Consumerist Interviews Goolsbee On Credit Card Reform: Part 1 of 4
We took your credit card reform questions to DC yesterday and interviewed Austan Goolsbee, senior economic adviser to President Obama. In part 1 of our 4-part series, we ask how are banks getting billions in bailouts and can turn around and cut off millions of credit cards and raise rates? How does it make sense that credit card companies can raise the interest rate on an existing balance? And, most importantly, why don't we treat credit cards more like Canadians do cigarettes?
TRANSCRIPT:
EXTERIOR: WHITE HOUSE GATES
Ben: Hey Ben Popken here with Meghann Marco, Consumerist.com, we're here at the White House—
Meghann:—invited to the White House—
Ben:—to talk credit card reform with Austan Goolsbee, senior economic adviser to Obama. We asked for your questions about credit card reform and we brought them here, so we're gonna find out what's in store for the future of plastic in America.
INTERIOR: CONFERENCE ROOM
Meg: So, as you know, we here at Consumerist, we make our living explaining the perils of the credit card industry to consumers, so why are you guys trying to put us out of business by reforming the credit card industry?
Austan: No no no, we're trying to help you, that's exactly, we've been listening to you for this long and it's clear as the President said, there's nothing wrong with a credit card industry where people can get access to credit, and people ought to pay their bills, but what we've gotten into is this situation where you've got some players engaging in clearly deceptive practices and predatory practices where consumers don't have full information about what they're getting themselves into, and where the industry's made more than $15 billion in penalty fee income last year. So what they've done is just turned what use to be fees for penalties into really a profit center. And we've got to get away from a model like that.
Meg: So we've got a question from Consumerist reader Jason. He wants to know, why can banks be allowed to change APR on existing balances? Shouldn't the new APR only be applied to the balances and purchases moving forward from the date of the change?
Austan: Yes, Jason's totally right, that is one of the central elements in the Obama views, is that in a series of practices like changing the interest rate on money you already, loans you already took essentially, that it doesn't make any sense, that we oughta get rid of that.
Ben: Along those lines, James Robrahn asks, "How's it that the banks are getting billions in TARP funds and then they turn around and they're cutting off people's credit lines and raising interest rates in this time of crisis?" What's going to be done about that?
Austan: When you're in a crisis mode, it's clear financial institutions are pulling in credit in all sorts of forms, that's why the financial rescue was needed, it's been a big effort of the administration, trying to get the lines of credit back flowing, to consumers, through credit cards, to small business, to a whole bunch of areas.
Ben: And what are some of those steps that are going to unlock credit for consumers?
Austan: Well a lot of the steps to unlock credit are more macro in nature, as I said, it would be relatively difficult to go legislate, for the government to go figure out, here's a credit-worthy individual, you should go give them a loan, is much harder. So the things that they're doing is we've go the financial rescue in place, we've had a series of efforts where the government's trying to unlock consumer credit, student loan credit, automobile credit, small business credit, through the buying up of securitization, buying up various investments, which, they've tried to make it more appealing for people to get into that market. It has been met with some success, though we are certainly wanting to expand those markets now.
Ben: Up until now, basically, credit card companies have said, well we don't regulation, we just need more disclosure. So, this is a new change of tactics. So I'm kind of wondering, you know, why don't we take that up? why don't we go with disclosure and do it like they do in Canada and cigarettes? You buy a box of cigarettes in Canada and you have a picture of a dessicated lung on the box and it says you smoke these and you will die. So with credit cards, you put a picture of a family evicted from their foreclosed house and it can say, if you use this improperly, it will lead to your financial ruin? Why doesn't the administration push for something like that?
Austan: Meghann, is he Canadian?
Ben: Clearly. I'm Clearly Canadian.
Austan: The President totally agrees with the importance of disclosure, and disclosure and transparency. Which are related but not the same thing. I mean, I have a PhD in economics, I can't understand a lot what's in the contracts under your credit card, and my eyesight is not sufficient to even be able to read it a lot of the times. So, the President's program is based on plain language, and reasonable disclosure. So disclosure plus transparency's important... I don't think that's all the President's fully on board with that's all let's do. I think he thinks we need that, but in addition, there are certain practices, that, even with disclosure, they're relatively hard to explain, and the credit card companies have engaged in gaming the system so that they just need to be prohibited. So, setting your payment date to be on a Sunday, so that you literally can't pay on the payment date, it either has to come in early or else it's late and you get a penalty fee. Or setting the payment time to be noon, so even if it comes in but it came in in the afternoon oohp! You had a late fee, you add another 15 dollars. So there are a series of practices, be it the form of penalty fees, raising interest on loans you already took out, a variety of other things that the President thinks we need to do more than just disclosure and transparency.
Keep track of the entire 4-part series as it rolls out at consumerist.com/tag/interviews/goolsbee.
(Previous version of the post with all the comments here).
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Comments:
I'm just wondering, didn't I already see this posted earlier? Why am I getting double posts in the feeds?
FYI, only reason I bring this up, is it seems to happen a lot, that I see a post, and then a couple hours later I see the post again.
@DanGarion: No, it was posted and had over 4000 views and 50 comments. The first one was disemvoweled because the commenter was talking about Meg. Then we wonder why she doesn't want to be in videos, she's probably creeped out or something.
Maybe the video wasn't playing, maybe there was no transcript. Seems kind of weird for Ben to get rid of the 50+ comments that were there instead of editing the original post.
Ben, how much do you know about Canada?
Can you believe he went from writing for thespunker.com, getting the job by playfully mocking someone's son to interviewing someone at the Whitehouse as the Co-Head editor of the Consumerist. Amazing.
@kylo4iskyle4: What happened is that the video had to be replaced with a slightly different version because we wanted to change one of the title cards. The new video ID was inserted into the player. Then the old video was deleted from the server. However, some people were still getting served up the code for the old, deleted video. So I made a new post will just the right code from the get-go and set the old post to just be published on the tag page. Which means the old post is still available at this URL: [consumerist.com] but this new version of the post is the only one that appears on the front page of the blog. Note that this version it's "interviews Goolsbee on credit card reform" while the previous was "interviews Goolsbee about credit card reform." So that's the behind-the-scenes tour.
I hope it's not taken as creepy, but both of you looked great! The video quality was top notch and above all, the questions were well presented.
Looking forward to #2-#4!
Late fee $15? He seems a wee bit out of touch there :)
But in the most part that guy seems like he knows what he is talking about. I think I remember seeing him on The Daily Show before as well.
This part of the interview seemed pretty solid, I am looking forward to additional ones.
The credit card industry needs more reform. Their lawlessness has gone on for long enough. It is time a sheriff stepped into town to clean it up.
I think the "use this wrong and you will be in financial ruin" warning certainly couldn't hurt. It's a shame that people seem to need a constant reminder to stop being stupid.
Think Meg blinks much when she's anxious?
I remember back in the day. There once were usury limits in the US, and they were fairly strictly enforced. People didn't simply just get credit cards, it was a badge of honor to have one. It meant that you had proven your ability to manage your finances appropriately.
I'm sure back then the CC companies were happy with the margins they got off of customers who always paid back what they owed with interest. I bet they were even happier when usury laws were slowly eliminated.
So back then, credit was a luxury and everyone else just bucked up, borrowed from friends and relatives, or from Guido.
Ironically, Guido probably has better rates and terms than some legitimate creditors today. Contrary to popular belief, Guido doesn't want to break your kneecaps. You need them to earn money to pay him back.
So we're looking at getting back to where we were a couple of decades ago, where only the highest rated borrowers got credit cards, and laws prevented them from getting screwed. Maybe that's a good thing. But I can tell you one thing, the credit markets will take a huge step back based on the protections that the legislature is proposing. I just hope everyone's ready for that, and how it will change how we spend money.
Why is reining in credit a bad thing?
Great interview. Very informative!
I've had my run-ins with credit cards in the past and I wish things got better for consumers! I've learned the hard way.
BTW, Meghann, where do you shop? I really like your top and suit!
Anyway, great job. Can't wait to see the rest! Very educational.
Ben looks like Jason Segel (the dude who plays Marshall on How I Met Your Mother) when you put him in a suit.
@humphrmi: Have you seen a graphic of US Consumer Debt vs GDP? The current trajectory couldn't be sustained.
Hey look, it's a bunch of bloggers pretending to be journalists. What a feat.
@discordance, the goddamn boss: Right, because "Professional Journalists" and the media do such a good job at professionally reporting the news, without editorializing or sensationalism.
Tell me sir, what exactly is a "professional journalist"? I don't believe I've seen once since the mid 1980s. What are the quals these days? A square jaw, plastic surgery, and voice training from Connecticut School of Broadcasting?
Journalists are the only ones who blather on about 'bloggers' taking their places. That's only because 'journalists' are nervous, because they don't actually "do anything" anymore other than get in front of a camera and stammer on about what some network boss has determined will make ratings.
Professional American Journalism died a long time ago. Who exactly would you suggest to put there in place of Ben and Meghann that would ask those "hard hitting questions".. Katie Couric?
If there is STILL any doubt that Obama is working to change the country for the better - top to bottom, on all fronts - may I suggest this interview as exhibit A.
Great interview.
@discordance, the goddamn boss: Hey look, it's a troll pretending to make an original comment. What a feat.
this is awesome, guys. i'm glad he talked about the sunday payment b.s. - that's something that's nailed me a couple of times.
i'd like to see more features like this in the future - i've been a holdout on donating, but if putting a few pennies in the pot equates to more posts like this, it's money well spent.