In late January, Senator Chris Dodd held hearings on credit card practices, sternly warning credit card companies to clean up their practices or face new legal restrictions. Nearly every senator on the banking committee chimed in with the same message. Today, Citigroup dropped two of the most criticized features: universal default and anytime interest rate changes. No new legislation, but millions of customers will get a better deal.
The Citigroup shift is an important reminder of the power of the Congressional hearing. So long as the folks in charge of Congress didn’t want to upset the credit card companies, the companies kept on adding new tricks and traps. But now direction has changed.
A hearing can draw press to a subject, and more voter awareness of a problem makes Congress more likely to act. When a big player like Citigroup moves, it also makes it harder for others to resist. If enough issuers drop universal default, it becomes easier for Congress or the OCC to regulate the practice to stop the last holdouts.
The Citigroup shift is important for other reasons as well. It is a reminder that the card companies can make profits without these tricks and traps. The profits may not be so high, but the business is still very good.
During the January hearings, senators on both sides of the aisle directed tough questions to the credit card issuers. The senators made it clear that they believed they had found an economic issue that matters to a lot of families. Senator Levin is putting on another round of hearings next week on credit cards, and the House has talked about its own hearings. Will the Citigroup change embolden Congress to move more aggressively?
It is easy to make jokes about a do-nothing Congress, but this small change is important–even if it never shows up on a “legislation-passed” scorecard. And it is a powerful reminder that leadership in Congress makes a real difference.
