Afflicter All About Accountability

Credit Card Problems Continue with Sudden Cancellations

Even with new regulations about to go into effect that will limit some of the shady practices of the past, credit cards are still finding ways to pose consumers with new problems. The Wall Street Journal reported yesterday on what appears to be a growing number of instances where credit card companies are canceling people’s cards without advance notice, leaving them to be embarrassed when they present the card for a purchase and worried about what may have happened to their credit.

In many cases, nothing has happened to their credit: The Journal reported a number of apparent instances of abrupt cancellations of cards belonging to people who appear to have had very good credit. Many such people are having cards canceled anyway, as the card companies reduce their risk because of the economy.

This practice has apparently always been legal, but card companies may be canceling without warning more often today because of the current economic situation.

The Federal Reserve is imposing new rules for credit cards that take effect Aug. 20. They will require advance notice when card issuers change terms. But the new rules don’t speak to when cards are canceled, according to the Journal.

Credit Card Arbitration May Be No More

The Afflicter was thrilled by yesterday’s news that credit card companies may no longer be able to force their disputes to arbitration.

Various outlets in the financial news media reported that arbitrators with the non-profit American Arbitration Association have decided to stop taking on disputes involving credit card debt. The AAA was following another arbitration group, the National Arbitration Forum, which got out of the business of deciding credit card disputes a few days earlier in response to a lawsuit filed by the attorney general of Minnesota.

The Minnesota lawsuit had accused the NAF of extensive undisclosed financial ties to the credit card industry as it stood as a supposedly neutral party appointed to settle disputes in millions of people’s credit card agreements.

The clause requiring arbitration to settle disputes has been standard in credit card agreements and, in the Afflicter’s opinion, has been key to shielding the industry from accountability as it’s buried the United States in debt. The Wall Street Journal reported that lenders’ win 94% of the cases decided by arbitrators.

The credit card industry argues that the arbitration system allows disputes to be settled more quickly and less expensively than they would be if customers had to file lawsuits.

But the Afflicter wonders if the credit card companies will behave in a manner that will court fewer disputes now that it may not be able to block its customers’ access to their full rights under the legal system.

ABC News looked at the credit card arbitration system, and its massive bias toward the card companies, last year:

A Possible End to the Credit Card Scam

The legal scam that is the modern credit card industry may be coming to an end. As part of the Obama administration’s new proposal to regulate financial markets, a new agency would be created that could require clear disclosures to consumers about the terms of financial products. The Consumer Financial Protection Agency would be charged with, among other things, “promoting clear and concise information for consumers; and protecting consumers from unfair and deceptive practices,” the statement from the Treasury Department says.

The idea for the panel was proposed in 2007 by Elizabeth Warren, chair of the Congressional Oversight Panel for the government’s Troubled Asset Relief Program. In an article in Democracy Journal, she noted that disclosures that come with credit cards and other financial products tend to obfuscate the risk these products present, rather than inform.

The panel, as proposed, would be able to require disclosures and impose fines and other penalties.

The banking industry will no doubt argue that such heavy regulation will make their business more expensive and that they will have to pass the costs along to consumers. But we’ll have no way of knowing if that argument is true. Even if the Consumer Financial Protection Agency is never formed, it’s likely that credit will be more expensive for years anyway, because of the financial industry’s recent run of bad business decisions.

Perhaps the financial industry could be forced to treat consumers better, even without a new agency. The small type and obfuscatory language in credit card and loan disclosures are remarkably similar no matter which bank you’re dealing with. Maybe these practices could be attacked as anti-competitive. If banks did compete, you would think that at least one of them would provide clear disclosures, just to gain an edge.