On the heels of President Barack Obama’s weekend radio address, where he lobbied for so-called credit card reform, “CBS Evening News” chimed in calling the legislation “help” for small business borrowers.
“Evening News” anchor Russ Mitchell referred to Obama’s address about the need for new credit card regulation on May 10 and backed up Obama’s claim with data from the Center for Responsible Lending, an activist organization that calls for more stringent regulation of all lenders.
“President Obama called, this weekend, for passage of his credit card consumer protection bill by the end of the month,” Mitchell said. “According to a recent survey, four out of five Americans are paying lots more since December. The Center for Responsible lending found that an estimated 10 million users were hit by rate increases of at least 10 percent. And, it’s not just consumers who are paying the price – nearly half of all small business owners have seen interest rates higher than 15 percent during the past four months.”
CBS correspondent Michelle Miller interviewed one small business owner, Doris McMillon, who said she had difficulty getting traditional lines of credit and had to rely on her credit cards to fill a $10,000 gap.
“I primarily use my credit cards to take care of the office expenses,” McMillon said. “Supplies or whatever I might happen to need.”
“Payments from customers are drying up,” Miller said. “So she’s piled up a mountain of debt on her cards.”
That “mountain” is $10,000 according to the report. Miller said that the higher rates and fees McMillon and others like her are being forced to pay are coming from banks that received “big bailouts” which she described as the “worst offenders.”
“Banks, which received big bailouts, are among the worst offenders,” Miller said. “Two-thirds of all card issuers have lowered credit limits and raised fees for credit card transactions along with higher penalties for late payments. The new terms have brought in $18.1 billion to financial institutions.”
Banks, some of which were forced to take the “big bailouts” from the federal government, are looking for additional revenue otherwise they wouldn’t have needed assistance from the federal government. In many cases they were also overleveraged – some by a 40-to-1 ratio. Still, McMillon accused her lenders of “gouging.”
“I am in business to make money just like they are, but I’m not gouging,” McMillon said.
Miller’s solution was the legislation promoted by Obama. Thought some in the credit industry warn caps on fees and interest rates could backfire, making it more difficult to offer credit – Miller told viewers it would “help” small business and individuals.
“President Obama is pushing Congress to pass credit card reform by Memorial Day,” Miller said. “The House has already passed a version which puts a cap on interest rates. A Senate bill could be voted on this week that would help individuals and small businesses alike.”
A lot of financial advisers would not recommend depending on credit cards as McMillon was for her business. As CNBC Bill Griffith explained back on April 20, credit cards are lines of quick unsecured credit, but come at a high price.
“Credit card rates have always, always, always been high, I mean relative to the prevailing rates, ridiculously high for two reasons,”