ABC 'World News' Goes after Credit Card Companies
Take an anti-credit card lending activist, one liberal congresswoman and a disgruntled credit card holder, and you have the stacked deck against lenders that ABC used on February 11.
âWorld News with Charles Gibsonâ attacked credit card companies for rising interest rates and fees, but left out a few details about credit markets by assuming that a Federal Reserve interest rate cut should result in lower credit card interest rates.
âWhen the Federal Reserve made two dramatic cuts in interest rates last month, there were reassurances that interest rates on credit cards would come down as well,â said âWorld Newsâ anchor Gibson.
Gibson continued, âAnd that was promising news to the 175 million Americans who are paying an average 19 percent interest on a total debt of nearly a trillion dollars. But reassurances in many cases have not become reality. Rather than lower rates, the rates on many cards have actually gone up.â
While the Federal Reserveâs interest rates are one factor in determining the interest rates credit card companies charge borrowers, Gibsonâs remarks ignored the increased risk from scores of defaulted mortgages related to the subprime lending woes. ABC also didnât take into account that the credit crunch is dictating that lenders charge more interest and fees because the supply of credit has decreased under these economic conditions.
âThe phenomenon of the credit crunch is reinforced by the fact that credit expansion, just like any other increase in the quantity of money, serves to raise wage rates and the prices of raw materials,â wrote George Reisman, author of âCapitalism: A Treatise on Economics,â on the Ludwig von Mises Instituteâs blog in August 2007. âThis too leads to the outcome of a credit crunch as soon as the spigot of new and additional credit expansion is turned off.â
But who did âWorld Newsâ trot out to condemn credit card companies â none other than Robert Manning, professor at the Rochester Institute of Technology and author of âCredit Card Nation.â His book was written from an anti-credit card company perspective on consumer debt. Still, Manning offered his oversimplified analysis on more expensive credit for ABCâs viewers.
âUnfortunately the average American right now is going to find themselves [sic] facing the higher cost of credit simply because the banks are losing money on other divisions,â Manning said.
ABC advocated more government regulation as a solution to rising rates and fees and quoted Rep. Carolyn Maloney (D-N.Y.) to support the argument.
âCongress is now considering bills that would require banks to notify customers before they change rates or fees,â ABC correspondent Dan Harris said.
âWorld Newsâ interviewed only one legislator â Maloney, who has encouraged government expansion on other issues. In August 2007 she supported federal subsidization of birth control. Maloney told ABC the credit card companies have an unfair advantage by determining rates and fees.
âIt sounds like the contract between the consumer and the card company is totally unbalanced,â said Maloney.
Harris even painted a bleak picture of an economy in the balance.
âAnd this is not just a problem for individual card holders, itâs a problem for the entire economy,â Harris said. âThe more people struggle to pay their credit card bills, the more they will cut back on their spending, which slows down the entire economy, as I said, Charlie. And defaults are already going up,â concluded Harris.