This past May, the US Congress passed, and Obama signed into law the credit Card Accountability Responsibility and Disclosure act (CARD, of course, for short).
It provides for significant consumer-friendly reforms, due to take effect in February 2010.
These regulations are going to cost bank card issuers some significant chunks of change, as they’ll no longer be able to do things like apply your payments to the lowest-interest part of your debt, charge rates like 29.99% and hit you with large fees for slight transgressions.
That is, when the law takes effect.
A Funny Thing Happened on the Way to the CARD Act Effective Date
Something happened between May and now–something that has caused many bank card issuers to raise their rates, accelerate their payment terms, and increase fees for those who can’t comply.
Now, why would that be happening?
The obvious deduction is that the banks just couldn’t resist getting in a last feast on their already burdened consumers by jacking up rates until they are forced to behave in a way society, through its duly elected government, has dictated they must.
Oh, what to do? Bend to the will of the people?
Nah. How about one last feeding at the trough, while it’s still legal.
That’s how Christopher Dodd, chairman of the Senate Banking Committee, sees it, and he’s not alone. Last week, the committee passed legislation to move up the CARD implementation to December 1. And yesterday, he proposed freezing rates in the interim.
Sometimes, the obvious conclusion is the right conclusion. But that doesn’t stop some banks, and their industry spokespeople, from trying to argue the opposite.
Says Scott Talbott, SVP for Government Affairs at the Financial Services Roundtable:
…the bill was based on the faulty premise that credit card interest rates were going up because of legislation.
Instead, he said, interest rates were rising because of risks posed by the unsteady economy and by card holders themselves, who are defaulting on their payments or paying late more often.
In other words, we’re raising your rates because interest rates are going up in this recession, and because you greedy customers are abusing us poor folks at CitiBank and BankAmerica by withholding your money from us.
(Just to be clear: these actions are being taken by the banks who issue the cards, not by the MasterCard and Visa folks who create and brand them).
This is not a function of US culture only–it seems to be endemic in the business. Over in the UK, where they’re presently considering US-like regulation, we get a similar argument from the banks:
One senior credit card executive pointed to the United States, where the supply of credit is already shrinking and its cost rising as a result of similar reforms, which are to come into force in February 2010.
In other words, if you restrict our profits, we’ll yell and pout and gouge you and generally behave badly; consider yourself warned, you’re responsible for our bad behavior.
Responsible Business Behavior? Or Merely Not Illegal?
Most people can intuitively understand the difference between ethical and legal, and between unethical and illegal. Most of us want to live in a society where laws are ultimately derived from a sense of ethics—not the other way around. Just because something is not illegal hardly implies it is ethical.
But it seems increasingly that business is becoming deaf and blind to this simple distinction. Consider the Congressional testimony by several health care executives this past summer.
When asked whether they would voluntarily forego rescission (cancelling policies in effect) except in cases of intentional fraud, the executives one after another said they would not. Why?
Because, they said, what they were doing wasn’t illegal.
You have to ask the question, are these people stupid? Or venal?
In favor of the argument for stupidity, one can point to a modern penchant to substitute process for judgment. How else to explain a school principal suspending a 6-year old child for eating with a cub scout knife’s spoon? Or mechanical SEC procedures that Madoff and his whistle-blower Markopolis both called stultifying?
While I think stupidity is the more usual culprit, in this case I vote for venal. How arrogant do you have to be to insist that raising rates is the fault of economically challenged customers? To tell your PR people to stand down? And to argue that not being a crook entitles you to a seat at the table of responsible businesspeople?
I was privileged to share a platform this Monday morning with an entirely different kind of leader. I wish the heads of credit card operations in some of our major banks would take a look at this CEO, Aaron Feuerstein, in a 60 Minutes video. And to hear him on Monday describe in the simplest terms why good corporate citizenship must be rooted in a sense of personal values.
Not being illegal is nowhere near close enough.