Obama Says Card Issuers Trick Consumers with Unfair Practices

Sen. Barack Obama yesterday said that credit card companies con consumers into contracts that will lead them into debt. The presumptive Democratic Party nominee for President said at a round table discussion in Chicago that card issuers use “unfair and deceptive practices to trick Americans into signing contracts they can’t afford.”

The Illinois senator granted that some cardholders spend irresponsibly and get themselves in debt. “Some folks are making reckless decisions … (they rack up) big credit card bills by purchasing flat screen TVs and other luxury goods that they know they can’t afford.”

(Click here to read an insideARM Editorial blog entry on Obama's proposals complete with a video excerpt of the speech.)

Obama’s comments come as the economy sputters, bankruptcy filings rise and the unemployment rate hits 5.5 percent.

Pressure on the card companies is intensifying. In May, federal banking regulators proposed new rules to address what they called “unfair and deceptive practices” by banks in their credit card operations (“Regulators Propose Credit Card Rule Changes,” May 2).

The proposals from the Federal Reserve and several other financial regulators addressed the amount of time cardholders have to pay their bills, changes in interest rate charges, and other common consumer complaints about the cards.

In addition, powerful legislators on Capital Hill are backing proposals that would heighten regulations on credit card issuing and marketing. Rep. Barney Frank, chairman of the House Financial Services Committee, is a co-sponsor of a bill that would require card companies to give cardholders 45 days before increasing the interest rate on a card. Sen. Christopher Dodd, chairman of the Senate banking committee, introduced a measure last month that would restrict the marketing of credit cards to students.

Obama appeared on the panel with several Chicago residents who told of their troubles paying their card bills, along with Harvard Law School Professor Elizabeth Warren, a long time critic of the card companies. Warren said that regulators have ignored abuses by the card issuers.

“We have a bunch of regulators in Washington who see their job as protecting banks and see you folks as little profit centers for them,” said Warren.

Obama said he would focus during his campaign on the economy. "Our economy hasn't been working for quite some time. I've met Americans who are doing everything right ... but are still struggling just to make ends meet," Obama said.