The card revolution: Wall Street may be the new Egypt

For three and a half decades financial executives have ruled like sultans, increasing their share of the economy’s profits from a sliver to a majority of the pie. Greed was the fuel; corruption and entitlement were both major by-products. So successful have the industry’s attorneys and lobbyists been at emasculating regulators that interest rates once outlawed as usurious have become the norm.

The masses have mostly suffered in silence. Byzantine phone trees and tiny print and fees for talking to unhelpful call-center representatives wore down the resolve of the masses to resist what they suspected were unfair charges and excessive interest. Oblivious to their anger, the financial system rotted from within as banks’ balance sheets became untethered from the well-being of the vast majority of their customers. The cash machine erupted in the headlines of The Wall Street Journal. Financial CEOs were celebrated by young, tanned heralds on CNBC.

{mosads}Less discussed was the concurrent explosion of bankruptcies, foreclosures and defaults. A business model that swallowed its own customers should have been seen for what it was: ill-advised and untenable. Instead, it was branded “innovation” and defended by bank lobbyists with a zeal that might make Moammar Gadhafi blush. Suggestions that the financial industry’s excesses be restrained were ridiculed as anti-market, anti-freedom and anti-capitalism. What was good for Citibank was good for America.

This is why the anniversary of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, which outlaws several of the most egregious lending practices and sets limits on others, should not be allowed to pass without substantial fanfare. Not only has CARD substantially reduced late fees and obliterated the more insidious over-limit fees, it has made meaningful progress without being savaged by partisans as a Washington takeover of private enterprise. Indeed, the first major piece of financial regulation in decades has managed to win praise from both the bank’s lobbying organization and Capital One, one of the world’s largest credit card issuers. Perhaps they remember the populist fury that greeted the bailout — a fury that continues to simmer, by the way — or maybe they were chastened by the speed with which the Kardashian sisters abandoned their brief foray into the shadow universe of predatory lending after Connecticut’s attorney general whipped out his reading glasses.

If chastened, however, the big banks can hardly be described as reformed. Interest rates have gone up, albeit modestly, since the CARD Act became law — maybe as a result of natural economic forces, maybe because issuers are using the threat of regulation as an excuse to squeeze in a few more billion. Major banks like Chase and Bank of America are rewriting their account agreements, introducing new fees to replace the old ones and, more insidiously, using the threat of higher fees to force consumers to consolidate their accounts at a single bank, thus strengthening the cartel (90 percent of credit cards are now issued by just nine institutions). More worrisome, unlike in the past — and unlike in other countries, such as Japan, for example — there is still no legal limit to the interest rates that issuers are allowed to charge in the U.S. Instead of relying on law, we depend on the diligence of overworked consumer advocates to expose the most egregious products, like the aforementioned Kardashian Kard.

Which brings us back to the CARD Act’s importance — even more so, to the necessity of the Consumer Financial Protection Bureau, which will soon administer it. When I delved into the bizarre world of consumer finance five years ago, it was Elizabeth Warren, then a Harvard Law professor, who explained that the divergence of the industry’s success from its customers’ well-being would result in disaster. Her warnings turned prescient several years later when supposedly healthy banks collapsed under the weight of “innovative” products like subprime credit cards and no-doc loans. Warren is now getting the CFPB off the ground. It’s déjà vu all over again for the American public: consumer bankruptcies rose 9 percent last year, RealtyTrac expects a 20 percent jump in foreclosures in 2011 and 884 smaller banks — a record — remain on the FDIC’s troubled list.

Let’s hope that the CARD Act is the beginning of a revolution that realigns the interests of the financial industry with its customers. I think Warren knows that this remains the only way to both strengthen the banks and rescue American families, but she’ll need some help from a populace that has silently suffered for much too long. 

Scurlock is a small businessman, financial adviser and the director/producer of the award-winning documentary “Maxed out: Hard times, easy credit and the era of predatory lenders.”