for 22 years, and have been working with banks for 17 years since then. I've NEVER understood why, if you can't pay at 8, 12 or 19.8% you are going to be able to pay at 36%. What happened to the concept of usury? That's probably what got Dodd and Congress all worked up in the first place. And let's not forget the late and overlimit fees on top of that. Not to mention the sudden - and without warning - lowering of credit limits. It's not a happy place.

PureDakota Posted On 5/1/2009 4:54:14 PM

I have a feeling Dodd's goose is pretty well cooked. I might be giving the voting public too much credit (pardon the pun), but I don't think this will save him.

Verinder Syal Posted On 5/1/2009 5:57:10 PM

I wish there was a way to hold these fellows responsible for their action besides not re-electing them. Senator Dodd should be in prison for his activity. It is far more heinous than what was done at Enron or Tyco.

Rich C Posted On 5/1/2009 8:26:10 PM

First - I do like your bank information - the bank news is ugly and I think it is going to get worse. Secondly - I feel sorry for you (and the country) that Dodd is your Senator and would call the majority of voters in your state fools but . . . I am in California and with the clowns we have in office I have no room to talk.

Alif Shirali Posted On 5/2/2009 3:19:23 AM

From those of us with a Connecticut background, Sen. Chris Dodd's unethical reputation is legendary (in more than political ways!)

Alif Shirali Posted On 5/2/2009 3:43:43 AM

In connection with Mr. Greenberg's comments, My research has shown that the US is one of the most overbanked countries in the world (to do with 1800s politics) so there are a lot of very small banks. To make a long story short, a majority of US banks (mostry the smaller ones) make a huge amount (half on average for banks with upto USD100mm assets) of their profits not from academically traditional banking activities but from NSF (ie bouncing checks) fees. There exist banking consulting firms specializing in helping banks to maximize NSF fee income. Bankstocks folks ... do some updated research and a report on this horrid situation!

TOM Posted On 5/2/2009 10:06:17 AM

Thanks Tom for trying to communicate the dark side. Dodd, like so many others on his side of the aisle make decisions that are so short sighted. They seem unwilling or unable to look down several tiers below the surface and objectively look at the impact of their good sounding decisions.

ACEMAN Posted On 5/2/2009 11:56:15 AM

If y'all believe in Senator Dodd's "fight", then y'all believe in the tooth fairy. On second thought, I would surmise that the card carrying folks of America do believe in the credit card fairy which is but one step below the tooth fairy. After all, with a card or with a tooth, mysteriously money shows up to be spent and to keep the engine of credit financing to go around in financial circles. Y'all have to hand it to Senator Dodd, he knows a false economy when he sees one. The game is over for America when the Dodd's of the country focus their attention on the trivial for re-election big bucks, from, who else, the credit card companies financed by Wall Street. Maybe we should all learn Mandarin and start capitalism all over again in the Chinese image because we all are going nowhere fast.

sgrbear Posted On 5/3/2009 10:59:06 PM

Let the banks be damned for the hardship they have created...WHO GIVES THEM THE RIGHT TO CHANGE INTEREST RATES AT WILL?

chris dodd Posted On 5/4/2009 7:36:32 AM

THE. GOVERNMENT. WILL. TAKE. IT. ALL.

acamil Posted On 5/4/2009 2:17:46 PM

You should put in your article how we should contact members of Congress to defeat the Dodd credit card bill.

CowboyJohn Posted On 5/12/2009 7:35:32 PM

After reading through the listed article above and the comments listed below, I can certainly tell, as a credit card holder, I certainly think I might have found myself in the WRONG place! There is definitely NOT a website where there is any sort of consideration given to the average American consumer. (I clicked on a link to Mr Brown's article here from a blogger site.) I have carried credit cards for the past 30 years, starting with a JCPenney card that was opened back in 1976. I have maintain an extremely good credit history through that time period. I have seen so many different card offers presented to me and I have taken advantage of quite a few. What I have seen happen over the years is an consolidation of the credit card industry. When there used to be quite a number of credit card issuers, now the market is primarily controlled by the major banks (B of A, Citi, Chase, Wells Fargo,HSBC, etc.) Mr Brown, you talk about competition. Yes, competition did bring interest rate pricing down in years past. But now, banks are not really competing against themselves. They seem to play copycats: where late fees from years past used to be $5 or $10, now the banks tend to charge up to $39, thanks to the court case Smiley vs Citibank. I have even heard one major bank is charging a late fee of 3% of the outstanding balance. (Horrid example: if the balance is $5000, the late fee would be $150!) Someone has got to expain to me how this is fair! It used to be that credit card companies used to give high preference to customers who maintain high credit scores. It doesn't seem to be the case nowadays! Credit scores don't seem to matter to many credit card companies! I have an average score of around 790, but interest rates on cards that I currently carry with Citibank and Capital One were recently doubled, with the rationale that it was due to "economic reasons!" I do know that Citi and CapOne's "economy" isn't doing very well, with the two plus many other major banks ha

CowboyJohn Posted On 5/12/2009 7:50:06 PM

have had to be bailed out with TARP money, courtesy of the American taxpayer. Boy, they really do know how to show their thanks and appreciation! With that thought in mind, I do recommend taking your business to your local community bank and/or credit union. Both types of financial institution tend to care more for the consumer and their fees tend to be more reasonable. My credit union in Portland, OR charges me an APR of 7.9% on both purchases & cash advances.
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