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This Editor's Letter appears in the January 2009 issue of Cards&Payments.
No doubt, times are tough. The global economy is in turmoil, and consumers have growing distrust not only in executives' abilities to lead their companies out of financial distress, but also the purposes behind their decisions.
And the financial industry is in the middle of all of it.
On one side, the federal government is bailing out the likes of Citigroup and American Express Co., and on the other Congress and federal regulators are moving to crack down on the lending practices, including credit card policies, of these and other firms.
How did the card industry get itself into such a mess? Though most experts point to a deregulated mortgage market run amok, at the core is a more-pressing issue: Short-term thinking.
As companies look to slow their financial bleeding, their quick fixes could have long-term implications.
Last month, U.S. Rep. Paul E. Kanjorski (D-Pa.), chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, demanded an explanation from the nation's top credit card issuers about why card interest rates are rising at a time when cardholders can least afford it.
The congressman's move suggests that clamping down on card-industry practices will be a top priority in this year's congressional session.
Kanjorski also was a key supporter of the Cardholders' Bill of Rights, which would restrict issuers' abilities to raise cardholders' interest rates on existing balances. The bill passed in the House of Representatives last year before stalling in the Senate. Kanjorski plans to continue to push it forward this year.
If the financial industry is to succeed in moving out of the current recession effectively and regain consumer trust, it should be cautious about making knee-jerk reactions. Congress has given the payments industry plenty of time to fix its problems without regulation, but that time may be running out.
Over time, customer satisfaction and profitability will win out over quick-fix nickel and diming. But that will require long-term thinking, which is something executives have struggled with as they also face the challenges of meeting investors' quarterly expectations.
Jeffrey Green
Editor-in-Chief
Cards&Payments
