Earlier this month, Harvard Law School Professor Elizabeth Warren testified along with two former students – Adam Levitin ’05 and Katie Porter ’01 – before the House Subcommittee on Financial Institutions and Consumer Credit regarding a proposed Credit Cardholders’ Bill of Rights.
“For too long, the most aggressive credit card issuers have had a free rein to craft new terms to ensnare unsuspecting customers,” said Warren in her testimony (PDF). “In the absence of baseline rules, some credit card issuers have boosted profits by developing new terms that are unfair, often devious, and sometimes legally deceptive.”
Warren outlined several areas where credit card agreements fail to clearly state the issuers' policies, including billing practices and rate increases. She called on Congress to adopt legislation giving consumers more protection.
Both Porter and Levitin agreed.
“Credit cards can be useful spending and borrowing devices,” said Porter (PDF), an associate professor at the University of Iowa College of Law. “However, their complexity and their widespread use in America impose heightened risks on consumers and create additional challenges for regulators. Responsible credit card practices not only limit the risks to individual consumers of financial distress from credit card use but also help insulate the economy from an overall credit bubble that could occur if consumers become highly leveraged with credit card debt.”
Said Levitin (PDF), an associate professor at Georgetown Law: “If the card industry were required to price its products in a straightforward manner, and it were less costly for consumers to switch cards, deceptive practices would be harder to maintain,”
Warren, Porter, and Levitin are contributors to the blog Credit Slips, which discusses credit and bankruptcy issues.
On the other side of the issue, Gregory Baer '87, deputy general counsel for Bank of America, testified (PDF) that the legislation would make it difficult for financial institutions to accurately price credit risk, resulting in higher prices for consumers.
"Every credit card company uses different pricing strategies based on what it thinks best serves its customers and what makes it the most competitive in a highly competitive market place," Baer said. "We strongly believe ours is what provides the most credit at the least cost to more of our customers while fairly pricing for risk."