Who’s in Charge?

Sen. Levin and experts discuss how to make the current credit card system safer and more transparent for American consumers.

The Center for American Progress held an event yesterday to discuss “Safety Sells: The Case for an Incentive-Based Credit Card Disclosure System,” a new report on how the devious practices of credit card companies exacerbate America’s growing problems with consumer debt.

The report argues that to more effectively influence the behavior of credit card companies, an incentive-based system of disclosure—one that relies on the profit-seeking interest of companies to change their behavior—should be added to the current credit card disclosure regime.

The panel included David G. Wood, Director of Financial Markets and Community Investment at the U.S. Government Accountability Office; Ronald Mann, Ben H. & Kitty Powell Chair in Business and Commercial Law and Co-Director of the Center for Law, Business & Economics at the University of Texas School of Law; and Derek Douglas, Associate Director for Economic Policy at the Center for American Progress.

They were joined by Sen. Carl Levin (D-MI), who made introductory remarks detailing the methods that credit card corporations use to ensnare consumers with debt and promised to investigate these “unfair and confusing practices” when he becomes Chairman of the Permanent Subcommittee on Investigations in January.

Ronald Mann, author of Charging Ahead: The Growth and Regulation of Credit Card Markets, described the current consumer market as driven by “a uniquely high level of consumer debt, a uniquely high level of consumer spending, and a uniquely high level of credit card debt.”

Mann urged the government to ban credit card marketing to America’s youth. He also proposed that indebted consumers be required to make “mandatory minimum” debt payments, and argued that credit card agreements should be purged of their confusing language and unclear terminology.

David G. Wood, Director of the GAO report entitled “Credit Cards: Increased Complexity in Rates and Fees Highlight Need for More Effective Disclosure to Consumers,” explained his report’s findings.

Wood found that credit card companies have expanded the number of interest rates and fees while simultaneously limiting the level of disclosure in credit card agreements. Many consumers simply cannot understand the fine print on their applications, unaware of the various fees and regulations to which they will be subjected.

“There needs to be more disclosure,” Wood concluded. He called on the Federal Reserve to regulate the nature and design of credit card agreements.

The Center for American Progress’ Derek Douglas, author of “Safety Sells,” warned against proposals to expand regulations.

Douglas instead called for the creation of an “incentive-based” credit card disclosure system that would harness the “profit-seeking interest of corporations” to bring about positive change.

Douglas expressed optimism that such a system could work, pointing to the success of the government’s “five star” rating system. Through incentives and competition, the “five star” system led to dramatically improved car safety.

Under such a system, the Federal Trade Commission would assess the safety of credit cards, assigning safety ratings to each card. Credit card companies would then be required to display the ratings on their cards and agreements. Companies would compete for higher ratings, thus improving their transparency and lending practices in the process.

Citing statistics showing the success of the New Car Assessment Program (NCAP) implemented in 1979, Douglas concluded by stating that “a similar, incentive-based system could have dramatic effects on the behavior of credit card companies.”

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