Opinion: What’s in his wallet? Obama talks credit-card reform -- reaction, texts

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Normally we might agree with the obvious opinion of White House economic adviser Larry Summerzzzz (above left) when it comes to any president getting down into the weeds of discussing the details of credit card companies and the agreements they send out to every breathing soul, even pets, that no one really pays attention to but they have to send them anyway in tiny print that’s even smaller than this cheap little typeface they make us use here.

Just like the credit card company executives had to show up at the White House today to be seen being lectured by President Obama about the evil things they do, such as suddenly jack the rates or boost minimum payments. As far as we know now, the president did not pull a GM and fire any of the executives present. And he did say he wants to ‘preserve the credit card market.’

What do you suppose is in his wallet?

Well, we know what would have been on his teleprompter if he’d used one today. So here’s the text of what he said afterward about what he said to the folks before who hold the cards that we hold except when we hand them over to waiters who go off somewhere dark to run them and could be copying down the numbers for all we know but we hope not.

And as a special treat, at the end of the president’s remarks we’ve added some unhappy reaction from a nonpartisan business organization. We also have a video summary below.

-- Andrew Malcolm

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THE PRESIDENT: Well, I just had a constructive meeting with the heads of many of the leading credit card issuers here in the country. Obviously we’re at a time where issues of credit and how businesses and families are able to finance everything from a car loan to a student loan to just paying their bills every day is on a lot of people’s minds.

And Secretary Geithner and our economic team have worked diligently to try to restore confidence in the credit markets, to assure that the non-bank financial sector is stronger, to ensure that banks have the capital they need, and that that money is getting out the door to the ultimate end user -- the American businessperson and individual.

We’re still seeing some problems, although we think that we’ve begun to make progress.

One of the areas, as we move forward and look at financial regulation, how do we create a framework where this kind of crisis doesn’t happen again, and how do we create a sustainable model for....

...economic growth and debt that is not based on bubbles and over-leveraging on the part of businesses and consumers is the issue of credit cards and how they’re used and how we can create a more stable, more effective, more consumer-friendly system.

We had a discussion with some of the top issuers here, and what I communicated to them is that I think credit cards are an important convenience for a lot of people. They are a source of unsecured debt for a lot of individuals and small businesses who are creating jobs; a lot of start-ups may use credit cards for that purpose. We think that’s important, and so we want to preserve the credit card market.

But we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with -- people finding themselves starting off with a low rate and the next thing they know their interest rates have doubled; fees that they didn’t know about that are suddenly tacked on to their bills; a whole lack of clarity and transparency in terms of the terms and conditions of their credit cards.

And so there’s going to be action in Congress. Our administration is going to be pushing for reform in this area. We think it’s important that we get input from the credit card issuers as we shape this reform, but there -- and I’m going to leave it up to my economic team to work with Congress to evaluate all the various proposals and to get some very definitive language in place.

There are going to be some core principles, though, that I want to adhere to, and I mentioned these to all the credit card issuers involved.

First of all, I think that there has to be strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties. The days of any time, any reason rate hikes and late-fee traps have to end.

No. 2, all the forms and statements that credit card companies send out have to be written in plain language and be in plain sight. No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out.

No. 3, we have to make sure that people can comparison shop when it comes to credit cards without being afraid that they’re going to be taken advantage of. So we believe that it’s important to require firms to make all their contract terms easily accessible online in a fashion that allows people to shop for the best deal for their needs.

Not every consumer is going to have the same needs. And some may want to take on a higher interest rate because it provides them more convenience or it provides them with a higher credit line. But we want to make sure that they can make those comparisons themselves easily.

And we think that one of the things that needs to be explored is the possibility that every credit card issuer has to issue a plain vanilla, easy to understand, simplest terms possible credit card as a default credit card that the average user can feel comfortable with.

Finally, we think we need more accountability in the system. And that means more effective oversight and more effective enforcement so that people who are issuing credit cards but violate law, they will feel the full weight of the law.

So we are confident that we can arrive at something that is commonsensical, something that allows the industry to continue to provide loans and to run a stable business model that’s not dependent on bubbles, that’s not dependent on people getting overextended or finding themselves in over their heads.

I trust that those in the industry who want to act responsibly will engage with us in a constructive fashion and that we’re going to be able to get this done in short order.

All right. Thank you very much, everybody.

Q. Is there a balance between protecting consumers and letting the credit card companies have revenue here?

THE PRESIDENT: We think that it’s been out of balance. And so we think we need to create a new equilibrium where credit is slowing, those who are issuing credit are able to make a reasonable profit -- but they’re doing so in a way that is responsible and consumers are not finding themselves in a bad situation that they didn’t anticipate.All right. Thank you.

Comment on Obama Stare-Down of Credit Card Execs
Price Controls, Regulations Pose Major Threat to Consumers

Washington, D.C., April 23, 2009— Statement from John Berlau, director of the Competitive Enterprise Institute’s Center for Investors on President Obama’s White House meeting with credit card executives.

Instead of meeting with the executives of credit card issuers and sanctimoniously lecturing them about not raising rates, President Obama would serve cardholders more effectively by meeting with economists and listening to their concerns about the dangers of price controls on credit card services.

Economists from all schools of thought -- from Keynesian to supply-side -- recognize the basic principle of microeconomics that price controls lead to shortages of commodities, including credit, and cause distortions that harm ordinary consumers.

Limits on risk-based pricing, as enacted in rules last year from the Federal Reserve and in proposals in Congress that go beyond these rules, could result in sharp limits in the availability of credit at a time when policy makers want to get credit flowing again.

Recent cuts in consumers’ lines of credit over the past few months are in part responses to the Fed rules that ban sensible risk-based pricing practices, such as the so-called ‘universal default.’ Under this longstanding practice, credit card issuers would sometimes raise rates for defaults on another credit card or loan, because this may have signaled a weakening in a consumer’s credit profile.

Now with the looming ban of this practice, credit card issuers may be reacting by limiting credit lines for all cardholders because of the loss of the ability to engage in this type of risk-based pricing. So, responsible cardholders who never miss a payment are paying the price for these misguided rules.

And consumers and the economy will pay an even higher price if further restrictions are enacted, such as proposed caps on annual percentage rates. Politicians don’t seem to grasp that expanding credit responsibly is incompatible with limiting risk-based pricing.

Again, responsible cardholders -- some of whom don’t even pay interest because they completely pay off their balances -- could lose out in the form of the return of annual fees and the loss of credit card ‘rewards’ such as airline miles to make up for the costs from bans on risk-based pricing.

President Obama may also want to read studies sponsored by the respected Kauffman Foundation in Kansas City, Mo., that find that personal credit cards are a major source of funding for start-up entrepreneurs. Most famously, Sergey Brin used personal credit cards as a college student in the 1990s to start the Web search engine that is today known as Google.

In some instances, credit cards have been issued foolishly by banks and used foolishly by consumers. Fraud in credit card practices should be punished just as fraud is in any type of business.

But there should not be a ‘Nanny State’ standing between willing lenders and willing consumers who desire to lend and borrow at agreed-upon rates. Otherwise, the enterprises of the future Sergey Brins may be snuffed out from the lack of innovation in credit.

CEI is a nonprofit, nonpartisan public policy group dedicated to the principles of free enterprise and limited government. www.cei.org