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Q&A: Credit Card Crackdown

Congress is looking to crack down on what critics call abusive practices by the credit card industry. And on Thursday, President Obama met with 14 representatives from the industry, including Bank of America, Captial One, Citigroup, American Express, Visa and Mastercard. Here's a look at what's in play.

What practices are Obama and Congress most interested in?

Obama's meeting comes on the heels of the House Financial Services Committee's passage of a so-called Credit Cardholders' Bill of Rights. Obama was said to be looking for an open discussion with the companies, but backs the principles contained in the Cardholders' Bill of Rights, which could reach the House floor for a vote next week. The Senate is considering a similar bill.


The bill of rights calls for:

* Protection from arbitrary or retroactive rate increases

* An end to due-date gimmicks and penalties for those who pay their bills on time

* Protections from excessive fees on cardholders

* Prohibitions against predatory marketing practices targeting subprime or minority borrowers


Is this a new problem? And where's the evidence that things are getting worse?

Proponents of the bill of rights argue that banks have gotten more aggressive during the recession in trying to squeeze consumers for more fees and interest. Banks also anticipate a new wave of defaults on credit cards, and they are trying to protect themselves. A recent survey by Pew Charitable Trusts of more than 400 credit card offers showed a large majority of those offers allowed the companies to raise interest rates, impose automatic penalties and structure payments in a way that would hurt consumers. According to figures provided by the White House, credit card debt has increased by 25 percent in the past 10 years, reaching $963 billion in January 2009.

How are the credit card companies responding?

Restrictions like the ones proposed in the bill of rights worry the credit card companies. They argue that imposing rules and regulations like these will ultimately raise the cost of credit to consumers or reduce access to credit. Doing so, they say, will also hurt the economy.

What are consumers likely to see, if Obama and Congress pass the Cardholders' Bill of Rights?

Essentially, greater disclosure. Consumers might be able to set limits on their credit — to prevent themselves or a child with a credit card from spending too much, for example — and they won't have their credit terms changed without their agreement. But credit card companies warn that as a result of this legislation, consumers may also start to see higher costs and less access to credit.

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