WASHINGTON — The Obama administration has a new target in its attempts to ensure the U.S. economy doesn’t take another devastating hit and American consumers are protected from further financial distress — credit card companies.
Larry Summers, President Barack Obama’s top economic adviser, said Sunday that the administration is backing Democratic legislators in “pushing very hard” to crack down on credit card companies, including major players like VISA and MasterCard, that hike interest rates on unsuspecting customers.
“He’s going to be very focused, in a very near term, on a whole set of issues having to do with credit card abuses,” Summers said on NBC’s “Meet the Press.”
Summers and other key Obama economic officials, including Treasury Secretary Timothy Geithner, are reportedly set to meet Thursday with top executives at banks with large credit card divisions.
The president is concerned “with the way people have been deceived into paying extraordinarily high rates that they wouldn’t have paid if they knew what they were getting themselves into,” Summers said.
The news comes amid growing concerns that the struggling U.S. economy could face a wave of defaults on billions of dollars in consumer credit card debt as Americans struggle to hold onto their jobs and make ends meet.
Despite the credit crunch, some American banks have imposed significant increases in interest rates and fees on credit card use — something that’s angered consumer advocacy groups as well as Democratic legislators.
It’s an issue that’s vexing Canadian consumers as well.
Liberal Senator Pierrette Ringuette is spearheading Senate hearings into the issue.
“It’s abuse,” Ringuette said recently. “Pure and simple, it’s abuse. All I want to see is justice in the system.”
On Capitol Hill, Congress is considering legislation aimed at limiting the ability of credit card companies to hike interest rates on existing balances. The bill would also require greater disclosure by credit card companies to their customers.
Credit card firms have come under increasing fire in recent months as the recession has deepened. Democrats have argued it doesn’t make sense for the same banks that received massive U.S. government bailout funds to turn around and hit credit card holders with usurious fees.
Summers said Sunday it’s clear Americans need to save more money. But he added the government needs to rein in credit card pitches that entice consumers, create dependencies on plastic and cause their debt to balloon.
“Individuals are going to have to save more, that’s why savings incentives are so important,” he said. “That’s why we need to do things to stop the marketing of credit in ways that addicts people to it — so that our households are again saving, and families are again preparing to send kids to college, for their retirement, and so forth.”
The U.S. Federal Reserve has already drawn up new rules to protect consumers, but they aren’t scheduled to take effect until July 2010.
Christopher Dodd, chairman of the Senate banking committee, said last month that banks were using lax regulation to “gouge” customers.
But the American Bankers Association and nine other business groups have warned of credit contraction if a restrictive bill is approved by Congress.
In a blow to those financial firms, Dodd’s committee signed off last month on legislation that seeks to ban what it sees as abusive credit card practices.