First of all, from an April 23rd release from her office:
Following news from the White House about their efforts to stop abusive and predatory practices used by credit card companies seeking to take advantage of cash-strapped consumers, U.S. Senator Claire McCaskill applauded President Barack Obama for making consumers a priority. McCaskill also urged Congress to support similar efforts in the Senate and House of Representatives.
"I’ve watched as both my 80-year-old mother and my 19-year-old daughter have been targeted by credit card companies as if they don’t know these are vulnerable age groups. I’ve heard from Missourians who were forced to rely on their credit cards to get by and, despite making timely payments, they saw their interest rate skyrocket. It’s about time we saw some true consumer protection in this area," McCaskill said.
Barack Obama made some of the same points after his meeting with members of the Credit Card Industry:
We had a discussion with some of the top issuers here, and what I communicated to them is that I think credit cards are an important convenience for a lot of people. They are a source of unsecured debt for a lot of individuals and small businesses who are creating jobs; a lot of startups may use credit cards for that purpose. We think that's important, and so we want to preserve the credit card market.
But we also want to do so in a way that eliminates some of the abuses and some of the problems that a lot of people are familiar with -- people finding themselves starting off with a low rate and the next thing they know their interest rates have doubled; fees that they didn't know about that are suddenly tacked on to their bills; a whole lack of clarity and transparency in terms of the terms and conditions of their credit cards.
And so there's going to be action in Congress. Our administration is going to be pushing for reform in this area. We think it's important that we get input from the credit card issuers as we shape this reform, but there -- and I'm going to leave it up to my economic team to work with Congress to evaluate all the various proposals and to get some very definitive language in place.
There are going to be some core principles, though, that I want to adhere to, and I mentioned these to all the credit card issuers involved.
First of all, I think that there has to be strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties. The days of any time, any reason rate hikes and late fee traps have to end.
Number two, all the forms and statements that credit card companies send out have to be written in plain language and be in plain sight. No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out.
Number three, we have to make sure that people can comparison shop when it comes to credit cards without being afraid that they're going to be taken advantage of. So we believe that it's important to require firms to make all their contract terms easily accessible online in a fashion that allows people to shop for the best deal for their needs.
Not every consumer is going to have the same needs. And some may want to take on a higher interest rate because it provides them more convenience or it provides them with a higher credit line. But we want to make sure that they can make those comparisons themselves easily. And we think that one of the things that needs to be explored is the possibility that every credit card issuer has to issue a plain vanilla, easy to understand, simplest terms possible credit card as a default credit card that the average user can feel comfortable with.
Finally, we think we need more accountability in the system. And that means more effective oversight and more effective enforcement so that people who are issuing credit cards but violate law, they will feel the full weight of the law.
McCaskill discusses the Card Accountability, Responsibility, and Disclosure Act of 2009 in her news release:
The Senate Committee on Banking recently passed the Card Accountability, Responsibility and Disclosure Act of 2009, which McCaskill co-sponsored and looks forward to supporting on the floor. The bill will prohibit interest rates from being raised for reasons unrelated to the consumer’s performance on the account, prevent "any time/any reason" changes in the cards terms, and stop interest rate increases on existing balances which costs the average family an additional $1800 in credit interest each year. The bill also gives consumers a choice of weather they want to exceed their credit limit in exchange for a fee, and requires cardholders to apply payments to the highest interest rate balances, which could save some borrowers $700 in interest each year.
Among other things she has done:
McCaskill introduced credit card reform legislation two year ago – Along with her colleague Senator Carl Levin (D-MI), McCaskill introduced legislation to reform unfair and abusive credit card practices.
McCaskill co-sponsored a bill to protect students from credit card marketing ploys – McCaskill co-sponsored the Student Credit Card Protection Act. The legislation, which was authored by Senator Herb Kohl (D-WI), is designed to help students avoid credit card debt by requiring credit card companies to adhere to responsible lending practices.
The other area of predatory lending is the area of reverse mortgages. Lenders use these mortgages to prey on people, especially senior citizens, whose houses have lost value during the housing bust. There is a sort of perverse logic here, as people who tend to fall victim to one scam will tend to fall victim to many more. That is why con artists have "sucker" lists that they sell to each other. So, the predatory lender comes out ahead either way -- they sucker people when the market goes up and then sucker them again when it goes back down.
From another news release from McCaskill's office, she explains how reverse mortgages work:
Americans continue to hear about how subprime lending plunged our country into the current economic recession, but reverse mortgages may pose a similar threat to consumers if Congress doesn’t take action. U.S. Senator Claire McCaskill today renewed her efforts to protect seniors and taxpayers from the growing number of fraudulent and egregious practices within the reverse mortgage industry. The Missouri senator introduced an amendment that would crack down on bad players in the industry.
"You know, when you see these ads on TV, it sounds too good to be true: government benefit, no risk," McCaskill said. "But, there is a huge risk. There is a risk of a senior paying more than they should for a product that doesn't work for them and a very big risk for the taxpayers of this country."
A reverse mortgage is a special type of home loan that lets seniors convert a portion of the equity in their home into cash. Although a reverse mortgage may be the right choice for some, it is a complex and expensive loan that will, in a relatively short period, strip the home of its net worth.
What McCaskill can't say, we can -- this is a legalized fraud operation. Con artists target the gullible few because many more are alert to these tactics. But these predatory lenders are much more dangerous because it is a legalized operation. Just like unionbusting and outsourcing are forms of legalized theft, this is legalized fraud. These are crimes that are much more dangerous than the crimes we hear about on the news, which I term petty crimes. Petty criminals target the few; corporate criminals target the many.
She continues:
Most reverse mortgages are insured by the federal government, and HUD has now been assigned over a billion dollars in loans. Plunging home prices and rising interest rates put the government at risk for losses on those loans. Rapid growth in the industry will only increase this risk to seniors and taxpayers. Since 1990, the government has backed 500,000 reverse mortgages, and with the government’s cap on reverse mortgages recently lifted and the borrowing limits raised, the industry is growing extremely rapidly. In 2009 alone, the government is expected to back 200,000 reverse mortgages.
In addition, the slowing housing market has caused some subprime lenders to look at the nearly $4 trillion in seniors’ home equity as a potential new source of mortgage income. Unfortunately, the reverse mortgage industry, which exclusively serves seniors, has become fraught with aggressive marketing tactics, predatory lenders, and most recently, fraudulent practices.
It is common advice, but these words seem revolutionary in these days of boom and bust -- never invest in anything that you don't understand. We seem to have lost sight of that in the heady days of Enron and Bush's "ownership society" and the other icons of boom and bust. Claire continues:
Fraud within the reverse mortgage industry is increasing, according the Department of Housing and Urban Development’s (HUD) Inspector General. Various types of fraud have been popping up across the country, including organized schemes of systematically inflating house appraisals to increase the lender’s profit off the senior and the federal government. With the government’s role backing these loans, the lenders have very little to lose.
The amendment introduced today would make it more difficult for criminals to perpetrate fraud by ensuring that the property’s appraisal isn’t inflated, that borrowers own and reside in the mortgage property, that fraud or abuse is reported, and that violators receive criminal penalties. The provision also ensures that advertising for reverse mortgage/HECM products cannot be false or misleading and prohibits lenders and counselors from selling or disclosing borrowers’ personal information to others for marketing purposes.
The amendment introduced today builds upon legislation McCaskill introduced and passed last year as part of the Housing and Economic Recovery Act of 2008. She began pursuing this issue aggressively after chairing a Senate Special Committee on Aging hearing on the issue in 2007.
Update: The CBO reports that McCaskill's bill can be implemented at minimal taxpayer cost.