The Secret History of the Credit Card (full documentary) | FRONTLINE

tonight on the front lines the average american family has eight zero percent lifetime transfer balances

credit

card

s plastic money has become both a necessity and a ticket to a better life hawaii a

credit

card

is a convenience Extraordinary, incredibly great for the consumer, but the credit card industry plays by its own rules. I don't know of any merchant in the US that can change the price after you have purchased the item, except for a credit card company. Credit card banks make record profits. MNA's profits last year were one and a half times those of McDonald's. oh mcdonald's until last year but profits are priced now they have raised my rate to 19.98 and I have never been late.

There are irritated and dissatisfied customers in this industry. They are the new loan sharks in the United States. I certainly didn't. Imagine that someday we might have ended up creating a frankenstein frankenstein what does frankenstein mean tonight

frontline

correspondent lowell bergman and the new york times investigate the

secret

s of your credit card this may seem an unlikely place to begin a modern story of The most credit card is more than a thousand miles from Wall Street in the paneled halls of the Federal Reserve in Washington, but this is where the credit card business began to take off.

This is Sioux Falls, South Dakota, a modest city of 140,000 known for its livestock and meat auctions. packaging industry is a city that has a huge post office big enough to serve a city several times its size every day, millions of pieces of mail pass through here and millions of card requests are sent from here of credit and bills to mailboxes across the United States and billions of dollars in credit card payments arrive today from all over the world. Sioux Falls is one of the nation's leading credit card processing centers. It all happened in Sioux Falls because a quarter century ago times were tough in South Dakota there was a nationwide recession. with double digit inflation money was very tight the south dakota banks were issuing very few mortgages or loans of any kind interest rates were going into orbit and rising all the time so bill janklow was then the governor of dakota south when I arrived at the governor's office.

South Dakota's office had very strict historical laws about what could be charged for borrowing; In other words, there was one interest rate by law they could charge on new cars and another on used cars; It was highly regulated what interest rates people could pay what I What I'm trying to say is that we could have a law that said you could charge nine percent but the money cost eleven percent, so the banks They were not lending money for banks to issue loans. South Dakota decided to eliminate its historic cap on interest rates known as the usury law.

We had actually changed some of our laws in '79 and previously we had introduced legislation and passed legislation or were passing legislation to raise the caps on usury so that we could release and raise capital in south dakota at the same time across the country in new york city a legendary banker had his own problems oh it's very simple we're leaving i'm broke walter riston then president of citibank had a credit card division that was bleeding money new york usury laws prohibited banks from charging more than 12 percent on most consumer loan interest rates rose to 20 percent and if you lend money at 12 and pay 20 you don't have to be Einstein to realize you're out of business, it was costing Citibank 20 for money and you were only getting 12 It certainly came back because of the interest limit, yeah there was no way I could continue so Wriston and Citibank started to looking for a new place to do business, so we did a study of the five states that had no usury law or had very high amounts.

One of them was South Dakota, so he said, "Look, we'll bring a couple thousand jobs here in 1981." Citibank moved its credit card operation from New York to South Dakota, from the time I met them until we passed our legislation was just several weeks. I mean, we were really touched that that was a good deal for us, it was a great deal for them, what they got out of it, what Citibank got them and they were able to stay alive, but what really attracted Citibank to South Dakota was a obscure supreme court decision that said a bank could now export its interest rate to other states was called the marquette decision the marquette bank decision was a united states supreme court the decision that said forget where the bank is incorporated wherever it is Whether the credit decision is made in any state, that is the place where interest can be applied wherever the loan is made;

In other words, if South Dakota had a maximum limit of 25, then 25 percent could be charged even on a loan in Florida. Jack Lowe realized that Marquette's decision meant that South Dakota could become the credit. card capital of america in a very short period of time, a matter of a few months, I met with the chairman of the board of directors of the bank of america with the first chicago of illinois, Chase, the Manhattan bank manufacturers, the Hanover bank , the chemical bank, the bank of New York, all the big banks. in america because only south dakota at that time seemed willing to go ahead to invite people to come, but soon another state got into action, delaware copied south dakota's legislation and wilmington soon became the card center of eastern credit, attracting other New York banks and giving rise to new companies such as mbna, for the first time in American

history

, there were no legal restrictions on the interest rates that banks could charge on credit cards in the whole country.

You could look at Marquette's decision and say, "Okay, maybe it took the lid off, but what it did was it had a very egalitarian effect." Duncan McDonald is the former general counsel of the credit card division. He says that Marquette's decision allowed bankers to charge higher interest rates to riskier clients, and at the time Marquette came along, they could raise the price a little more to cover those people. As a result, tens of millions of people who were paying 30 and 35 interest rates to small loan companies suddenly got the product at a 19 interest rate and a 20 annual fee, so in that sense it was very egalitarian. and very good for banking, as interest rate deregulation allowed more people to get credit cards.

The industry began to expand and became the most profitable banking sector with $30 billion in profits last year. . We wanted to talk. to executives at major credit card banks about their business, but they were directed to the American Bankers Association. We have requested interviews with all the major credit card companies. They don't want to talk to us. Why is that our job? They pay us fees. handling these types of sometimes difficult tasks ed yingling is the incoming president of the american bankers association and the industry's top lobbyist how profitable is the credit card business is the credit card business profitable you would expect the credit card business was somewhat more profitable than the rest of the industry or parts of the industry because it's riskier, it's an unsecured loan, so you would expect the returns to be a little bit higher.

It wasn't last year's record profits for this industry and they are expected again this year, uh, yeah, but compared to what is not an unusually profitable business compared to other companies, mbna's profits last year were once and a half larger than McDonald's, well, McDonald's amounted to 22 liters last year and MNA is a large company, Citibank, more profitable than Microsoft Walmart and the executives are well paid. Well, well, these are really big companies and they make money today. Nearly 144 million Americans have credit cards and are using them like never before, collecting $1.5 trillion last year alone. Credit cards have become an essential part of the American economy.

I can't really say I love my credit card but I would hate to live without it I use it a lot for work it's easy it's easy to access I can take clients out to dinner I take advantage of the miles we fly first class on vacation it's nice to be able to spend what I You don't have it. Can you imagine living without a credit card in this society? It's hard to imagine We sat down with a group of credit card customers to talk about how they use their cards We are consumers America loves to consume more than our blood.

It's like an addiction. I mean, I have this new credit card in my pocket and look at that great dress. I can do it. I really shouldn't do it. I'll pay it later and you. do it, but I don't have that iPod, I'm not cool, yeah, so I can charge it and pay for it and Christmas is just around the corner, there's always something, they're just a gift for the traveler, which I'm very, very, In fact, I am a frequent traveler. They are an indispensable actor and author. Ben Stein loves the convenience of using his credit cards.

Credit cards are an amazing deal for me. I mean, I have so many different cards. I mean, my wallet is

full

of cards. it's crazy it's just ridiculous i look like i have a third breast uh carrying my wallet with so many credit cards in it thank you very much stein says he charges thousands of dollars a month in business expenses on his credit cards i use all his good services and no They make me no money, I mean, there's nothing to talk about, oh wait, here's a nice one. Credit card companies earn a percentage on each transaction, but Stein is not their ideal. customer because, like 55 million Americans, he pays his bills every month and doesn't pay any interest.

Credit card companies hate people like me who pay our bills every month and I know this because I ran into a classmate I went to high school with. with on the street and he told me he worked for a credit card company and I told him how much I use credit cards now I pay them off every month and he said oh we got we hate you guys we call you dead. The industry's best customers are the 90 million Americans who don't pay their credit card debt. They are called revolvers. People in the industry tell us that revolvers are people who borrow money basically with their credit card and that's where their profits are.

I don't think that's where all the profits are. I think it's generally understood that those who use the revolving part of the credit cards are kind of the sweet spot today, the sweet spot, as Mr. Yingling says, continues to grow and the maximum interest rates that are charged are higher than ever, according to Robert Mckinley, who founded Cardweb, a research firm that tracks the industry, the top 10 issuers in the country are charging interest rates of 25 to 30 percent to some of their customers and this is in a market where interest rates are at their lowest level in 40 years, we have consumers paying interest rates that would be considered usurious in my time in the At the same time, Americans with credit card balances have a record number of debts.

How much credit card debt does the average American family have with around eight thousand dollars for those who have any debt? Elizabeth Warren is a law professor at Harvard. She has researched the growth of credit cards. debt that middle class families have and how it can lead to big problems and what families are discovering, even with mom and dad in the workplace: they often can't make ends meet and that's why they often use credit cards credit to cover debts. gap they borrow to make ends meet and then what happens is something goes wrong someone loses their job someone gets sick the family is broken up by death or divorce she does well like most Americans jim and juanita Both of them lost their jobs, we had no emergency funds set aside so they became our emergency fund to finance our lives while we waited for the job to come so you borrow from the credit card and pay that month. then the work doesn't get done, so now you have to borrow more and we keep digging deeper and deeper and we start robbing Peter to pay Paul, as the expression goes, you know, taking money from one credit card to pay otherscredit cards and that.

It just increases, that's when it really started to snowball as the Muellers fell behind on their credit cards. Credit card companies began applying penalty interest rates and fees to their bills. Remember when interest rates started rising? Some of them, one late payment and they forget about it. your old interest agreement that you had, so don't forget the fact that you had the credit card for several years and we paid it regularly, we were never late and as soon as you make what you miss on a payment, it's like all the offers were canceled, everything goes up, I mean, some of the credit cards that we had were nine percent or less, suddenly it's 24 25 because, well, you're late, you're several months late and now we're.

We are going to increase your interest rate and charge you the late fee and now because the interest rate and late fees have accumulated it is now over your limit so there is an overall limit fee . Mueller's credit card debt eventually grew to nearly $80. Ten cards found they could no longer keep up with their payments and had to file for bankruptcy. They were one of a record seven million families who filed in recent years. five years it's not that we didn't want to pay with our credit cards, we got to the point where it was impossible, right, it was just, I mean, minus a rich relative that neither of us had dying and leaving us a hundred thousand dollars, nothing was going to happen. pass because the credit card companies weren't willing to work with us unless they got all their money as quickly as possible?

The main things that trigger a bankruptcy filing are job loss, a medical problem, or a family breakup without those things most American families can afford. credit card debt, but high credit card debt puts them at much greater risk, so if they stumble, if they take one of the other hits, they get caught up in those high interest rates and they just sink. Zero percent lifetime on transfer balances and a three to three percent cash back bonus, ironically, the wherler. they are still getting offers for more credit cards they are still getting applications in the mail yes we got one yesterday from a credit card company that told me I would never have credit with them again one of the last times I talked to them and told them what it was our situation, they said, well, we'll cancel your card and you're essentially banned for life.

You will never have a credit card from us again. Yesterday he received a request from them with zero percent for life with up to fifty. thousand dollar line of credit diapers milk and laundry detergent twenty five dollars oh yeah and that's what you just said spend more time with your family is priceless encouraging Americans to take on credit card debt is critical to the profitability of hawaii industry call now to apply for the city advantage world mastercard and you can earn free award travel plus earn 10,000 bonus miles making spending easier and more attractive has been the work of madison avenue marketers , the new tool belt and the 126 chrome tool set, getting some use out of it is priceless.

There are some things money can't buy for Father's Day: Mastercard, but the industry's success has also relied on financial innovators like this man, Andrew Carr, whose peculiar genius, industry insiders say, has helped to shape the way the credit card business works. He rarely agrees to interviews, only agreeing to talk to us if we don't identify his clients or where he currently lives. Give me a sense of from the time you got involved in the late '70s with credit cards, the ideas, the innovations that you came up with. Well, I convinced the client that instead of having five percent of the balance as the minimum payment, we should reduce it to two percent, which is a very dramatic change.

Less than half before Andrew Carr became involved in the industry, most bankers required clients to pay five per cent. of your credit card balance each month. Carr realized that if customers could pay less, they would borrow more. You were able to explain that people who made low payments were the most profitable. Having a lower minimum payment allows you to offer higher lines of credit. which first of all makes your card product more attractive because people judge that even if they do not intend to use the entire line, they would prefer to have a higher line, high balance accounts will be much more profitable than accounts with low balance because they are paying interest because today they are paying interest on a higher balance.

Carr's two percent minimum is a common feature on millions of credit card bills, and by the way, each month about 35 million Americans pay only the minimum payment while you're building up balances on your credit cards or currently carrying balances. On your credit cards, do you have cash in the bank? Oh yes, yes, I can erase my debt, so why don't you do it? I feel like it's the savings, you never know what's going to happen tomorrow. You might need that money for something else, so even if you're paying double-digit interest and you can get rid of the balance or most of it, you'll still make those payments and keep the cash in your bank account, right?

Research showed that making the minimum payment alleviated consumers' anxiety about carrying large amounts of credit card debt. They believed they were being financially prudent. If you lose your job or know something bad happens, you have to have money and you don't want to live. from a credit card, so you need to have that money saved somewhere in case something happens. In fact, the industry was making huge profits from Andrew Carr's intuition about people's behavior, but then, in the late '90s, Carr says he had a new idea of ​​what customers were like. Being inundated with competitive offers for low-interest cards, people were offering 12.9 percent interest for the first six months, 10.9 percent on balance transfers, and I convinced the customer to go straight to zero percent as introductory rate, which gave them a competitive advantage, of course. the others were also at zero percent.

Carr knew that although the zero percent offer could easily change, people would still be drawn to the bait when you received something in the mail several times a week that offered you zero percent for six months. in the email application headlines they spend 30 seconds on it and it's okay, I'll be better off at first, they'll give me something, they'll give me a zero percent rate, uh, people believe. what they want to believe zero percent apr what does this mean? I mean, you're saying that doesn't make sense in most cases, if you were to sign up for this card, the bank will honor that rate for that period of time, but there's a lot of fine print that goes into what could happen, so For example, if you miss a payment, this fee will disappear immediately according to McKinley, the key to understanding how credit cards are marketed lies in the great digital revolution, the accumulation of data on American consumers, well, there is a gold mine of information that resides in these databases from the consumer reporting agencies, the credit agencies, they are collecting information about what type of accounts you have, the open balances, whether or not you make those payments on time, and that's a huge reserve of information that they can tap into and be able to get an idea of ​​whether or not a consumer is a revolver, someone who doesn't pay the balance in

full

each month so they can examine them and today it really has become almost surgical The ability to Surgically targeting consumers and tracking their financial behavior has become a booming business dominated by three credit reporting agencies that collect information.

All that data is then processed by a little-known company called Fair Isaac, which calculates a number called a fico score for almost everyone. american with credit

history

we are not a credit reporting agency like a transunion equifax or experian that collects information on consumers daily and creates consumer records tom quinn is a spokesperson for fair isaac we simply work with the credit reporting agencies and they implement their data In our mathematical formula to create that score, the average FICO score is 720 out of a possible 850. The riskiest customers have scores below 600, the score is an indication of how likely you are to pay their bills.

Lenders use that score almost like a thermometer. to determine if they are going to grant credit or not then the algorithm is an indicator of the future risk of that consumer in terms of credit behavior algorithm that is to say a mathematical formula mathematical formula and how many people have this number we estimate that approximately 75 percent of the population of the US who are eligible to receive credit, that is, those who are 18 years or older, have a credit score at any given time, you know your credit score, you don't know you have a credit score, I know I have one , I don't know.

I don't know what's true, yeah, I don't know what it is, I don't know what it is either, so if I told you the words fico Score, do you know what a fico Score is? I know the terms. I'm not sure what they are. I never got my credit score. An individual's fico score often determines how much interest he will pay on a credit card. The terms and conditions of the card are set out in the fine print of this contract when I receive them. a credit card there is a contract that goes with it what kind of contract is this because I never read it have you ever read it when it comes to you?

I would have to admit that in most cases I may have just glanced at it, you know it's full of so many legal terms and so many pages of small print and it can be intimidating, I think it says I guarantee the terms of the loan for as long as I have the card, yeah, well the things that are unique about the credit card business is that the issuer can change the terms and conditions at will without asking my permission absolutely, they can change everything. Only 15 days notice is needed to make those changes. I mean, you could be offered a five or six percent interest rate. today and maybe get it two months later, that could be thirty percent.

There is nothing to prevent the issuer from changing those conditions. Even Professor Elizabeth Warren, an expert in contract law, says she finds it difficult to decipher her contract. I have read my credit card agreement. and I can't understand the terms I teach contract law and the underlying premise of contract law is that both parties to the contract understand what the terms are. Have you ever read the contract they sent you with your credit card? Yes, but me. I'm a lawyer, you understand? I do understand it. I think it would be very difficult for a lot of people to understand and I think it's a constant battle trying to figure out how to do revelations and that kind of thing in plain English. for someone to read ed yingling says the fact that contracts are difficult to understand is not the industry's fault our disclosures are very explicitly set out in law and regulation much more so than in most consumer contracts the ours are heavily regulated, they say the contract contains information even the font required by law that's the point now the laws are inadequate there isn't enough there these guys have discovered that the best way to compete is to put a smiley face on their commercials a low introductory fee and hire a team of mbas to set traps in the fine print.

One of those traps, according to Warren and other critics, is something called universal default - if you miss your mortgage payment, you don't make the payment. of the car, any other can trigger what is called a universal default, you actually have the right to change it if you miss a payment with another creditor or, in some cases, even if there is a change in your creditworthiness. In fact, you don't have to miss a payment, you don't have to go over your credit limit to be in default, you could be, for example, or maybe your balances are too high, you've just seen one of these just before.

I want to read you something about a contract, your interest rates may also vary if you are in default under this agreement or any other agreement you have with us or any other related company for any of the following reasons you fail to make a payment to another creditor when Do you understand what this means? If you do, do you know that means if you miss a payment and you're late on whatever else you're paying for your house, your car, anything else, they'll find out and they can change your interest rate. Did you know I had no idea?

I had no idea. This is the first time. Have I ever heard that, why is it legal? Because it is revealed in the contract, notIt seems fair, you haven't done any harm to the company, you are late with someone else, you haven't affected your position with that company, no. it doesn't seem fair that they suddenly say "well now we can raise your rate" they are taking advantage of someone who is in that position that's what andrew guill from wilmington delaware says what happened to him yeah um i got a letter from mbna several years ago months my rate was going to increase mbna increased their interest rate from 8.9 to 19.9 and their minimum monthly payments almost doubled.

They told me the first time they had raised my rate because they found a time back in 1998 when I was 60 days late on a competitor's credit card and I asked them what does that have to do with mbna, especially six years ago, I said It has nothing to do with my account here, I mean, that absolutely took my breath away. When Guile protested, he said they gave him another reason for the change. It had become riskier. They told him because his account balances with other creditors were too high. I was a big mbna customer. I always paid my balances on time.

I paid more than the minimum balance. I know I paid it in full many times, but I was never late. I used the card wisely and responsibly. Frontline wanted to ask mbna about Guile's issue, but they told us they never comment on an individual's account, just two months after our interview. Guile says she received a call from the mbna president's office saying they were changing their interest rate back to 8.9 percent. The real question here is whether or not you can change the price on new items you buy after your credit score has changed. but for old loans that you have already taken out, my mortgage company agreed to an interest rate and if I lose my job, my mortgage company cannot double my mortgage.

The credit card companies may say: remember how you bought the big screen TV at 9.8 percent interest, we decided we want 29.9 percent interest and there is nothing you can do about it right now. contract allows a credit card company to change the interest rate on the money you borrow from them after you have borrowed it, some do, yes. It depends on the contract but many do it, if they find out through this information system that you are late in paying for your car they can notify you and that you are going to change the interest rate on the money.

They already loaned you and I think there is a misunderstanding about what the credit card agreement is. My agreement with you is that you have come to me, you have a certain credit score, and based on that credit score, I am going to charge you. 12 percent if it turns out in the future that your credit score has deteriorated and you are now more of a risk to me. I will charge you the interest rate I would charge someone with that credit score. Is it fair to change the price? of the deal after the fact the product is not a promise to someone that we will lend them that amount of money forever at that interest rate it is a very short-term revolving line of credit it is dishonest plain and simple it is dishonest they can say it is a good deal for your bottom line but it is a very poor way to treat a customer in 1996 another major supreme court decision was made the door to higher profits for the credit card industry and a series of new complaints from your customers about that smiley v. citibank decision very similar to the marquette decision before it lifted state restrictions, this time on the fees that credit card banks could charge.

We were working on this. here for a good cause free market pricing duncan mcdonald was one of the lawyers who worked on the smiley case late fees that were common throughout the industry until smiley were in the range of five dollars and 10 and the economic thinking was that there was flexibility to allow up to 15, but when Smiley came along and took the lid off, it went from 5 to 10, to 15, to 29 and recently went up to 39, I guess it will probably increase to 50 per year. Within a period and a half I certainly did not imagine that one day we could have ended up creating a frankenstein frankenstein what do you mean by frankenstein?

I look at that and tell myself that's 50 a fair fee plus a 25 interest rate and all those other fees that apply to people who probably aren't as risky that's how fair I look and say to myself there it is. the frankenstein that we have created something to deal with as the smiling credit card companies have doubled the amount of revenue they generate from fees, late fees, over limit fees, returned check fees and the like, fee income has grown much faster than interest income in the business, so fees are a penalty to making sure you pay on time.

Or are they a source of profit? Well, they have really become a source of profit. It's not just the rates they charge, even though they are three or four times higher than they were less than 10 years ago, that is the tip of the iceberg when it comes to the penalty imposed on consumers in these situations where they make a late payment it is the penalty interest rate that really causes the damage. Your interest rate could double overnight, but just so I understand that interest rates are not regulated, they can change the interest. rate relationship you have with them on a 15 day notice so it is a major source of profit for them and the rates are now no longer regulated that is exactly right it is very open we are starting to see the banks they make all these adjustments where they're changing interest rates and raising fees by adding new fees, uh, all the ways they calculate interest, setting due dates on Sunday and holiday in the hopes that maybe you'll stumble and receive a late payment, it has become a very anti-consumer market, even the industry's top lobbyist is concerned.

I think it would be short-sighted for a credit card company to charge fees that would make someone angry because you're likely to lose that customer and I think it's going to cost you. There are bankers who have skyrocketed fees from 14 to 25 and late fees. $40 and bad check charges, etc., which fall on the shoulders of those who are less well off. -off, yes, something bad has happened, so we need regulation, well, we have regulation, we already have regulation, the control of the currency regulates all the national banks and they have very broad powers, the office of the comptroller of the currency, the occ is an obscure Washington agency. part of the treasury department and regulates national banks, banks like Chase Citibank and MBNA, which issue most credit cards in this country.

Julie Williams is the acting comptroller of the currency. We have three objectives to ensure that banks do not fail. to ensure the integrity of how banks operate their corporate governance and to ensure that they deal fairly and honestly with their customers at the end, we have the ability to take enforcement actions and we have done so, we have taken enforcement actions, Can give us? Give us an example of how you have tested a large institution. Well, I think probably the most egregious example of that would be the action we took in relation to Pravidian. That's not the story they tell in San Francisco, where in the late 1990s, credit card company Pravidian Financial was experiencing double-digit growth.

Providedian specialized in the riskiest customers with the lowest credit scores. They targeted people with questionable credit or marginal credit. People who couldn't get bank cards elsewhere. Pat Wallace is the boss. from the best business office in the San Francisco area. The first thing that caught our attention, of course, was the number of complaints. Bravidian was involved in all kinds of questionable offers, policies, procedures and operations. Complaints about Pravidian from all over the country came here. to Wallace's office, Pravidian, for example, accepted payments from consumers into their accounts, deposited the checks but did not credit the account for sometimes up to several weeks, the net result being that the consumer invariably received a payment fee. late, would hold payments so they could charge late fees and could charge overdraft fees and innocent limit fees. 50% of their income was fees not interest on borrowing money, they were exceeding the limits and they got by with it for a period of time and made a lot of money in the office.

The Comptroller of the Currency is the primary federal agency that receives complaints. Did they come to his aid? No, they just weren't interested. You know the response was good. You know, we'll take it from here. We will observe it from here. I know it's not a problem right now for us. Complaints about the supply also reached June Crevet in the San Francisco district attorney's consumer protection unit and she began investigating and eventually attracted the attention of the local press and then received a phone call from the OCC. Did she ever listen to her? from the office of the comptroller of the currency the answer from my perspective is no, I didn't really know much about it, I didn't know exactly what they did and exactly who they regulated, we have never heard of them being very active in the area. of consumer litigation or consumer enforcement actions against banks and when the occ contacted June Crevette she says that instead of cooperation they issued a challenge, there were a couple of meetings where the issue of preemption was raised, yes , that's where they say because we are the federal regulator that we have exclusive authority over the national banks and therefore we have no jurisdiction you, San Francisco, you have no jurisdiction, yes, the San Francisco district attorney tells us that they were told that you You don't have real jurisdiction, we have real jurisdiction. jurisdiction and indicated to them that they might want to get out of the case the way it worked, we worked together with the San Francisco district attorney's office, it was a collaborative process, well, they say once you got involved it was very fruitful, but what they are telling us is that the OCC only got involved once this whole situation became public and that prior to the news publicity they were responsible for they had no contact with the OCC, we worked cooperatively with them when we got information about what was happening.

The joint investigation ultimately culminated in a $300 million settlement. Pravidian declined to be interviewed and issued a statement saying that rather than revisiting the past, the company is focusing on services that provide real benefits. Today in Washington, the OCC has been increasingly asserting its authority and attempting to curb consumer enforcement actions by local prosecutors, triggering a nationwide battle led by attorneys general in the 1950s. states, the occ is now trying to eliminate state presence to prevent us from protecting consumers, which i think is ultimately very detrimental to consumers eliot spitzer is the attorney general of new york state, we receive thousands of complaints every year about credit card issues related to the major banks, the major card issuers, that's why we get these complaints and try to deal with the credit card companies, but more and more in the last number.

For years, what we have heard from major banks in a variety of contexts is that we do not need to deal with you because the OCC has told us that, in fact, it has ordered us not to deal with state law enforcement entities, Isn't this just a The turf battle between the states and a federal agency is a one-way turf battle and by this what I mean is that we are more than happy to recognize that the occ has jurisdiction over the entire financial system when it comes to certain issues that the occ is trying. What needs to be done is squeeze the states in an area where we have been incredibly helpful, which is consumer protection.

State attorneys general, Mr. Spitzer and others, say people in our state know who we are. We have a consumer complaints office and our problem is. that you, the occ, want to put you out of the business of consumer complaints, we don't want to put you out of the business, we are both there protecting consumers, what we have been striving to do is individually and developing agreements with the states find the best way to work cooperatively with them in january 2004 the occ declared itself the exclusive regulator of all national banks, effectively immunizing large credit card issuers from most state consumer protection laws the occ cited the case provide as proof of their commitment to consumers.

I was dismayed that they used Providian as the prime example of their ability and willingness to enforce laws that pertain to consumers. They were not the white knight who came to San Francisco and saved consumers fromprivileged. Since the Pravidian case, the OCC says it has been more aggressive recently in issuing a notice admonishing banks for misleading the public about practices such as zero percent introductory rates and universal default. The OCC itself has acknowledged that these practices are, as describe, very worrying but look at what they didn't do, they didn't say it and we are going to ban them, stop them, those are unfair practices, they are unsafe and unsound and don't do them, instead they said it's a problem, look if think it's a problem, then tell the credit card companies to stop doing it, why don't you just stop them, why don't you ban these practices, when we see practices that are potentially problematic, we take a variety of actions to get you can tell them to stop doing it and they We would have to do it if we had a basis for concluding that a bank was involved in a practice that was unfair or deceptive.

If you violated any of the many other consumer protection standards that apply to them, we can tell them to stop you immediately. Whatever the OCC is doing, Pat Wallace says it hasn't stopped the Better Business Bureau from being inundated with complaints. It's no accident that the bank credit card business generates more complaints nationwide across the country than any other industry. What does that tell you? out of a thousand industries that we track, they are number one, I would say there is a problem here, these things are not an anomaly, all of these complaints have some basis, in fact, there are irritated, dissatisfied and dissatisfied customers in this industry and we see it as The Better Business Bureau tells us that credit cards, banking, and credit cards together are the number one problem for all types of complaints.

Yeah, I would have thought it was like a satellite cable installation. I guess you used car salesmen, apparently your members are among them, so I wouldn't have done it. Thought that was the case, critics like Elizabeth Warren believe there would be fewer complaints if the credit card industry clearly disclosed how its business works, particularly when it comes to minimum monthly payment, if people knew that the cost of minimum monthly payments is that I would continue to pay for yesterday's trip to the mall for the next 35 years. Some people might decide to pay much more than the minimum and the industry knows this.

That's why they don't want to tell their bill advertisers what the monthly minimum is. the payment is, but you don't tell people how much it could cost you if you stick to that minimum payment, why not, the disclosure would be incorrect 99 of the time because no one, almost no one, pays exactly the minimum, that minimum every month for 20 years and never. accuses something else, this is going to be a hypertechnical and expensive disclosure that no one would understand, so we are against disclosures that no one would understand and that are wrong, we are in favor of disclosures that help people understand, it is that simple, this is a pointless argument in the direct line.

Below the line that says minimum monthly payment is a simple sentence that can be added if you make minimum monthly payments, it will take you how many years, 35 years, and how many months to pay this bill, the man who takes credit for inventing the two by hundred. minimum payment believes that further disclosure is useless, this is a fascination that is occasionally held in mind by someone with a special interest or someone who thinks it is going to help consumers, but if we had a tape and turned on a computer with transcripts of 10,000 customer service calls with questions, okay, I don't think you'll ever hear that question, so I'm a little baffled by the artificiality of it.

I don't think that's what consumers want to know because they don't expect to win. minimum payments forever Do you know if you made the minimum payment, for example, on your bill, how long it would take you to pay it? I'm not in a rush to find out, I'm just going to pay for it, would you like that? Be confident, curious, yes, it would inspire me to write more. It would inspire me and I think that's probably why they don't write it. It would inspire a lot more. people pay more than the minimum, virtually everyone who owns a credit card in one form or another under the laws and regulations existing today can be fully exploited by the credit card industry, so that there is a trick to get him into the game once. you're in and I've got you in so if you leave I'll charge you if you don't fulfill your obligations I'll charge you you move to the left you move to the right I've got you so what are you going to do about it?

Well, I have legislation, so I have a bill. There's always a quick answer here and I don't know how far it will go because I've tried in the past. I'm not new to the subject. The blame for the credit card debt crisis we are seeing in the United States lies in how the credit card companies follow their practices. In the summer of 2004, Senator Dodd introduced a credit card reform bill that, among other things, would require credit card companies to disclose how long it would take consumers to pay off their balance, but it is not optimistic that the bill will pass.

Your many previous attempts to reform the credit card business have failed, why haven't you or other legislators been able to implement some regulation? Is it his political power? Surely there is no doubt about it. I mean, every time we try to deliver legislation, this industry has become very powerful and very successful in defeating every legislative attempt that has been made in recent years to inject something. liability on the part of this credit card industry, your critics say that you block any attempt to pass industry reform or consumer protection legislation, you have blocked legislation on minimum monthly payments, maximum interest rates and a ban of marketing to college students, we have done everything we can to block bad bills, those are bad bills and we will continue to do everything we can to block them, bad for bad for consumers.

I want to promise you something today, you know, keep beating me and keep beating ideas like this and you. I will look back and wish I had passed this legislation because I will tell you that Congress will come and take actions far more egregious in their opinion than anything I am suggesting. I'm discussing disclosure. Just let people know what the situation is. The deal is, I think there will come a time when the American consumer will reach a tipping point on this issue and it will no longer be okay for credit card companies, once they get into financial trouble, to change interest rates to load them. with fees and penalties to simply decide that the terms of the contract they originally signed are no longer the terms of the contract.

I believe that day will come, even an industry expert like Duncan McDonald, who worked at Citibank for almost 30 years, is deeply concerned. I know. Enough about the industry and the lawyers in the industry and there have to be people sitting there saying we have to find a way to deal with this. Have we reached that point? I don't know, but I guess that's where the debate lies. and I hope there is a debate about what would be a tragedy if it didn't exist the tragedy would be what makes the status quo worse sky squad is bad and then makes profits worse they keep 25 uh bad rates become 30 bad rates and late fees turning 50 and 60 and so on in South Dakota, the man who helped the industry take off in the 1980s has mixed feelings about what he helped create.

Do you ever reflect on the fact that this great success has been a great benefit to your company? The state at the same time has helped create a way to borrow money, spend money that may have gotten out of control. I think the answer is yes. I mean, we became a plastic society. We become a plastic society. Many times you want to give to people. Cash they look at you Cash Cash You were instrumental in making this happen in many ways. I didn't think anything of this when it happened and I'm still glad we did. I still like what we did and I still think it was a great opportunity for my state now if we talk about the industry and 18 19 20 more percent interest, do I think that's a healthy thing for human beings?

The answer is no, I don't think it's healthy at all next time on the front line in a strategy. The US alliance signed a pact with Saudi Arabia based on trust to give us oil and we will give them protection and suspicion when it became clear that 15 of the 19 were Saudis. Bin Laden had turned Saudi Arabia into an enemy with unprecedented access. The first line tells the story. of America's Uneasy Alliance with the House of Saud The Secret History of the Frontline Credit Card is available on videocassette or DVD to order Call PBS Home Video at 1-800 Play PBS Partial funding for this program was provided by The Nathan Cummings Frontline Foundation is made possible by contributions to your PBS station from viewers like you, thank you