When asked to explain his notoriety, Yogi Berra clarified his position by replying, “I really didn’t say everything I said.” With Yogi in mind, I wonder if the Government Accountability Office (GAO) had the same “It’s deja vu all over again” experience during its recent review of credit card disclosures issued by the country’s six largest card providers.
The fine print contained in credit card disclosures made by Citibank, MBNA, Chase, Bank of America, Capital One, and Discover so confused the GAO that this investigative arm of Congress came to the following conclusion in its recent report: “We found that these disclosures have serious weaknesses that likely reduce consumer’s ability to understand the costs of using credit cards.”
While most people are amused by Yogi’s convoluted word play, the same cannot be said of Senator Carl Levin, the ranking Democrat on the Permanent Subcommittee on Investigations, when twisted language is applied to credit card statements. Citing the GAO report, Levin said, “Unfair or confusing credit card practices take advantage of working families. This report shines a needed spotlight on excessive credit card fees, unfair interest rates, and inadequate disclosure practices that ought to be stopped.”
In an attempt that could inspire the next great “Yogi-ism,” some people are calling on Congress to fix the problem of long, convoluted credit card disclosures by adding more legalese to make what they say clearer.
Outrageous Problems Everywhere You Look
As ironic as the notion of requiring even more disclosures on credit cards to correct the insidious hidden costs already contained in the fine print may seem, it is just one suggestion being made to address a very real problem. Millions of Americans are using a product everyday without any idea about what it costs; in many cases, this lack of knowledge is causing their financial ruin.
Compounding the problem, the big six card issuers have achieved market dominance, giving them almost carte blanche power over setting prices. Not only do the big card companies have the ability to charge usurious interest rates on a regular basis, but they are also able to employ penalties, terms, and fees that could be considered as second only to those offered by loan sharks.
Great Opportunity for Us to be the Good Guys
What a phenomenal opportunity for credit unions! Instead of selling off our credit card portfolios to the highest bidder, what if credit unions stepped up to help eradicate the largest financial problem facing young people and working families in America? What if credit unions demonstrated to Congress, the Consumer Federation of America, the Consumers Union, the U.S. Public Interest Research Group, and every other group calling for change that Americans already have an option for low interest rates, affordable lending terms, and transparent disclosures – in credit unions?
Could credit unions find the innovation to design card products that would give them a real competitive edge when trying to win the co-branding card business of universities or family-friendly companies?
The newly released GAO study of anti-consumer practices by the big six card issuers highlights the need for a “white hat” credit card provider in this country. Who is better positioned than credit unions to meet this need?
While card administration, balance sheet risk, and security breaches create significant challenges for managing a credit card portfolio, the potential in this market alone could sustain the credit union movement well into the future. The revenue potential in credit cards is enormous. If this was not the case, Bank of America would not have bought MBNA and credit unions would not be paid large premiums for their card portfolios.
In America today there are 690 million cards representing $806 billion in credit card debt. Millions of Americans need a trusted provider, one who is not out to take advantage of them. That could be, and should be, credit unions.
I am watching this Congressional scrutiny of big card issuers closely. And as Yogi says, “You can observe a lot by watching.”