Congress Examines Credit Card Business

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The credit card business isn't what it used to be. Because of the recession, more people are late paying their bills or have stopped paying altogether. As a result, banks are handing out fewer cards and rejecting a lot more card applicants. Now lawmakers want to slap some new restrictions on the way the credit card business works.


Banks are trying to recover some of their losses by squeezing credit card customers. They're handing out fewer cards. They are raising interest rates on the cards that exist, and they are lowering credit limits. Now, Congress is putting the squeeze on banks. Lawmakers are trying to slap some restrictions on the way that they operate their credit card businesses. To find out more, we turn this morning to NPR's Jim Zarroli. Jim, good morning.

JIM ZARROLI: Good morning, Steve.

INSKEEP: What do lawmakers want to do?

ZARROLI: Well, there are two versions of this legislation, one in the House and one in the Senate. And they would basically address a lot of the things that just drive consumers crazy about credit cards right now. For instance, right now - you know how you get a credit card, and they can raise the interest rate for no reason?

INSKEEP: Randomly - barely tell you, yes.

ZARROLI: Yes. This legislation would still allow that, but only on the purchases that you - you make from that point forward. In other words, you cannot retroactively raise rates on existing balances. The other thing it would do - would be address something called universal default. Right now, if you are late paying a credit card bill, the credit card company can raise your rates - but then, so can all the other credit cards that you have, even if you've paid them on time every month. So this would ban that. Now, the Senate bill goes even further. For instance, it addresses - it would make it much more difficult to offer credit cards to people 18 to 21.

INSKEEP: This has got to be a difficult balance, Jim Zarroli, because you've got a situation where banks are squeezing customers. Customers are consumers -are people who are put out of work, who are struggling right now with the economy, and the government wants people to have easier access to credit. But at the same time, they want banks to be in a more profitable position. And this is what they say they want to do.

ZARROLI: Yeah. And this is one of the arguments that the credit card companies make - is that, you know, they're already not making as much money as they were on credit cards. And this would make it more difficult for credit card companies to issue cards, and they will do it less. And consumers are ultimately going to be the ones who are hurt by that.

INSKEEP: So that's one response that the industry has, is saying that they can't do business this way?

ZARROLI: That's what they're saying, yes. They're saying that it will make it more difficult, less profitable for them. Of course, you know, this issue has been kind of on the Democrats' wish list for a long time, and you also have a lot of consumer activists saying, you know, they - well, I think trying to take advantage of this. The banks are not very popular with the public right now, as you know. Back a few yeas ago when a credit card, you know, raised your rate or made you angry in any way, you had some recourse. You could get another card or you could refinance your house and pay off your credit card bills. It's much harder to do that nowadays. So I think consumer activists see an opening there.

INSKEEP: Maybe, but I have to wonder about the fact that credit card companies and banks have had close connections to both political parties for years. They were able to tighten bankruptcy laws, when they wanted to, with overwhelming, bipartisan support. What are the odds that Congress right now is going to make these proposed changes that the credit card companies and banks don't want?

ZARROLI: It's going to be much easier in the House. A version of this passed already in the House. The Senate is more of a question. You have members of the Senate - Tim Johnson, from South Dakota, which is a big credit card state, actually voted against this bill in committee. There are two senators from Delaware - Democrats, who - Delaware is another big credit card state. So there are questions. But they're also hoping to bring on some of the moderate Republicans to support this.

INSKEEP: Vice president of the United States - also with connections to Delaware and to banks there. Jim thanks, very much.

ZARROLI: You're welcome.

INSKEEP: That's NPR's Jim Zarroli.

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