In the 2nd of our 4-part interview series with President Obama’s Senior Economic Adviser, Austan Goolsbee, on credit card reform, we ask, what about the kids? Specifically, what is this bill going to do about those guys giving away shirts on campus in exchange for signing up for credit cards? Because these seems a really great service for college students, who, as we know, frequently go shirtless. Also, how one side of the debate on credit cards is essentially arguing that if you didn’t want to get carjacked you should have taken the bus… because an honest business model and a profitable one needn’t be mutually exclusive.
Ben: Ben Popken, Meghann Marco here with Austan Goolsbee, senior economic advisor to Obama and we’re gonna ask him about credit card reform.
Meg: Is this bill gonna stop those guys who give away the free t-shirts in college? Because, as you know, college students are frequently shirtless, and they this resource. So how is that going to affect college students?
Austan: The issue of students, and not just students, young people of all types and access to credit is a very vexed issue, as we all know. On one hand, there are a lot of people who are really… credit constrained when they’re young, and they would like to have access to borrow money, and don’t want to be forced into borrowing from even worse sources of credit. At the same time, the credit card companies it’s clear have engaged in some pretty over the line practices. At the least, we need to start by agreeing that there ought to be sensible underwriting standards for young people. You know, there are a series of things that are alleged, like credit card companies making gratuity payments to the leaders of universities in order to get them to sign them up as the only credit card company. There are a variety of things we ought to look into, because I think it’s a pretty serious problem if you got people coming out of school, usually already in heavily indebted situations, just as the nature of having to pay their tuition. They got access to credit and they can do deceptive practices and be put in a very bad situation that it takes them years to really recover from.
Ben: Some are arguing that if we increase regulation, the current card companies are going to have to decrease the amount of credit that’s available to be giving out to people, which with the case of kids it sounds like that’s probably a good thing. But also for those who have credit, it may make it more expensive for them. Is there a concern that with this regulation, it might push people, if they can’t get access to credit, they could be pushed to other things like payday loans, overdrafting their checking account, loan sharks?
Austan: We do want to make sure that people have access to credit, and they aren’t being pushed to loan sharks, and they aren’t being pushed to pawn brokers or something that’s even worse than what’s happening on credit cards. That said, you hear from, you know, American Bankers Association or other industry spokespeople the argument that “well, if we can’t charge you the 15 billion dollars of penalty fees, then we’re gonna have to charge you the money some other way, and you don’t want us to have to charge you some other way.” Look, the credit card companies have made huge profits in recent years, and a lot of those profits have come from deceptive practices. And they shouldn’t be doing those practices. And if we’re going to choose between two models, one in which they say, “these are our true fees, and these are our true interest rates, here is what you actually will pay,” and alternative B is they say, “You’re not gonna have to pay anything, and you sign up for it, and then you start getting bills, and you have no idea what the heck is that? Between those two, the first one is by far the better system, and I really don’t think that we have to choose between honesty and a viable business. I think it’s just not true. And we’ve kinda gotten into this scenario where they say, “This is a carjacking! Well, you know, if you didn’t want to be carjacked, you didn’t need to take your car, you don’t need to be driving, and you should’ve locked your windows and, you know, made them bulletproof.” That kind of logic pushes you the wrong way. I mean the loans of credit cards are by far the most riddled with these kind of criticisms, and complaints to the Better Business Bureau and to Consumerist and wherever, they’re much more so than other forms of consumer credit, small business credit.
Keep track of the entire 4-part series as it rolls out at consumerist.com/tag/interviews/goolsbee.