A16 Economy & Business credit from A1


creased over the past year while penalty charges — which are sub- ject to the new federal regula- tions — remained largely un- changed. Meanwhile, some cards are encouraging customers to charge more by offering en- hanced rewards, allowing the is- suer to capture “swipe fees” paid by merchants. And one issuer even allegedly threatened to re- ject consumers with high credit scores because they didn’t boost the bottom line. In a lawsuit filed last month, outdoor retailer Gander Moun- tain, based in Minnesota, claimed that its credit card partner, World Financial Network, was turning down shoppers with nearly per- fect credit scores of 800 or above. Gander Mountain said the reason was that the issuer said it could not make money from those cli- ents, which World Financial Net- work estimated as about a quar- ter of new applicants. That cre- ated “a negative customer experience” that could drive shoppers away, the suit said. Both Gander Mountain and the issu- er’s parent company, Alliance Data, declined to comment on the suit. Though industry experts say the case is extreme, it illustrates the challenges credit card compa- nies face. Issuers typically gener- ate revenue from two sources, in- terest rates and fees. Congress has clamped down on both of those channels this year, includ-


S


KLMNO Card issuers raising non-penalty fees


ing banning interest rate hikes on outstanding balances and curtail- ing penalty fees for late payments and over-limit purchases. The new rules are estimated to cost the industry at least $12 billion annually, according to law firm Morrison & Foerster, and issuers have long warned that customers in good standing could wind up paying the bill. “A lot of people thought they were blowing smoke, but they were spot on,” said John Ulz- heimer, head of consumer educa- tion for Credit.com. “Now some- thing has to give.” Many issuers have homed in on


was good behavior. D.C. resident Alanna Sobel said she pays her balance in full each month and was surprised to get a letter from Chase, the nation’s largest card is- suer, notifying her that the an- nual fee on her Freedom card would be $30. The letter stated that the fee had been waived the previous year and would allow her to receive 3 percent cash back on gas and grocery purchases. If she did not pay the fee, she would have to settle for fewer perks. “It was very confusing,” Sobel said. “I was just frustrated and wanted to make sure I didn’t get charged an annual fee.”


“A lot of people thought they were blowing smoke, but they were spot on. Now something has to give.”


— John Ulzheimer, head of consumer education for Credit.com


fees that typically accompany re- wards cards as a potential moneymaker. The Pew study, which was to be released today, found that about 14 percent of bank credit cards have annual fees, about the same as last year. But the median annual fee for the 12 largest banks’ cards rose 18 percent, to $59, over the past year. The cost of cash advances and balance transfers also rose from 3 percent to 4 percent. Some consumers say they feel penalized for what they thought


A Chase spokeswoman said So-


bel’s account was part of price testing that the issuer performed over the past year before re- launching its Freedom card. The company eventually decided to nix the annual fee on the card — and the 3 percent cash back — to simplify the offer. Ulzheimer said card companies won’t be able to hang too many fees on the strong- est customers, because that may drive them to do business else- where. “There’s a major competitive


dynamic going on,” he said. But “I can’t make enough by gouging the good to offset the bad.” Issuers are also trying to entice


customers to use their cards more often, allowing banks to collect fees from merchants, which must pay roughly 2 percent of the pur- chase price each time a card is swiped. The interchange fees, or “swipe fees,” have also come un- der congressional scrutiny, and the Federal Reserve is slated to craft new regulations within nine months limiting card swipe fees for debit cards. That makes credit card swipe fees even more crucial to card companies. The tactic worked on District resident Barry van Roden. Like many consumers, he has tried to use cash more often, and when he does charge a purchase on one of his three credit cards — one for business, two personal — he pays it off at the end of the month. But recently his Chase Conti- nental rewards card offered him a deal: Use the card 20 times in one month and get an extra 2,500 airline miles. He bit, and after- ward Chase upgraded his card to the new OnePass Plus, which has a 10,000-mile bonus when cus- tomers spend $25,000. Meanwhile, his wife received


an offer from Discover that prom- ised $100 cash back if she spent $800 on her card within the next few months. Will she be hooked, too?


“She says no, but I kind of want


her to,” van Roden said. muiy@washpost.com


MICHELLE SINGLETARY The Color of Money


Consumers’ champion should get chance to lead new bureau


B


arack Obama promised enormous change in how our government was run


when he was elected president. He should live up to his word and nominate Elizabeth Warren, one of this country’s most passionate and committed consumer advocates, to head up the new Consumer Financial Protection Bureau, which is authorized in the Wall Street reform bill that he signed into law on Wednesday. The bureau, which will be housed within the Federal Reserve, will have the authority to regulate and analyze consumer financial products such as mortgages, other types of loans and credit cards. A special unit will be created to sound the alarm early if companies or products pose a risk to consumers. The person who directs this


Voces Verdes


National Hispanic Medical Association National Latino Coalition on Climate Change (NLCCC) League of United Latin American Citizens (LULAC) Consejo de Federaciones Mexicanas (COFEM) Democracia Ahora Hispanics in Politics Latin American Youth Center National Puerto Rican Coalition Common Ground for Conservation Americas Business Council – Green Forum Labor Council for Latin American Advancement Fairness in Procurement Alliance


We are ready now.


Latino organizations nationwide—representing over two million people—are ready for strong action on clean energy and climate change this summer.


So why is the Senate stalling?


America’s Latinos are ready to cut pollution and improve our national security by breaking our dependence on foreign oil. We’re ready to tackle the 13% national unemployment rate Latinos currently face by applying our broad skill set to emerging green jobs. We’re ready to revitalize our neighborhoods, protect our health and guarantee a safer, more prosperous future for our families. America needs strong action on clean energy and


climate legislation, not more delay. Ya estamos listos. We’re ready now.


new bureau will have the power to build an agency that puts the interest of consumers first and protects them from many of the shady and predatory practices of a financial industry that, especially in the past decade, has run amok. Warren is chairwoman of the congressional oversight panel monitoring the U.S. banking bailout. She is also a bankruptcy expert and has produced research that highlighted bad credit products. It was Warren who championed the idea of a financial product safety commission. In a 2007 article for the journal Democracy, Warren wrote that just as the Consumer Product Safety Commission was created to protect buyers against unreasonable risks of injury, so too should there be an agency to safeguard consumers who use various forms of credit. “Clearly, it is time for a new model of financial regulation, one focused primarily on consumer safety rather than corporate profitability,” she wrote. “Financial products should be subject to the same routine safety screening that now governs the sale of every toaster, washing machine, and child’s car seat sold on the American market.”


Already there is concern that www.VocesVerdes.org


Warren wouldn’t get through the confirmation process because she’s viewed as too consumer-friendly. During an interview on WAMU-FM’s “The Diane Rehm Show,” Sen. Christopher Dodd (D-Conn.) said he wasn’t sure Warren could win Senate confirmation. “People can be great nominees and Elizabeth, I agree, could be a terrific nominee. The question is, ‘Is she confirmable?’ And there’s a serious question about it,” said Dodd, chairman of the Senate banking committee. Even if Warren would have a tough time getting through the nomination process, Obama should back her anyway. There are other good candidates for this job, but Warren’s got proven moxie. Let the American people see which senators are pro-consumer and which ones are afraid to tick off the financial services industry. Going forward with Warren’s nomination would be a good thing, said Sen. Bernie


Sanders, an independent from Vermont. “It will allow for a serious


debate as to the role that government should play in protecting the American people against the outrageous behavior we have seen on Wall Street,” Sanders said.


Elizabeth Warren


Some people are questioning whether Warren will stand in the way of financial product innovation. They worry that her history of criticizing credit issuers and industry practices might crush the development of new credit products for the


middle class. That wouldn’t be such a bad


thing, given the misuse and overuse of credit that pushed all of us into this awful recession. But I know Warren and her work, and she’s not anti-credit. She’s sensible and understands that credit is necessary in an economy built on using other people’s money.


“Credit has provided real value for millions of households, permitting the purchase of homes that can add to family wealth accumulation and cars that can expand job opportunities,” she wrote in the Democracy article. “Credit can also provide a critical safety net and a chance for a family to borrow against a better tomorrow when they hit job layoffs, medical problems or family breakups today.” I don’t believe Warren will stifle new credit products. But she darn sure will do her best to make sure consumers


understand the costs, risks and benefits of consumer financial products or services. “Creating safer marketplaces is not about protecting consumers from all possible bad decisions,” Warren has written. “Instead, it is about making certain that the products themselves don’t become the source of the trouble.”


Obama said he would sign the


financial reform bill into law “to protect consumers and lay the foundation for a stronger and safer . . . system.” Make good on that promise by nominating Warren to be the first director of the Consumer Financial Protection Bureau. It was her baby and she ought to be allowed to raise it. singletarym@washpost.com


Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.


Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions might be used in a future column, with the writer’s name, unless a specific request to do otherwise is indicated.


on washingtonpost.com


Color of Money Book Club


Michelle Singletary will be online at noon with the authors of a book about the financial and emotional costs of caring for elderly relatives.


THURSDAY, JULY 22, 2010


No ratings on bond prospectuses


by Jia Lynn Yang and Brady Dennis


In one of the first ripple effects


of the financial overhaul, ratings agencies are telling bond issuers to not use their ratings in docu- ments given to potential custom- ers, for fear of added liability. The bill signed into law by


Home delivery is convenient. 1-800-753-POST washingtonpost.com/subscribe SF


President Obama on Wednesday would remove an exemption that allows clients to use the ratings agencies’ opinions in prospectus papers without their consent — and without attracting any po- tential liability for agencies’ rat- ings if their opinions turn out to be wrong. In the last week, the three biggest agencies — Stan- dard & Poor’s, Moody’s Investors Service and Fitch — have cau- tioned clients they can no longer cite the agencies’ ratings as they’re issuing new products. Critics say the agencies have effectively shut down the market


for new asset-backed bonds. Re- publicans on Wednesday claimed that the new law was causing unintended consequenc- es in the financial world even be- fore the ink was dry on the legis- lation. “This reckless provision is now crippling the securitization mar- kets that provide much of the credit needed to support Main Street businesses and the jobs they generate,” Rep. Spencer Ba- chus (Ala.), ranking Republican on the House Financial Services Committee, said in a statement. The ratings agencies said the


charges were overblown and they have not stopped issuing ratings. They’re just not allowing them to be used in certain docu- ments. “For somebody to say we’re grinding the market to a halt isn’t a fair assessment,” said Ed Sweeney, spokesman for S&P. yangjl@washpost.com dennisb@washpost.com


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