The Secret History of the Credit Card

Season 2004 Episode 17 | 56m 7s | Video has closed captioning.

The surprising history and clever tactics of an industry few Americans fully understand.

Aired: 11/23/04

Rating: NR

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Funding for FRONTLINE is provided through the support of PBS viewers and by the Corporation for Public Broadcasting. Major funding for FRONTLINE is provided by the Ford Foundation. Additional funding is provided by the Abrams Foundation; the John D. and Catherine T. MacArthur Foundation; Park Foundation; and the FRONTLINE Journalism Fund with major support from Jon and Jo Ann Hagler on behalf of the Jon L. Hagler Foundation, and additional support from Koo and Patricia Yuen.

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is made possible

is made possible by contributions to your PBS

is made possible by contributions to your PBS station from viewers like you.

by contributions to your PBS station from viewers like you.

Thank you.

station from viewers like you.

Thank you.

With major funding from the

Thank you.

With major funding from the the John D. and Catherine T.

With major funding from the the John D. and Catherine T. MacArthur Foundation.

the John D. and Catherine T. MacArthur Foundation.

Helping to build a more just

MacArthur Foundation.

Helping to build a more just world.

And additional funding from the

world.

And additional funding from the Park Foundation.

Committed to raising public

Park Foundation.

Committed to raising public awareness.

With additional funding for

awareness.

With additional funding for this program from The Nathan

With additional funding for this program from The Nathan Cummings Foundation.

>> NARRATOR: Tonight on

>> NARRATOR: Tonight on the average American

>> NARRATOR: Tonight on the average American family has eight.

the average American family has eight.

>> 0% for life on transfer

family has eight.

>> 0% for life on transfer balances.

>> NARRATOR: Credit cards--

balances.

>> NARRATOR: Credit cards-- plastic money-- have become both

>> NARRATOR: Credit cards-- plastic money-- have become both a necessity and a ticket to a

plastic money-- have become both a necessity and a ticket to a better life.

a necessity and a ticket to a better life.

>> Hawaii!

better life.

>> Hawaii!

>> A credit card is an

>> Hawaii!

>> A credit card is an extraordinary, unbelievably

>> A credit card is an extraordinary, unbelievably great convenience for the

extraordinary, unbelievably great convenience for the consumer.

great convenience for the consumer.

>> NARRATOR: But the credit card

consumer.

>> NARRATOR: But the credit card industry plays by its own rules.

>> I don't know any merchant in

industry plays by its own rules.

>> I don't know any merchant in America who can change the price

>> I don't know any merchant in America who can change the price after you've bought the item,

America who can change the price after you've bought the item, except a credit card company.

after you've bought the item, except a credit card company.

>> NARRATOR: Credit card banks

except a credit card company.

>> NARRATOR: Credit card banks earn record profits.

>> BERGMAN: MBNA's profits last

earn record profits.

>> BERGMAN: MBNA's profits last year: one-and-a-half times that

>> BERGMAN: MBNA's profits last year: one-and-a-half times that of McDonald's.

year: one-and-a-half times that of McDonald's.

>> Well, McDonald's didn't do

of McDonald's.

>> Well, McDonald's didn't do too well last year.

>> NARRATOR: But the profits

too well last year.

>> NARRATOR: But the profits come at a price.

>> Now they've raised my rate to

come at a price.

>> Now they've raised my rate to 19.98, and I have not been late

>> Now they've raised my rate to 19.98, and I have not been late ever.

19.98, and I have not been late ever.

>> There are irritated, unhappy,

ever.

>> There are irritated, unhappy, dissatisfied customers in this

>> There are irritated, unhappy, dissatisfied customers in this industry.

dissatisfied customers in this industry.

>> They are the new loan sharks

industry.

>> They are the new loan sharks in America.

>> I certainly didn't imagine

in America.

>> I certainly didn't imagine that someday we might have ended

>> I certainly didn't imagine that someday we might have ended up creating a Frankenstein.

that someday we might have ended up creating a Frankenstein.

>> BERGMAN: Frankenstein?

up creating a Frankenstein.

>> BERGMAN: Frankenstein?

What do you mean, Frankenstein?

>> BERGMAN: Frankenstein?

What do you mean, Frankenstein?

>> NARRATOR: Tonight, in this

What do you mean, Frankenstein?

>> NARRATOR: Tonight, in this Frontline

>> NARRATOR: Tonight, in this Frontline correspondent Lowell Bergman and

Frontline correspondent Lowell Bergman and investigate

correspondent Lowell Bergman and investigate the secrets of your credit card.

)

) )

>> NARRATOR: This may seem an

>> NARRATOR: This may seem an unlikely place to begin a modern

>> NARRATOR: This may seem an unlikely place to begin a modern history of the credit card, more

unlikely place to begin a modern history of the credit card, more than a thousand miles from Wall

history of the credit card, more than a thousand miles from Wall Street and the paneled halls of

than a thousand miles from Wall Street and the paneled halls of the Federal Reserve in

Street and the paneled halls of the Federal Reserve in Washington.

the Federal Reserve in Washington. )

Washington. )

But this is where the credit

) But this is where the credit card business first began to

But this is where the credit card business first began to really take off.

This is Sioux Falls, South

This is Sioux Falls, South Dakota, a modest town of

This is Sioux Falls, South Dakota, a modest town of 140,000, known for its cattle

Dakota, a modest town of 140,000, known for its cattle auctions and meatpacking

140,000, known for its cattle auctions and meatpacking industry.

auctions and meatpacking industry.

It's a town which boasts a huge

industry.

It's a town which boasts a huge post office big enough to

It's a town which boasts a huge post office big enough to service a city several times its

post office big enough to service a city several times its size.

service a city several times its size.

Every day, millions of pieces of

size.

Every day, millions of pieces of mail pass through here, and from

Every day, millions of pieces of mail pass through here, and from here, millions of credit card

mail pass through here, and from here, millions of credit card solicitations and bills are sent

here, millions of credit card solicitations and bills are sent to mailboxes across America, and

solicitations and bills are sent to mailboxes across America, and billions of dollars in credit

to mailboxes across America, and billions of dollars in credit card payments come in from

billions of dollars in credit card payments come in from around the world.

card payments come in from around the world.

Today, Sioux Falls is one of the

around the world.

Today, Sioux Falls is one of the major credit card processing

Today, Sioux Falls is one of the major credit card processing centers in the country.

It all happened in Sioux Falls

It all happened in Sioux Falls because a quarter of a century

because a quarter of a century ago, times were hard in South

ago, times were hard in South Dakota.

Dakota.

There was a nationwide recession

There was a nationwide recession with double-digit inflation.

with double-digit inflation.

Money was very tight.

South Dakota banks were issuing

South Dakota banks were issuing very few mortgages or loans of

very few mortgages or loans of any kind.

>> Interest rates were going

>> Interest rates were going into orbit.

They were climbing all the time.

into orbit.

They were climbing all the time.

>> NARRATOR: Bill Janklow was

They were climbing all the time.

>> NARRATOR: Bill Janklow was then the governor of South

>> NARRATOR: Bill Janklow was then the governor of South Dakota.

then the governor of South Dakota.

>> When I came to the Governor's

Dakota.

>> When I came to the Governor's office, South Dakota had very

>> When I came to the Governor's office, South Dakota had very tight historical laws on what

office, South Dakota had very tight historical laws on what you could charge to borrow.

tight historical laws on what you could charge to borrow.

In other words, there was one

you could charge to borrow.

In other words, there was one interest rate by law that they

In other words, there was one interest rate by law that they could charge for new cars,

interest rate by law that they could charge for new cars, another one for used cars.

could charge for new cars, another one for used cars.

It was highly regulated, what

another one for used cars.

It was highly regulated, what interest rates people could pay.

And what I'm trying to say is,

interest rates people could pay.

And what I'm trying to say is, we may have a law that said you

And what I'm trying to say is, we may have a law that said you could charge 9%, but money cost

we may have a law that said you could charge 9%, but money cost 11%, so banks weren't loaning

could charge 9%, but money cost 11%, so banks weren't loaning money.

11%, so banks weren't loaning money.

>> NARRATOR: To get the banks to

money.

>> NARRATOR: To get the banks to issue loans, South Dakota

>> NARRATOR: To get the banks to issue loans, South Dakota decided to eliminate its

issue loans, South Dakota decided to eliminate its historic cap on interest rates,

decided to eliminate its historic cap on interest rates, known as a usury law.

>> We had actually changed some

>> We had actually changed some of our laws in '79, and we had

of our laws in '79, and we had previously introduced

previously introduced legislation and passed

legislation and passed legislation, or were passing

legislation, or were passing legislation, to lift the

legislation, to lift the ceilings on usury so we could

ceilings on usury so we could free up and get capital in South

free up and get capital in South Dakota.

>> NARRATOR: At the same time,

>> NARRATOR: At the same time, across the country in New York

>> NARRATOR: At the same time, across the country in New York City, a legendary banker had his

across the country in New York City, a legendary banker had his own problems.

City, a legendary banker had his own problems.

>> It was very simple.

own problems.

>> It was very simple.

We were going broke.

>> It was very simple.

We were going broke.

>> NARRATOR: Walter Wriston,

We were going broke.

>> NARRATOR: Walter Wriston, then chairman of Citibank, had a

>> NARRATOR: Walter Wriston, then chairman of Citibank, had a credit card division that was

then chairman of Citibank, had a credit card division that was hemorrhaging money.

credit card division that was hemorrhaging money.

New York's usury laws prohibited

hemorrhaging money.

New York's usury laws prohibited banks from charging more than

New York's usury laws prohibited banks from charging more than 12% on most consumer loans.

banks from charging more than 12% on most consumer loans.

>> Interest rates went up to

12% on most consumer loans.

>> Interest rates went up to 20%.

And if you are lending money at

20%.

And if you are lending money at 12% and paying 20%, you don't

And if you are lending money at 12% and paying 20%, you don't have to be Einstein to realize

12% and paying 20%, you don't have to be Einstein to realize you're out of business.

have to be Einstein to realize you're out of business.

>> BERGMAN: It was costing

you're out of business.

>> BERGMAN: It was costing Citibank 20% for money, and you

>> BERGMAN: It was costing Citibank 20% for money, and you were only getting 12% back?

Citibank 20% for money, and you were only getting 12% back?

>> Certainly.

were only getting 12% back?

>> Certainly.

>> BERGMAN: Because of the limit

>> Certainly.

>> BERGMAN: Because of the limit on interest.

>> Yes.

on interest.

>> Yes.

There was no way that you could

>> Yes.

There was no way that you could continue.

>> NARRATOR: So Wriston and

continue.

>> NARRATOR: So Wriston and Citibank began looking for a new

>> NARRATOR: So Wriston and Citibank began looking for a new place to do business.

>> So we made a study of the

>> So we made a study of the five states that had either no

five states that had either no usury law or very high amounts.

usury law or very high amounts.

One of them was South Dakota, so

One of them was South Dakota, so One of them was South Dakota, so

One of them was South Dakota, so we said, "Look, we'll bring a

we said, "Look, we'll bring a couple of thousand jobs out

couple of thousand jobs out here."

here."

>> NARRATOR: In 1981, Citibank

>> NARRATOR: In 1981, Citibank moved its credit card operation

moved its credit card operation from New York to South Dakota.

from New York to South Dakota.

>> From the time I met them

>> From the time I met them until we passed our legislation,

until we passed our legislation, it was just several weeks.

it was just several weeks.

I mean, we really moved.

That... that was a good deal for

That... that was a good deal for us.

us.

It was a hell of a deal for

It was a hell of a deal for them.

them.

>> BERGMAN: What did they get

>> BERGMAN: What did they get out of this?

out of this?

>> What Citibank got out of it?

They got to stay alive.

>> NARRATOR: But what really

>> NARRATOR: But what really attracted Citibank to South

attracted Citibank to South Dakota was an obscure supreme

Dakota was an obscure supreme court decision that said a bank

court decision that said a bank could now export its interest

could now export its interest rate to other states.

rate to other states.

it was called the Marquette

it was called the Marquette decision.

decision.

>> The Marquette Bank decision

>> The Marquette Bank decision was a U.S. Supreme Court

was a U.S. Supreme Court decision that said, "Forget

decision that said, "Forget where the bank is chartered.

where the bank is chartered.

Wherever the credit decision is

Wherever the credit decision is made, in whatever state, that's

made, in whatever state, that's the place where you can apply

the place where you can apply interest wherever you make the

interest wherever you make the loan."

loan."

In other words, if South Dakota

In other words, if South Dakota had a 25% ceiling, then you

had a 25% ceiling, then you could charge 25%, even to a loan

could charge 25%, even to a loan in Florida.

in Florida.

>> NARRATOR: Janklow realized

>> NARRATOR: Janklow realized that the Marquette decision

that the Marquette decision meant that South Dakota could

meant that South Dakota could become the credit card capital

become the credit card capital of America.

of America.

>> In a very short period of

>> In a very short period of time, matter of a few months, I

time, matter of a few months, I was meeting with the chairman of

was meeting with the chairman of the board of Bank of America,

the board of Bank of America, with First Chicago of Illinois,

with First Chicago of Illinois, Chase Manhattan Bank,

Chase Manhattan Bank, Manufacturer's Hanover Bank,

Manufacturer's Hanover Bank, Chemical Bank, Bank of New

Chemical Bank, Bank of New York-- all the big banks in

York-- all the big banks in America, because only South

America, because only South Dakota at that point in time

Dakota at that point in time appeared to be willing to move

appeared to be willing to move forward to invite people to come

forward to invite people to come in.

in.

>> NARRATOR: But soon, another

>> NARRATOR: But soon, another state got into the act.

state got into the act.

Delaware copied South Dakota's

Delaware copied South Dakota's legislation, and Wilmington soon

legislation, and Wilmington soon became the credit card center of

became the credit card center of the East, luring other New York

the East, luring other New York banks, and giving rise to new

banks, and giving rise to new companies like MBNA.

companies like MBNA.

For the first time in American

For the first time in American history, there were no legal

history, there were no legal restrictions on the interest

restrictions on the interest rates banks could charge on

rates banks could charge on credit cards nationwide.

credit cards nationwide.

>> You could look at the

>> You could look at the Marquette decision and say, "All

Marquette decision and say, "All right, maybe it took the lid

right, maybe it took the lid off."

off."

But what it did was it had a

But what it did was it had a very egalitarian effect.

very egalitarian effect.

>> NARRATOR: Duncan MacDonald is

>> NARRATOR: Duncan MacDonald is the former general counsel of

the former general counsel of Citibank's credit card division.

Citibank's credit card division.

He says the Marquette decision

He says the Marquette decision allowed bankers to charge higher

allowed bankers to charge higher interest rates to riskier

interest rates to riskier customers.

customers.

>> The minute Marquette came

>> The minute Marquette came along, you could jack the price

along, you could jack the price up a little bit more to cover

up a little bit more to cover those people, and as a result,

those people, and as a result, tens of millions of people who

tens of millions of people who were paying 30% and 35% interest

were paying 30% and 35% interest rates to small loan companies

rates to small loan companies all of a sudden got the product

all of a sudden got the product at 19% interest rate and an

at 19% interest rate and an annual fee of $20.

annual fee of $20.

So in that sense, it was very

So in that sense, it was very egalitarian and very good.

egalitarian and very good.

>> NARRATOR: And very good for

>> NARRATOR: And very good for banking.

banking.

As the deregulation of interest

As the deregulation of interest rates enabled more people to get

rates enabled more people to get credit cards, the industry began

credit cards, the industry began to expand, and became the most

to expand, and became the most profitable sector of banking,

profitable sector of banking, with $30 billion in profits last

with $30 billion in profits last year.

year.

We wanted to talk to the

We wanted to talk to the executives of the major credit

executives of the major credit card banks about their business,

card banks about their business, but were directed instead to the

but were directed instead to the American Bankers Association.

American Bankers Association.

>> BERGMAN: We've asked for

>> BERGMAN: We've asked for interviews with all the major

interviews with all the major credit card companies.

credit card companies.

They won't talk to us.

Why?

>> That's our job.

They pay us dues to handle these

They pay us dues to handle these kinds of sometimes difficult

kinds of sometimes difficult assignments.

assignments.

>> NARRATOR: Ed Yingling is the

>> NARRATOR: Ed Yingling is the incoming president of the

incoming president of the American Bankers Association,

American Bankers Association, and the industry's top lobbyist.

and the industry's top lobbyist.

>> BERGMAN: How profitable is

>> BERGMAN: How profitable is the credit card business?

the credit card business?

>> The credit card business is

>> The credit card business is profitable.

profitable.

You would expect a credit card

You would expect a credit card business to be somewhat more

business to be somewhat more profitable than the rest of the

profitable than the rest of the industry, or parts of the

industry, or parts of the industry, because it's riskier.

industry, because it's riskier.

It is an unsecured loan, and so

It is an unsecured loan, and so you would expect the returns to

you would expect the returns to be a little higher.

be a little higher.

>> BERGMAN: Wasn't last year

>> BERGMAN: Wasn't last year record profits for this

record profits for this industry, and they're expected

industry, and they're expected again this year?

again this year?

>> Uh, yeah, but compared to

>> Uh, yeah, but compared to what?

what?

It is not an unusually

It is not an unusually profitable business compared to

profitable business compared to other businesses.

other businesses.

>> BERGMAN: MBNA'S profits last

>> BERGMAN: MBNA'S profits last year: one-and-a-half times that

year: one-and-a-half times that of McDonald's.

of McDonald's.

>> Well, McDonald's didn't do

>> Well, McDonald's didn't do too well last year, and MBNA is

too well last year, and MBNA is a big company.

a big company.

>> BERGMAN: Citibank more

>> BERGMAN: Citibank more profitable than Microsoft, Wal-

profitable than Microsoft, Wal- Mart, and the executives are

Mart, and the executives are highly paid.

highly paid.

>> Right.

Right.

These are...

These are really

These are...

These are really big businesses, and they do make

big businesses, and they do make money.

money.

>> NARRATOR: Today, nearly 144

>> NARRATOR: Today, nearly 144 million Americans have credit

million Americans have credit cards, and they are using their

cards, and they are using their cards like never before,

cards like never before, charging $1.5 trillion last year

charging $1.5 trillion last year alone.

alone.

Credit cards have become an

Credit cards have become an essential part of the American

essential part of the American economy.

economy.

>> I really can't say that I

>> I really can't say that I love my credit card, but I would

love my credit card, but I would hate to live without it.

hate to live without it.

>> I use it a lot for work.

It's easy.

It's easy access.

I can take clients out for

I can take clients out for dinner.

dinner.

>> I take advantage of the

>> I take advantage of the miles.

miles.

We fly first class on vacations.

>> It's nice to be able to spend

>> It's nice to be able to spend what you don't have.

what you don't have.

>> BERGMAN: Can you imagine

>> BERGMAN: Can you imagine living without a credit card in

living without a credit card in this society?

this society?

>> It's hard to imagine.

>> No.

>> NARRATOR: We sat down with a

>> NARRATOR: We sat down with a group of credit card customers

group of credit card customers to talk about how they use their

to talk about how they use their cards.

cards.

>> We're consumers.

America loves to consume.

It's in our blood.

>> It is like an addiction.

I mean, I have this new credit

I mean, I have this new credit card in my pocket.

card in my pocket.

Look at that great dress.

I can do it; I really shouldn't

I can do it; I really shouldn't do it; oh, I'll just pay it off

do it; oh, I'll just pay it off later.

later.

And you do it.

>> If I don't have that Ipod,

>> If I don't have that Ipod, I'm not cool.

I'm not cool.

>> Yeah.

>> So I can charge it pay it

>> So I can charge it pay it off.

off.

>> And Christmas is just around

>> And Christmas is just around the corner.

the corner.

There's always something.

>> They're just a gift, and for

>> They're just a gift, and for the traveler, which I am-- a

the traveler, which I am-- a very, very, very frequent

very, very, very frequent traveler indeed is what I am--

traveler indeed is what I am-- they are indispensable.

they are indispensable.

>> NARRATOR: Actor and author

>> NARRATOR: Actor and author Ben Stein loves the convenience

Ben Stein loves the convenience of using his credit cards.

of using his credit cards.

>> Credit cards are an

>> Credit cards are an incredible deal for me.

incredible deal for me.

I mean, I have lots and lots of

I mean, I have lots and lots of different cards.

different cards.

I mean, my wallet is just

I mean, my wallet is just stuffed with cards.

stuffed with cards.

It's just insane.

It's just ridiculous.

I look like I...

I look like

I look like I...

I look like I've got a third breast from my

I've got a third breast from my carrying around my wallet with

carrying around my wallet with so many credit cards in it.

so many credit cards in it.

>> Thank you very much,

>> Thank you very much, Mr. Stein.

Mr. Stein.

Have a nice afternoon.

>> Thank you very much.

>> NARRATOR: Stein says he

>> NARRATOR: Stein says he charges thousands of dollars a

charges thousands of dollars a month in business expenses on

month in business expenses on his credit cards.

his credit cards.

>> I use all their good

>> I use all their good services, so they don't make any

services, so they don't make any money from me.

money from me.

I mean, none to speak of.

Oh wait, here's a kind of cute

Oh wait, here's a kind of cute one.

one.

>> NARRATOR: The credit card

>> NARRATOR: The credit card companies do make a percentage

companies do make a percentage on each transaction, but Stein

on each transaction, but Stein is not their ideal customer,

is not their ideal customer, because like 55 million

because like 55 million Americans, he pays his bills off

Americans, he pays his bills off every month and doesn't pay any

every month and doesn't pay any interest.

>> The credit card companies

>> The credit card companies hate people like me who pay off

hate people like me who pay off our bills every month, and I

our bills every month, and I know that because I ran into a

know that because I ran into a fellow I went to high school

fellow I went to high school with on the street, and he told

with on the street, and he told me he worked for a credit card

me he worked for a credit card company, and I told him about

company, and I told him about how much I use credit cards and

how much I use credit cards and how I pay them off every month,

how I pay them off every month, and he said, "oh, we hate... We

and he said, "oh, we hate... We hate you.

hate you.

We hate you guys.

we call you deadbeats."

>> NARRATOR: "Deadbeats" in the

>> NARRATOR: "Deadbeats" in the upside-down world of the credit

upside-down world of the credit card business are the people

card business are the people like Ben Stein, who pay off

like Ben Stein, who pay off their bills on time.

their bills on time.

The industry's best customers

The industry's best customers are the 90 million Americans who

are the 90 million Americans who don't pay off their credit card

don't pay off their credit card debt.

debt.

They're called the revolvers.

>> BERGMAN: People in the

>> BERGMAN: People in the industry tell us that revolvers,

industry tell us that revolvers, people who borrow money

people who borrow money basically with their credit

basically with their credit card, that's where the profits

card, that's where the profits are.

are.

>> I don't think that's where

>> I don't think that's where all the profits are.

all the profits are.

I think it is generally

I think it is generally understood that those that use

understood that those that use the revolving part of the credit

the revolving part of the credit card are... are kind of the

card are... are kind of the sweet spot.

>> NARRATOR: Today, the sweet

>> NARRATOR: Today, the sweet spot, as Mr. Yingling calls it,

>> NARRATOR: Today, the sweet spot, as Mr. Yingling calls it, continues to grow, and the top

spot, as Mr. Yingling calls it, continues to grow, and the top interest rates charged are

continues to grow, and the top interest rates charged are higher than ever before,

interest rates charged are higher than ever before, according to Robert McKinley,

higher than ever before, according to Robert McKinley, who founded Cardweb, a research

according to Robert McKinley, who founded Cardweb, a research firm that tracks the industry.

who founded Cardweb, a research firm that tracks the industry.

>> The top ten issuers in the

firm that tracks the industry.

>> The top ten issuers in the country are charging interest

>> The top ten issuers in the country are charging interest rates of 25% to 30% to some of

country are charging interest rates of 25% to 30% to some of their customers.

rates of 25% to 30% to some of their customers.

And this is in a market where

their customers.

And this is in a market where interest rates are at a 40-year

And this is in a market where interest rates are at a 40-year low.

interest rates are at a 40-year low.

We have consumers paying

low.

We have consumers paying interest rates that would be

We have consumers paying interest rates that would be considered loan sharks in my

interest rates that would be considered loan sharks in my day.

considered loan sharks in my day.

>> NARRATOR: At the same time,

day.

>> NARRATOR: At the same time, Americans with credit card

>> NARRATOR: At the same time, Americans with credit card balances are carrying a record

Americans with credit card balances are carrying a record amount of debt.

balances are carrying a record amount of debt.

>> BERGMAN: How much credit card

amount of debt.

>> BERGMAN: How much credit card debt is the average American

>> BERGMAN: How much credit card debt is the average American family carrying?

debt is the average American family carrying?

>> About $8,000, for those who

family carrying?

>> About $8,000, for those who are carrying some debt.

>> NARRATOR: Elizabeth Warren is

are carrying some debt.

>> NARRATOR: Elizabeth Warren is a Harvard law professor.

She has researched the growing

a Harvard law professor.

She has researched the growing credit card debt held by middle-

She has researched the growing credit card debt held by middle- class families, and how it can

credit card debt held by middle- class families, and how it can lead to big trouble.

class families, and how it can lead to big trouble.

>> And what families are

lead to big trouble.

>> And what families are discovering, even with Mom and

>> And what families are discovering, even with Mom and Dad in the workplace, is they

discovering, even with Mom and Dad in the workplace, is they often can't make it to the end

Dad in the workplace, is they often can't make it to the end of the month.

often can't make it to the end of the month.

And so they often use credit

of the month.

And so they often use credit cards to bridge the gap.

They borrow to make ends meet.

cards to bridge the gap.

They borrow to make ends meet.

And then what happens is

They borrow to make ends meet.

And then what happens is something goes wrong.

Somebody loses a job; somebody

something goes wrong.

Somebody loses a job; somebody gets sick; family breaks apart

Somebody loses a job; somebody gets sick; family breaks apart through death or divorce.

gets sick; family breaks apart through death or divorce.

>> Is she doing okay?

through death or divorce.

>> Is she doing okay?

>> NARRATOR: Like most

>> Is she doing okay?

>> NARRATOR: Like most Americans, Jim and Juanita

>> NARRATOR: Like most Americans, Jim and Juanita Mueller managed to pay their

Americans, Jim and Juanita Mueller managed to pay their credit card bills each month,

Mueller managed to pay their credit card bills each month, until they both lost their jobs.

credit card bills each month, until they both lost their jobs.

>> We didn't have any emergency

until they both lost their jobs.

>> We didn't have any emergency funds set aside, so they kind of

>> We didn't have any emergency funds set aside, so they kind of became our emergency fund to

funds set aside, so they kind of became our emergency fund to fund our life while we were

became our emergency fund to fund our life while we were waiting for the employment to

fund our life while we were waiting for the employment to come along.

waiting for the employment to come along.

And so you borrow from the

come along.

And so you borrow from the credit card and pay that month,

And so you borrow from the credit card and pay that month, and then the job doesn't happen,

credit card and pay that month, and then the job doesn't happen, so now you got to borrow more.

and then the job doesn't happen, so now you got to borrow more.

And we just kept digging deeper

so now you got to borrow more.

And we just kept digging deeper and deeper.

We started robbing Peter to pay

and deeper.

We started robbing Peter to pay Paul, as the expression goes,

We started robbing Peter to pay Paul, as the expression goes, you know-- take money from a

Paul, as the expression goes, you know-- take money from a credit card to pay other credit

you know-- take money from a credit card to pay other credit cards.

credit card to pay other credit cards.

And that just increases it, as

cards.

And that just increases it, as then that's where it really

And that just increases it, as then that's where it really started to snowball.

then that's where it really started to snowball.

>> NARRATOR: As the Muellers

started to snowball.

>> NARRATOR: As the Muellers fell behind, their credit card

>> NARRATOR: As the Muellers fell behind, their credit card companies began to apply penalty

fell behind, their credit card companies began to apply penalty interest rates and fees to their

companies began to apply penalty interest rates and fees to their bills.

interest rates and fees to their bills.

>> BERGMAN: Do you remember when

bills.

>> BERGMAN: Do you remember when the interest rates started to

>> BERGMAN: Do you remember when the interest rates started to rise?

the interest rates started to rise?

>> Some of them, one late

rise?

>> Some of them, one late payment and forget your old

>> Some of them, one late payment and forget your old interest deal that you had.

payment and forget your old interest deal that you had.

>> And forget the fact that you

interest deal that you had.

>> And forget the fact that you had the credit card for a number

>> And forget the fact that you had the credit card for a number of years and were paying on it

had the credit card for a number of years and were paying on it regularly, were never late, and

of years and were paying on it regularly, were never late, and as soon as you make one... you

regularly, were never late, and as soon as you make one... you miss one payment, it's like all

as soon as you make one... you miss one payment, it's like all deals are off.

miss one payment, it's like all deals are off.

Everything goes up.

deals are off.

Everything goes up.

I mean, some of the credit cards

Everything goes up.

I mean, some of the credit cards we had were 9% or less.

All of a sudden they're 24%,

we had were 9% or less.

All of a sudden they're 24%, 35%, because "Oh, well, you're

All of a sudden they're 24%, 35%, because "Oh, well, you're late; you've been late several

35%, because "Oh, well, you're late; you've been late several months, and now we're going to

late; you've been late several months, and now we're going to raise your interest rate, and

months, and now we're going to raise your interest rate, and we're charging you the late fee.

raise your interest rate, and we're charging you the late fee.

And now because the interest

we're charging you the late fee.

And now because the interest rate and late fees have

And now because the interest rate and late fees have accumulated, now you're over

rate and late fees have accumulated, now you're over your limits, so there's an over-

accumulated, now you're over your limits, so there's an over- the-limit fee."

your limits, so there's an over- the-limit fee."

>> NARRATOR: The Muellers credit

the-limit fee."

>> NARRATOR: The Muellers credit card debt eventually grew to

>> NARRATOR: The Muellers credit card debt eventually grew to nearly $80,000 on ten cards.

They found that they could no

They found that they could no longer keep up with their

longer keep up with their payments, and had to file for

payments, and had to file for bankruptcy.

bankruptcy.

They were one of a record seven

They were one of a record seven million families to file in the

million families to file in the last five years.

last five years.

>> It wasn't that we didn't want

>> It wasn't that we didn't want to pay off our credit cards.

to pay off our credit cards.

It's, we got to the point where

It's, we got to the point where it was impossible.

it was impossible.

It was just...

I mean, short of

It was just...

I mean, short of a rich relative-- which neither

a rich relative-- which neither one of us have-- dying and

one of us have-- dying and leaving us $100,000, nothing was

leaving us $100,000, nothing was going to happen because the

going to happen because the credit card companies weren't...

credit card companies weren't...

They weren't willing to work

They weren't willing to work with us unless they got all

with us unless they got all their money as fast as possible.

>> The main things that trigger

>> The main things that trigger a bankruptcy filing are a job

a bankruptcy filing are a job loss, a medical problem, or a

loss, a medical problem, or a family breakup.

family breakup.

Without these things, most

Without these things, most American families can deal with

American families can deal with their credit card debt.

their credit card debt.

But high credit card debt puts

But high credit card debt puts them at a much greater risk, so

them at a much greater risk, so that if they stumble, if they

that if they stumble, if they get hit by one of the other

get hit by one of the other blows, they get their feet

blows, they get their feet tangled up in those high

tangled up in those high interest rates, and they just

interest rates, and they just get sunk.

get sunk.

>> "0% for life on transfer

>> "0% for life on transfer balances, and a three... up to

balances, and a three... up to 3% cash-back bonus."

3% cash-back bonus."

>> NARRATOR: Ironically, the

>> NARRATOR: Ironically, the Muellers are still getting

Muellers are still getting offers for more credit cards.

offers for more credit cards.

>> BERGMAN: You're still getting

>> BERGMAN: You're still getting solicitations in the mail.

solicitations in the mail.

>> Yeah.

>> We got one yesterday from a

>> We got one yesterday from a credit card company that told me

credit card company that told me I would never have credit with

I would never have credit with them again.

them again.

One of the last times I talked

One of the last times I talked with them, told them what our

with them, told them what our situation was, they said, "Well,

situation was, they said, "Well, we're canceling your card, and

we're canceling your card, and you are in essence blackballed

you are in essence blackballed with us for life.

with us for life.

You will never have a credit

You will never have a credit card from us ever again."

card from us ever again."

Yesterday, I received a

Yesterday, I received a solicitation from them, 0% for

solicitation from them, 0% for solicitation from them, 0% for

solicitation from them, 0% for life, with up to a $50,000 line

life, with up to a $50,000 line of credit.

Diapers, milk, and laundry

Diapers, milk, and laundry detergent: $25.

>> Oh, yeah, and that stuff he

detergent: $25.

>> Oh, yeah, and that stuff he just said.

Spend more time with your

just said.

Spend more time with your family: priceless.

>> NARRATOR: Encouraging

family: priceless.

>> NARRATOR: Encouraging Americans to take on credit card

>> NARRATOR: Encouraging Americans to take on credit card debt is critical to the

Americans to take on credit card debt is critical to the profitability of the industry.

debt is critical to the profitability of the industry.

>> Hawaii!

profitability of the industry.

>> Hawaii!

Yeah!

>> Hawaii!

Yeah!

Call now to request the

Yeah!

Call now to request the CitiAdvantage World Master Card

Call now to request the CitiAdvantage World Master Card and you could earn free award

CitiAdvantage World Master Card and you could earn free award travel, plus get 10,000 bonus

and you could earn free award travel, plus get 10,000 bonus miles.

travel, plus get 10,000 bonus miles.

>> NARRATOR: Making it easier

miles.

>> NARRATOR: Making it easier and more attractive to spend has

>> NARRATOR: Making it easier and more attractive to spend has been the job of Madison Avenue

and more attractive to spend has been the job of Madison Avenue marketers.

been the job of Madison Avenue marketers.

New tool belt and chrome

marketers.

New tool belt and chrome tool set: $126.

Getting some use out of it:

tool set: $126.

Getting some use out of it: priceless.

There are some things money

priceless.

There are some things money can't buy.

For Father's Day, there's

can't buy.

For Father's Day, there's Master Card.

>> NARRATOR: But the success of

Master Card.

>> NARRATOR: But the success of the industry has also relied on

>> NARRATOR: But the success of the industry has also relied on financial innovators like this

the industry has also relied on financial innovators like this man, Andrew Kahr, whose peculiar

financial innovators like this man, Andrew Kahr, whose peculiar genius, industry insiders say,

man, Andrew Kahr, whose peculiar genius, industry insiders say, has helped shape the way the

genius, industry insiders say, has helped shape the way the credit card business works.

has helped shape the way the credit card business works.

Kahr, a consultant who rarely

credit card business works.

Kahr, a consultant who rarely consents to interviews, only

Kahr, a consultant who rarely consents to interviews, only agreed to talk with us if we did

consents to interviews, only agreed to talk with us if we did not identify his clients or

agreed to talk with us if we did not identify his clients or where he is currently living.

not identify his clients or where he is currently living.

>> BERGMAN: Give me an idea of,

where he is currently living.

>> BERGMAN: Give me an idea of, from the time you got involved,

>> BERGMAN: Give me an idea of, from the time you got involved, late '70s, with credit cards,

from the time you got involved, late '70s, with credit cards, the ideas, the innovations that

late '70s, with credit cards, the ideas, the innovations that you've come up with.

the ideas, the innovations that you've come up with.

>> Well, I convinced a client

you've come up with.

>> Well, I convinced a client that instead of having 5% of the

>> Well, I convinced a client that instead of having 5% of the balance as a minimum payment, we

that instead of having 5% of the balance as a minimum payment, we should reduce that to 2%.

balance as a minimum payment, we should reduce that to 2%.

It's a very dramatic change,

should reduce that to 2%.

It's a very dramatic change, less than half.

>> NARRATOR: Before Andrew Kahr

less than half.

>> NARRATOR: Before Andrew Kahr got involved in the industry,

>> NARRATOR: Before Andrew Kahr got involved in the industry, most bankers required that

got involved in the industry, most bankers required that customers pay 5% of their credit

most bankers required that customers pay 5% of their credit card balance every month.

customers pay 5% of their credit card balance every month.

Kahr realized that if customers

card balance every month.

Kahr realized that if customers were able to pay less, they

Kahr realized that if customers were able to pay less, they would borrow more.

were able to pay less, they would borrow more.

>> BERGMAN: You were able to

would borrow more.

>> BERGMAN: You were able to explain that it was people

>> BERGMAN: You were able to explain that it was people making low payments who were the

explain that it was people making low payments who were the most profitable.

>> Having a lower minimum

>> Having a lower minimum payment allows you to offer

payment allows you to offer higher credit lines, which first

higher credit lines, which first of all makes your card product

of all makes your card product more attractive because people

more attractive because people judge, even if they don't intend

judge, even if they don't intend to use the whole line, they

to use the whole line, they would rather have a higher line.

would rather have a higher line.

The high-balance accounts will

The high-balance accounts will be much more profitable than the

be much more profitable than the low-balance accounts.

low-balance accounts.

>> BERGMAN: Because they're

>> BERGMAN: Because they're paying interest?

paying interest?

>> Because they're paying

>> Because they're paying interest on a higher balance.

interest on a higher balance.

>> NARRATOR: Today, Kahr's 2%

>> NARRATOR: Today, Kahr's 2% minimum is a common feature on

minimum is a common feature on millions of credit card bills,

millions of credit card bills, and every month, some 35 million

and every month, some 35 million Americans pay only the minimum

Americans pay only the minimum payment.

payment.

>> BERGMAN: By the way, while

>> BERGMAN: By the way, while you're running up balances on

you're running up balances on you're running up balances on

you're running up balances on your credit cards, or currently

your credit cards, or currently have balances on your credit

have balances on your credit cards, do you have cash in the

cards, do you have cash in the bank?

bank?

>> Oh, yeah.

>> Yeah.

>> I could wipe my debt out.

>> BERGMAN: So why don't you do

>> BERGMAN: So why don't you do it?

it?

>> I feel it's a nest egg.

You never know what's going to

You never know what's going to happen tomorrow.

happen tomorrow.

You might need that money for

You might need that money for something else.

something else.

>> BERGMAN: So even though

>> BERGMAN: So even though you're paying double-digit

you're paying double-digit interest and you could get rid

interest and you could get rid of the balance, or most of it,

of the balance, or most of it, you're going to still make those

you're going to still make those payments and keep the cash in

payments and keep the cash in your bank account?

your bank account?

>> Right.

>> NARRATOR: Andrew Kahr's

>> NARRATOR: Andrew Kahr's research showed that making the

research showed that making the minimum payment eased consumers'

minimum payment eased consumers' anxiety about carrying large

anxiety about carrying large amounts of credit card debt.

amounts of credit card debt.

They believed they were being

They believed they were being financially prudent.

financially prudent.

>> If you lose your job or you,

>> If you lose your job or you, you know... something bad

you know... something bad happens, you have to have money,

happens, you have to have money, and you don't want to live off

and you don't want to live off of a credit card.

of a credit card.

So you need to have that money

So you need to have that money saved somewhere in case

saved somewhere in case something happens.

something happens.

>> NARRATOR: In fact, the

>> NARRATOR: In fact, the industry was reaping huge

industry was reaping huge profits from Andrew Kahr's

profits from Andrew Kahr's intuition about people's

intuition about people's behavior.

behavior.

But then in the late '90s, Kahr

But then in the late '90s, Kahr says he had a new insight.

says he had a new insight.

Customers were being flooded

Customers were being flooded with competitive offers for low-

with competitive offers for low- interest cards.

interest cards.

>> People were offering 12.9%

>> People were offering 12.9% interest for the first six

interest for the first six months, 10.9% on balance

months, 10.9% on balance transfers, and I convinced the

transfers, and I convinced the client to go straight to 0% as

client to go straight to 0% as an introductory rate.

an introductory rate.

It gave them competitive

It gave them competitive advantage.

advantage.

It led to, of course, the others

It led to, of course, the others also going to 0%.

also going to 0%.

>> NARRATOR: Kahr knew that even

>> NARRATOR: Kahr knew that even though the 0% offer could easily

though the 0% offer could easily change, people would still be

change, people would still be attracted to the bait.

attracted to the bait.

>> When you're getting something

>> When you're getting something in the mail several times a week

in the mail several times a week that offers you 0% for six

that offers you 0% for six months...

months... months...

months...

They look at the headlines of

They look at the headlines of the solicitation in the mail,

the solicitation in the mail, they spend 30 seconds on it,

they spend 30 seconds on it, and, "Okay, I'm going to be

and, "Okay, I'm going to be better off at the beginning.

better off at the beginning.

They're going to give me

They're going to give me something; they're going to give

something; they're going to give me a 0% rate."

me a 0% rate."

People believe what they want to

People believe what they want to believe.

believe.

>> BERGMAN: "0% APR."

What does this mean?

I mean, you're saying that's

I mean, you're saying that's meaningless.

meaningless.

>> Most cases, if you were to

>> Most cases, if you were to sign up for this card, the bank

will honor that rate through that period of time.

that period of time.

But there's a lot of fine print

But there's a lot of fine print that goes with what could

that goes with what could happen.

happen.

For example, if you were to miss

For example, if you were to miss one payment...

one payment... >> BERGMAN: Mm-hmm.

>> BERGMAN: Mm-hmm.

>> ...this rate will go away

>> ...this rate will go away immediately.

immediately.

>> NARRATOR: According to

>> NARRATOR: According to McKinley, the key to

McKinley, the key to understanding how credit cards

understanding how credit cards are marketed lies in the great

are marketed lies in the great digital revolution, the amassing

digital revolution, the amassing of data on American consumers.

of data on American consumers.

>> Well, there's a gold mine of

>> Well, there's a gold mine of information residing out there

information residing out there information residing out there

information residing out there in these databases by the

in these databases by the consumer reporting agencies, the

consumer reporting agencies, the credit bureaus.

credit bureaus.

They're collecting information

They're collecting information about what kind of accounts you

about what kind of accounts you have open, the balances, whether

have open, the balances, whether or not you make those payments

or not you make those payments on time, and that's a huge

on time, and that's a huge reservoir of information there

reservoir of information there that they can tap into and be

that they can tap into and be able to get a sense as to

able to get a sense as to whether or not a consumer is a

whether or not a consumer is a revolver, someone who doesn't

revolver, someone who doesn't pay the balance off in full each

pay the balance off in full each month.

month.

So they can kind of sift those

So they can kind of sift those out, and today it's really

out, and today it's really become almost surgical.

become almost surgical.

>> NARRATOR: The ability to

>> NARRATOR: The ability to surgically target consumers and

surgically target consumers and track their financial behavior

track their financial behavior has become a booming business

has become a booming business dominated by three credit

dominated by three credit reporting agencies, which gather

reporting agencies, which gather information.

information.

All that data is then crunched

All that data is then crunched by a little-known company called

by a little-known company called Fair Isaac, which calculates a

Fair Isaac, which calculates a number called a FICO score for

number called a FICO score for almost every American with a

almost every American with a credit history.

credit history.

>> We're not a credit-reporting

>> We're not a credit-reporting agency like an Equifax, Trans-

agency like an Equifax, Trans- Union or Experian, that's

Union or Experian, that's gathering information daily on

gathering information daily on consumers and building up

consumers and building up consumer records.

consumer records.

>> NARRATOR: Tom Quinn is a

>> NARRATOR: Tom Quinn is a spokesman for Fair Isaac.

spokesman for Fair Isaac.

>> We simply work with the

>> We simply work with the credit reporting agencies, and

credit reporting agencies, and they deploy their data onto our

they deploy their data onto our mathematical formula to create

mathematical formula to create that score.

that score.

>> NARRATOR: The median FICO

>> NARRATOR: The median FICO score is 720 out of a possible

score is 720 out of a possible 850.

850.

The riskiest customers have

The riskiest customers have scores below 600.

scores below 600.

The score is an indication of

The score is an indication of how likely you are to pay your

how likely you are to pay your bills.

bills.

>> Lenders use that score almost

>> Lenders use that score almost like a thermometer, to determine

like a thermometer, to determine if they're going to grant credit

if they're going to grant credit or not.

or not.

So the algorithm is an

So the algorithm is an indication of that consumer's

indication of that consumer's future risk, in terms of credit

future risk, in terms of credit behavior.

behavior.

>> BERGMAN: "Algorithm" meaning

>> BERGMAN: "Algorithm" meaning a mathematical formula.

a mathematical formula.

>> Mathematical...

Yes,

>> Mathematical...

Yes, mathematical formula.

mathematical formula.

>> BERGMAN: And how many people

>> BERGMAN: And how many people have this number?

have this number?

>> We estimate that

>> We estimate that approximately 75% of the U.S.

approximately 75% of the U.S. population that is eligible for

population that is eligible for credit, i.e., those who are 18

credit, i.e., those who are 18 years or older, have a FICO

years or older, have a FICO score at any given time.

score at any given time.

>> BERGMAN: Do you know your

>> BERGMAN: Do you know your credit score?

credit score?

>> No.

>> BERGMAN: You're not aware

>> BERGMAN: You're not aware that you have a credit score?

that you have a credit score?

>> I'm aware that I have one.

I don't know what it is.

>> Right.

>> Right, yeah.

>> I don't know what it is.

>> I don't know what it is

>> I don't know what it is either.

either.

>> BERGMAN: So if I said to you

>> BERGMAN: So if I said to you the words, "FICO score," do you

the words, "FICO score," do you know what a FICO score is?

know what a FICO score is?

>> I know the term.

I'm not clear on what they are.

I've never gotten my credit

I've never gotten my credit score.

score.

>> NARRATOR: An individual's

>> NARRATOR: An individual's FICO score often determines how

FICO score often determines how much interest he will pay on a

much interest he will pay on a credit card.

The terms and conditions of the

The terms and conditions of the card are laid out in the fine

card are laid out in the fine print of this contract.

>> BERGMAN: When I get a credit

>> BERGMAN: When I get a credit card, there's a contract that

>> BERGMAN: When I get a credit card, there's a contract that goes along with it.

card, there's a contract that goes along with it.

What kind of contract is this?

goes along with it.

What kind of contract is this?

Because I never read it.

What kind of contract is this?

Because I never read it.

Have you ever read it when it

Because I never read it.

Have you ever read it when it came to you?

>> Uh, I'd have to admit, in

came to you?

>> Uh, I'd have to admit, in most cases I may have just

>> Uh, I'd have to admit, in most cases I may have just glanced at it.

most cases I may have just glanced at it.

You know, it's filled with so

glanced at it.

You know, it's filled with so many legal terms and so many

You know, it's filled with so many legal terms and so many many legal terms and so many

many legal terms and so many many legal terms and so many pages and such small print that

many legal terms and so many pages and such small print that it can be intimidating, I think.

>> BERGMAN: It says that I'm

>> BERGMAN: It says that I'm guaranteed the terms of a loan

>> BERGMAN: It says that I'm guaranteed the terms of a loan for as long as I have the card.

guaranteed the terms of a loan for as long as I have the card. )

for as long as I have the card. )

Yeah, well, thing is that... One

) Yeah, well, thing is that... One unique thing about the credit

Yeah, well, thing is that... One unique thing about the credit card business is that the issuer

unique thing about the credit card business is that the issuer can change the terms and

card business is that the issuer can change the terms and conditions at will.

can change the terms and conditions at will.

>> BERGMAN: Without asking my

conditions at will.

>> BERGMAN: Without asking my permission?

>> Absolutely.

permission?

>> Absolutely.

They can change it all.

>> Absolutely.

They can change it all.

It only takes 15 days' notice to

They can change it all.

It only takes 15 days' notice to make those changes.

I mean, you could be offered a

make those changes.

I mean, you could be offered a 5% or 6% interest rate today,

I mean, you could be offered a 5% or 6% interest rate today, and perhaps get it.

5% or 6% interest rate today, and perhaps get it.

Two months later, that could be

and perhaps get it.

Two months later, that could be 30%.

There is nothing to prevent the

30%.

There is nothing to prevent the issuer from changing those

There is nothing to prevent the issuer from changing those conditions.

issuer from changing those conditions.

>> NARRATOR: Even professor

conditions.

>> NARRATOR: Even professor Elizabeth Warren, an expert on

>> NARRATOR: Even professor Elizabeth Warren, an expert on contract law, says she has a

Elizabeth Warren, an expert on contract law, says she has a hard time deciphering her

contract law, says she has a hard time deciphering her contract.

hard time deciphering her contract.

>> I've read my credit card

contract.

>> I've read my credit card agreement, and I can't figure

>> I've read my credit card agreement, and I can't figure out the terms.

agreement, and I can't figure out the terms.

out the terms.

I teach contract law, and the

out the terms.

I teach contract law, and the underlying premise of contract

I teach contract law, and the underlying premise of contract law is that the two parties to

underlying premise of contract law is that the two parties to the contract understand what the

law is that the two parties to the contract understand what the terms are.

the contract understand what the terms are.

terms are.

>> BERGMAN: Have you ever read

terms are.

>> BERGMAN: Have you ever read the contract that's sent to you

>> BERGMAN: Have you ever read the contract that's sent to you with your credit card?

the contract that's sent to you with your credit card?

>> Yes.

with your credit card?

>> Yes.

But I'm a lawyer.

>> Yes.

But I'm a lawyer. )

>> BERGMAN: Do you understand

) >> BERGMAN: Do you understand it?

>> BERGMAN: Do you understand it?

>> I, I do understand it.

it?

>> I, I do understand it.

I think it'd be very hard for a

>> I, I do understand it.

I think it'd be very hard for a lot of people to understand.

lot of people to understand.

And I think it's a constant

lot of people to understand.

And I think it's a constant battle to try to figure out how

And I think it's a constant battle to try to figure out how you make disclosures and those

battle to try to figure out how you make disclosures and those types of things in plain English

you make disclosures and those types of things in plain English so that somebody will read them.

>> NARRATOR: Ed Yingling says

>> NARRATOR: Ed Yingling says the fact that the contracts are

>> NARRATOR: Ed Yingling says the fact that the contracts are difficult to understand is not

the fact that the contracts are difficult to understand is not the industry's fault.

difficult to understand is not the industry's fault.

>> Our disclosures are very

the industry's fault.

>> Our disclosures are very explicitly set forth in law and

>> Our disclosures are very explicitly set forth in law and in regulation.

explicitly set forth in law and in regulation.

Much more so than in most

in regulation.

Much more so than in most consumer contracts, ours are

Much more so than in most consumer contracts, ours are heavily regulated.

consumer contracts, ours are heavily regulated.

>> BERGMAN: They say the

heavily regulated.

>> BERGMAN: They say the contract contains information,

>> BERGMAN: They say the contract contains information, even the typeface.

contract contains information, even the typeface.

It's mandated by law.

even the typeface.

It's mandated by law.

>> But the laws... That's the

It's mandated by law.

>> But the laws... That's the point now: The laws are

>> But the laws... That's the point now: The laws are inadequate.

point now: The laws are inadequate.

There's not enough there.

inadequate.

There's not enough there.

These guys have figured out the

There's not enough there.

These guys have figured out the best way to compete is to put a

These guys have figured out the best way to compete is to put a smiley face in your commercials,

best way to compete is to put a smiley face in your commercials, a low introductory rate, and

smiley face in your commercials, a low introductory rate, and hire a team of MBAs to lay traps

a low introductory rate, and hire a team of MBAs to lay traps in the fine print.

hire a team of MBAs to lay traps in the fine print.

>> NARRATOR: One of those traps

in the fine print.

>> NARRATOR: One of those traps according to Warren and other

>> NARRATOR: One of those traps according to Warren and other critics is something called

according to Warren and other critics is something called universal default.

>> If you do miss a mortgage

>> If you do miss a mortgage payment, you do miss a car

>> If you do miss a mortgage payment, you do miss a car payment, any other, it can

payment, you do miss a car payment, any other, it can trigger what is called a

payment, any other, it can trigger what is called a universal default.

trigger what is called a universal default.

They actually have the right to

universal default.

They actually have the right to change it if you miss a payment

They actually have the right to change it if you miss a payment with another creditor, or in

change it if you miss a payment with another creditor, or in some cases even if there's a

with another creditor, or in some cases even if there's a change in your credit

some cases even if there's a change in your credit worthiness.

change in your credit worthiness.

In fact, you don't have to miss

worthiness.

In fact, you don't have to miss a payment, you don't have to go

In fact, you don't have to miss a payment, you don't have to go over your credit limit to be in

a payment, you don't have to go over your credit limit to be in default.

over your credit limit to be in default.

You could, for example, or maybe

default.

You could, for example, or maybe your balances are too high.

>> BERGMAN: You've seen one of

your balances are too high.

>> BERGMAN: You've seen one of these, right, before?

I want to read you something

these, right, before?

I want to read you something from a contract.

"Your APRs also may vary if you

from a contract.

"Your APRs also may vary if you are in default under this

"Your APRs also may vary if you are in default under this agreement or any other agreement

are in default under this agreement or any other agreement that you have with us or any

agreement or any other agreement that you have with us or any other related companies for any

that you have with us or any other related companies for any of the following reasons: You

other related companies for any of the following reasons: You fail to make a payment to

of the following reasons: You fail to make a payment to another creditor when due."

fail to make a payment to another creditor when due."

Do you understand what this

another creditor when due."

Do you understand what this means?

>> Uh-huh.

means?

>> Uh-huh.

>> BERGMAN: You do?

>> Uh-huh.

>> BERGMAN: You do?

Do you know that it means that

>> BERGMAN: You do?

Do you know that it means that if you fail to make a payment

Do you know that it means that if you fail to make a payment and are late on anything else

if you fail to make a payment and are late on anything else that you're paying on-- your

and are late on anything else that you're paying on-- your house, your car-- anything else,

that you're paying on-- your house, your car-- anything else, they will find out and they can

house, your car-- anything else, they will find out and they can change your interest rate?

they will find out and they can change your interest rate?

Did you know that?

change your interest rate?

Did you know that?

>> I had no idea.

Did you know that?

>> I had no idea.

This is the first I've ever

>> I had no idea.

This is the first I've ever heard that.

>> Why is it legal?

heard that.

>> Why is it legal?

>> BERGMAN: Well, because it's

>> Why is it legal?

>> BERGMAN: Well, because it's disclosed in the contract.

>> It doesn't seem fair.

disclosed in the contract.

>> It doesn't seem fair.

You've done no harm to the

>> It doesn't seem fair.

You've done no harm to the company themselves.

You're late with someone else.

company themselves.

You're late with someone else.

You haven't affected

You're late with someone else.

You haven't affected company.

No, it doesn't seem fair that

company.

No, it doesn't seem fair that they would suddenly say, "Oh,

No, it doesn't seem fair that they would suddenly say, "Oh, now I can raise your rate."

they would suddenly say, "Oh, now I can raise your rate."

>> They're taking advantage of

now I can raise your rate."

>> They're taking advantage of someone who is in that position.

>> NARRATOR: That's what Andrew

someone who is in that position.

>> NARRATOR: That's what Andrew Guile of Wilmington, Delaware,

>> NARRATOR: That's what Andrew Guile of Wilmington, Delaware, says happened to him.

Guile of Wilmington, Delaware, says happened to him.

>> Yes, I had gotten a letter

says happened to him.

>> Yes, I had gotten a letter from MBNA several months ago

>> Yes, I had gotten a letter from MBNA several months ago that my rate was going to be

from MBNA several months ago that my rate was going to be increased.

that my rate was going to be increased.

>> NARRATOR: MBNA raised his

increased.

>> NARRATOR: MBNA raised his 8.9% interest rate to 19.9%

>> NARRATOR: MBNA raised his 8.9% interest rate to 19.9% and his minimum monthly payments

8.9% interest rate to 19.9% and his minimum monthly payments nearly doubled.

and his minimum monthly payments nearly doubled.

>> They told me the first time

nearly doubled.

>> They told me the first time that my rate had been raised

>> They told me the first time that my rate had been raised because they found an Occasion

that my rate had been raised because they found an Occasion back in 1998 when I had gone 60

because they found an Occasion back in 1998 when I had gone 60 days past due on a competitor's

back in 1998 when I had gone 60 days past due on a competitor's credit card, and I asked them,

days past due on a competitor's credit card, and I asked them, "What in the world does that

credit card, and I asked them, "What in the world does that have to do with MBNA, especially

"What in the world does that have to do with MBNA, especially being six years ago?"

have to do with MBNA, especially being six years ago?"

I said, "That has nothing to do

being six years ago?"

I said, "That has nothing to do with my account here."

I mean, that absolutely took my

with my account here."

I mean, that absolutely took my breath away.

>> NARRATOR: When Guile

breath away.

>> NARRATOR: When Guile protested, he says he was given

>> NARRATOR: When Guile protested, he says he was given another reason for the change.

protested, he says he was given another reason for the change.

He had become riskier, he was

another reason for the change.

He had become riskier, he was told, because his account

He had become riskier, he was told, because his account balances with other creditors

told, because his account balances with other creditors were too high.

balances with other creditors were too high.

were too high.

>> I was a great customer at

were too high.

>> I was a great customer at MBNA-- always paid my balances

>> I was a great customer at MBNA-- always paid my balances on time, paid more than the

MBNA-- always paid my balances on time, paid more than the minimum balance, you know, many

on time, paid more than the minimum balance, you know, many times paying it down completely,

minimum balance, you know, many times paying it down completely, but I was...

I was never late,

times paying it down completely, but I was...

I was never late, and I used the card in a wise

but I was...

I was never late, and I used the card in a wise and responsible manner.

wanted to

wanted to ask MBNA about Guile's problem,

wanted to ask MBNA about Guile's problem, but we were told they never

ask MBNA about Guile's problem, but we were told they never comment on an individual's

but we were told they never comment on an individual's account.

comment on an individual's account.

But just two months after our

account.

But just two months after our interview, Guile says he got a

But just two months after our interview, Guile says he got a call from the office of the

interview, Guile says he got a call from the office of the president of MBNA saying they

call from the office of the president of MBNA saying they would move his interest rate

president of MBNA saying they would move his interest rate back to 8.9%.

would move his interest rate back to 8.9%.

>> The real question here is

back to 8.9%.

>> The real question here is whether or not you can change

>> The real question here is whether or not you can change the price, not of new items you

whether or not you can change the price, not of new items you the price, not of new items you

the price, not of new items you the price, not of new items you buy after your credit score has

the price, not of new items you buy after your credit score has changed, but for old credit that

buy after your credit score has changed, but for old credit that you've already taken out.

changed, but for old credit that you've already taken out.

you've already taken out.

My mortgage company agreed to an

you've already taken out.

My mortgage company agreed to an interest rate, and if I lost my

My mortgage company agreed to an interest rate, and if I lost my job, my mortgage company does

interest rate, and if I lost my job, my mortgage company does not get to double my mortgage.

job, my mortgage company does not get to double my mortgage.

Credit card companies can say,

not get to double my mortgage.

Credit card companies can say, "Remember how you bought the big

Credit card companies can say, "Remember how you bought the big screen TV at 9.8% interest?

"Remember how you bought the big screen TV at 9.8% interest?

We've decided we want 29.9%

screen TV at 9.8% interest?

We've decided we want 29.9% interest," and there's not a

We've decided we want 29.9% interest," and there's not a darn thing you can do about it

interest," and there's not a darn thing you can do about it right now.

darn thing you can do about it right now.

>> BERGMAN: The contract allows

right now.

>> BERGMAN: The contract allows a credit card company to change

>> BERGMAN: The contract allows a credit card company to change the interest rate on money you

a credit card company to change the interest rate on money you borrow...

the interest rate on money you borrow... >> Mm-hmm.

borrow... >> Mm-hmm.

>> BERGMAN: ...from them, after

>> Mm-hmm.

>> BERGMAN: ...from them, after you've borrowed it.

you've borrowed it.

>> Some do.

you've borrowed it.

>> Some do.

Yeah, it depends on the

>> Some do.

Yeah, it depends on the contract, but a lot of them do.

contract, but a lot of them do.

>> BERGMAN: If they find out

contract, but a lot of them do.

>> BERGMAN: If they find out through this information system

>> BERGMAN: If they find out through this information system that you've been late on your

through this information system that you've been late on your payment for your automobile...

that you've been late on your payment for your automobile... >> Mm-hmm.

payment for your automobile... >> Mm-hmm.

>> BERGMAN: ...they can notify

>> Mm-hmm.

>> BERGMAN: ...they can notify you that they're going to change

>> BERGMAN: ...they can notify you that they're going to change the interest rate on the money

you that they're going to change the interest rate on the money they've already lent you.

the interest rate on the money they've already lent you.

>> I think there is a

they've already lent you.

>> I think there is a misunderstanding about what the

>> I think there is a misunderstanding about what the credit card agreement is.

misunderstanding about what the credit card agreement is.

My agreement with you is, "You

credit card agreement is.

My agreement with you is, "You come to me, you have a certain

My agreement with you is, "You come to me, you have a certain credit score.

come to me, you have a certain credit score.

And based on that credit score,

credit score.

And based on that credit score, I'm going to charge you 12%.

If in the future, it turns out

I'm going to charge you 12%.

If in the future, it turns out that your credit score has

If in the future, it turns out that your credit score has deteriorated and you now are

that your credit score has deteriorated and you now are more risky to me..."

deteriorated and you now are more risky to me..." >> BERGMAN: Mm-hmm.

more risky to me..." >> BERGMAN: Mm-hmm.

>> "...I'm going to charge you

>> BERGMAN: Mm-hmm.

>> "...I'm going to charge you the interest rate I would charge

>> "...I'm going to charge you the interest rate I would charge to somebody that has that credit

the interest rate I would charge to somebody that has that credit score."

to somebody that has that credit score."

>> BERGMAN: Is it fair to change

score."

>> BERGMAN: Is it fair to change the price of the deal after the

>> BERGMAN: Is it fair to change the price of the deal after the fact?

the price of the deal after the fact?

fact?

>> The product is not a promise

fact?

>> The product is not a promise to somebody that we will lend

>> The product is not a promise to somebody that we will lend you that amount of money forever

to somebody that we will lend you that amount of money forever at that interest rate.

you that amount of money forever at that interest rate.

It is a very short-term

at that interest rate.

It is a very short-term revolving line of credit.

>> It's dishonest, plain and

>> It's dishonest, plain and simple.

It's dishonest.

simple.

It's dishonest.

They may say it's good business

It's dishonest.

They may say it's good business for their financial bottom line,

They may say it's good business for their financial bottom line, but it is a very poor way to

for their financial bottom line, but it is a very poor way to treat a customer.

but it is a very poor way to treat a customer.

>> NARRATOR: In 1996, another

treat a customer.

>> NARRATOR: In 1996, another important Supreme Court decision

>> NARRATOR: In 1996, another important Supreme Court decision opened the door to bigger

important Supreme Court decision opened the door to bigger profits for the credit card

opened the door to bigger profits for the credit card industry and a raft of new

profits for the credit card industry and a raft of new complaints from their customers.

industry and a raft of new complaints from their customers.

That decision, "Smiley vs.

complaints from their customers.

That decision, "Smiley vs. Citibank," much like the

That decision, "Smiley vs. Citibank," much like the Marquette decision before it,

Citibank," much like the Marquette decision before it, lifted state restrictions this

Marquette decision before it, lifted state restrictions this time on the fees that credit

lifted state restrictions this time on the fees that credit card banks could charge.

time on the fees that credit card banks could charge.

>> We were working this thing

card banks could charge.

>> We were working this thing here for a good cause, free-

>> We were working this thing here for a good cause, free- market pricing.

here for a good cause, free- market pricing.

>> NARRATOR: Duncan MacDonald

market pricing.

>> NARRATOR: Duncan MacDonald was one of the lawyers who

>> NARRATOR: Duncan MacDonald was one of the lawyers who worked on the Smiley case.

was one of the lawyers who worked on the Smiley case.

>> The late fees that were

worked on the Smiley case.

>> The late fees that were common across the industry, up

>> The late fees that were common across the industry, up until Smiley, were in the five-

common across the industry, up until Smiley, were in the five- dollar and the ten-dollar range.

until Smiley, were in the five- dollar and the ten-dollar range.

And the economic thinking was

dollar and the ten-dollar range.

And the economic thinking was that there had to be flexibility

And the economic thinking was that there had to be flexibility to allow up to $15, but when

that there had to be flexibility to allow up to $15, but when Smiley came along and took the

to allow up to $15, but when Smiley came along and took the lid off it, it went from five to

Smiley came along and took the lid off it, it went from five to ten to 15 to 29, and recently

lid off it, it went from five to ten to 15 to 29, and recently it's gone up to 39.

ten to 15 to 29, and recently it's gone up to 39.

I would guess, that it's

it's gone up to 39.

I would guess, that it's probably gonna go up to $50 a

I would guess, that it's probably gonna go up to $50 a year and a half from now.

probably gonna go up to $50 a year and a half from now.

I certainly didn't imagine that

year and a half from now.

I certainly didn't imagine that someday we might've ended up

I certainly didn't imagine that someday we might've ended up creating a Frankenstein.

someday we might've ended up creating a Frankenstein.

>> BERGMAN: "Frankenstein."

creating a Frankenstein.

>> BERGMAN: "Frankenstein."

What do you mean,

>> BERGMAN: "Frankenstein."

What do you mean, "Frankenstein"?

"Frankenstein"?

>> I look at that, and I say to

"Frankenstein"?

>> I look at that, and I say to myself, "Is $50 a fair fee, plus

>> I look at that, and I say to myself, "Is $50 a fair fee, plus a 25% interest rate and all

myself, "Is $50 a fair fee, plus a 25% interest rate and all these other fees that are thrown

a 25% interest rate and all these other fees that are thrown on for folks who are probably

these other fees that are thrown on for folks who are probably not that risky, is that fair?"

on for folks who are probably not that risky, is that fair?"

not that risky, is that fair?"

I look at it and I say to

not that risky, is that fair?"

I look at it and I say to myself, "There's the

I look at it and I say to myself, "There's the Frankenstein.

myself, "There's the Frankenstein.

We've created something that,

Frankenstein.

We've created something that, that, that has to be... has to

We've created something that, that, that has to be... has to be dealt with."

that, that has to be... has to be dealt with."

>> NARRATOR: Since smiley,

be dealt with."

>> NARRATOR: Since smiley, credit card companies have

>> NARRATOR: Since smiley, credit card companies have doubled the amount of revenue

credit card companies have doubled the amount of revenue they generate from fees-- late

doubled the amount of revenue they generate from fees-- late fees, over-the-limit fees,

they generate from fees-- late fees, over-the-limit fees, returned-check fees and the

fees, over-the-limit fees, returned-check fees and the like.

returned-check fees and the like.

>> Fee income has gone up much,

like.

>> Fee income has gone up much, >> Fee income has gone up much,

>> Fee income has gone up much, >> Fee income has gone up much, much faster than interest income

>> Fee income has gone up much, much faster than interest income in the business.

much faster than interest income in the business.

in the business.

>> BERGMAN: So the... the fees

in the business.

>> BERGMAN: So the... the fees are meant as a penalty to make

>> BERGMAN: So the... the fees are meant as a penalty to make sure that you pay on time, or

are meant as a penalty to make sure that you pay on time, or are they a profit stream?

sure that you pay on time, or are they a profit stream?

>> Well, they really have become

are they a profit stream?

>> Well, they really have become a profit stream.

It's not just the fees that they

a profit stream.

It's not just the fees that they charge, even though they're

It's not just the fees that they charge, even though they're three and four times higher than

charge, even though they're three and four times higher than they were less than ten years

three and four times higher than they were less than ten years ago.

they were less than ten years ago.

That's the tip of the iceberg

ago.

That's the tip of the iceberg when it comes to the penalty

That's the tip of the iceberg when it comes to the penalty that's inflicted on consumers

when it comes to the penalty that's inflicted on consumers with these situations where they

that's inflicted on consumers with these situations where they make a late payment.

with these situations where they make a late payment.

It's the penalty interest rate

make a late payment.

It's the penalty interest rate that really does the damage.

Your interest rate could double

that really does the damage.

Your interest rate could double overnight.

>> BERGMAN: Just so I understand

overnight.

>> BERGMAN: Just so I understand it, the interest rates are not

>> BERGMAN: Just so I understand it, the interest rates are not regulated.

it, the interest rates are not regulated.

They can change the interest

regulated.

They can change the interest rate relationship that you have

They can change the interest rate relationship that you have with them with 15 days notice.

rate relationship that you have with them with 15 days notice.

So, that's a major source of

with them with 15 days notice.

So, that's a major source of profit for them.

And the fees are now no longer

profit for them.

And the fees are now no longer regulated.

>> That's exactly right.

regulated.

>> That's exactly right.

It's, you know, it's wide open.

>> That's exactly right.

It's, you know, it's wide open.

We're beginning to see banks do

It's, you know, it's wide open.

We're beginning to see banks do all this tweaking, where they're

We're beginning to see banks do all this tweaking, where they're changing the interest rates and

all this tweaking, where they're changing the interest rates and raising fees, adding new fees

changing the interest rates and raising fees, adding new fees all kinds of... way they

raising fees, adding new fees all kinds of... way they calculate interest, setting the

all kinds of... way they calculate interest, setting the due dates on a Sunday on a

calculate interest, setting the due dates on a Sunday on a holiday on the hopes that maybe

due dates on a Sunday on a holiday on the hopes that maybe you'll trip up and get a payment

holiday on the hopes that maybe you'll trip up and get a payment in late.

you'll trip up and get a payment in late.

It's become a very anti-consumer

in late.

It's become a very anti-consumer marketplace.

>> NARRATOR: Even the industry's

>> NARRATOR: Even the industry's top lobbyist is concerned.

top lobbyist is concerned.

>> I think it would be

top lobbyist is concerned.

>> I think it would be shortsighted for a credit card

>> I think it would be shortsighted for a credit card company to have fees that would

shortsighted for a credit card company to have fees that would make somebody angry because

company to have fees that would make somebody angry because they're likely to lose that

make somebody angry because they're likely to lose that customer.

they're likely to lose that customer.

customer.

And I think it's going to cost

customer.

And I think it's going to cost them more to replace that

And I think it's going to cost them more to replace that customer than they're likely to

them more to replace that customer than they're likely to get out of the fee.

customer than they're likely to get out of the fee.

>> You have bankers who have

get out of the fee.

>> You have bankers who have skyrocketed rates from 14% to

>> You have bankers who have skyrocketed rates from 14% to 25% and $40 late fees and bad-

skyrocketed rates from 14% to 25% and $40 late fees and bad- check fees and so on that fall

25% and $40 late fees and bad- check fees and so on that fall on the shoulders of the less

check fees and so on that fall on the shoulders of the less well-off.

on the shoulders of the less well-off.

Yes, there's... something bad

well-off.

Yes, there's... something bad has happened.

>> BERGMAN: So we need

has happened.

>> BERGMAN: So we need regulation.

>> Well, we have regulation.

regulation.

>> Well, we have regulation.

We have regulation already.

>> Well, we have regulation.

We have regulation already.

The controller of the currency

We have regulation already.

The controller of the currency regulates all the national

The controller of the currency regulates all the national banks, and they have very vast

regulates all the national banks, and they have very vast powers.

banks, and they have very vast powers.

>> NARRATOR: The office of the

powers.

>> NARRATOR: The office of the comptroller of the currency--

>> NARRATOR: The office of the comptroller of the currency-- the OCC-- is an obscure

comptroller of the currency-- the OCC-- is an obscure Washington agency, part of the

the OCC-- is an obscure Washington agency, part of the treasury department, and it

Washington agency, part of the treasury department, and it regulates the national banks,

treasury department, and it regulates the national banks, banks like Chase, Citibank and

regulates the national banks, banks like Chase, Citibank and MBNA that issue most of the

banks like Chase, Citibank and MBNA that issue most of the credit cards in this country.

MBNA that issue most of the credit cards in this country.

Julie Williams is the acting

credit cards in this country.

Julie Williams is the acting comptroller of the currency.

>> We have three goals to make

comptroller of the currency.

>> We have three goals to make sure that the banks don't fail,

>> We have three goals to make sure that the banks don't fail, to ensure the integrity of how

sure that the banks don't fail, to ensure the integrity of how the banks operate their

to ensure the integrity of how the banks operate their corporate governance...

the banks operate their corporate governance... >> BERGMAN: Mm-hmm.

corporate governance... >> BERGMAN: Mm-hmm.

>> ...and to make sure that they

>> BERGMAN: Mm-hmm.

>> ...and to make sure that they deal fairly and honestly with

>> ...and to make sure that they deal fairly and honestly with their customers.

deal fairly and honestly with their customers.

At the extreme, we have the

their customers.

At the extreme, we have the ability to take enforcement

At the extreme, we have the ability to take enforcement action, and we have done that.

ability to take enforcement action, and we have done that.

We have taken enforcement

action, and we have done that.

We have taken enforcement action.

>> BERGMAN: Can you give us an

action.

>> BERGMAN: Can you give us an example of how you have brought

>> BERGMAN: Can you give us an example of how you have brought a large institution to task?

example of how you have brought a large institution to task?

a large institution to task?

>> Well, I think probably the

a large institution to task?

>> Well, I think probably the most conspicuous example of that

>> Well, I think probably the most conspicuous example of that would be the action that we took

most conspicuous example of that would be the action that we took in connection with Providian.

>> NARRATOR: That's not the

>> NARRATOR: That's not the story they tell in San

>> NARRATOR: That's not the story they tell in San Francisco, where in the late

story they tell in San Francisco, where in the late 1990s, the credit card company

Francisco, where in the late 1990s, the credit card company Providian Financial was

1990s, the credit card company Providian Financial was experiencing double-digit

Providian Financial was experiencing double-digit growth.

experiencing double-digit growth.

Providian specialized in the

growth.

Providian specialized in the riskiest customers with the

Providian specialized in the riskiest customers with the lowest credit scores.

riskiest customers with the lowest credit scores.

>> They were targeting people

lowest credit scores.

>> They were targeting people with questionable credit or

>> They were targeting people with questionable credit or with questionable credit or

with questionable credit or with questionable credit or marginal credit, people that

couldn't get bank cards

couldn't get bank cards elsewhere.

>> NARRATOR: Pat Wallace is the

elsewhere.

>> NARRATOR: Pat Wallace is the head of the Better Business

>> NARRATOR: Pat Wallace is the head of the Better Business Bureau in the San Francisco

head of the Better Business Bureau in the San Francisco area.

Bureau in the San Francisco area.

>> The first thing that got our

area.

>> The first thing that got our attention, of course, were the

>> The first thing that got our attention, of course, were the numbers, of the numbers of

attention, of course, were the numbers, of the numbers of complaints.

numbers, of the numbers of complaints.

Providian was involved in all

complaints.

Providian was involved in all kinds of questionable offers and

Providian was involved in all kinds of questionable offers and policies and procedures and

kinds of questionable offers and policies and procedures and operations.

policies and procedures and operations.

>> NARRATOR: Complaints about

operations.

>> NARRATOR: Complaints about Providian from around the

>> NARRATOR: Complaints about Providian from around the country came here to Wallace's

Providian from around the country came here to Wallace's office.

>> Providian, for example, was

>> Providian, for example, was accepting payments from

accepting payments from consumers on their accounts,

consumers on their accounts, depositing the checks, but not

depositing the checks, but not crediting the account for

crediting the account for sometimes up to several weeks.

What was the net result of that?

Invariably, the consumer got a

What was the net result of that?

Invariably, the consumer got a late charge.

>> BERGMAN: They were holding

late charge.

>> BERGMAN: They were holding payments so that they could

>> BERGMAN: They were holding payments so that they could charge late fees and they could

payments so that they could charge late fees and they could charge overdraft fees.

charge late fees and they could charge overdraft fees.

>> Over-the-limit fees.

charge overdraft fees.

>> Over-the-limit fees.

50% of their income were fees,

>> Over-the-limit fees.

50% of their income were fees, not interest on the money

50% of their income were fees, not interest on the money loaned.

not interest on the money loaned.

They were pushing the envelope,

loaned.

They were pushing the envelope, and they got by with it for a

They were pushing the envelope, and they got by with it for a period of time, and they made a

and they got by with it for a period of time, and they made a lot of money.

period of time, and they made a lot of money.

>> BERGMAN: The Officer of the

lot of money.

>> BERGMAN: The Officer of the Comptroller of the Currency is

>> BERGMAN: The Officer of the Comptroller of the Currency is the main federal agency that

Comptroller of the Currency is the main federal agency that takes complaints.

the main federal agency that takes complaints.

Did they come to your

takes complaints.

Did they come to your assistance?

>> No.

assistance?

>> No.

They just simply weren't

>> No.

They just simply weren't interested.

You know, the response was,

interested.

You know, the response was, well, you know, "We'll take it

You know, the response was, well, you know, "We'll take it from here and we'll watch from

well, you know, "We'll take it from here and we'll watch from here.

from here and we'll watch from here.

You know, "It's not a problem at

here.

You know, "It's not a problem at this time for us."

>> NARRATOR: Complaints about

this time for us."

>> NARRATOR: Complaints about Providian were also coming to

>> NARRATOR: Complaints about Providian were also coming to June Cravett at the San

Providian were also coming to June Cravett at the San Francisco district attorney's

June Cravett at the San Francisco district attorney's consumer protection unit, and

Francisco district attorney's consumer protection unit, and she began to investigate,

consumer protection unit, and she began to investigate, eventually drawing local press

she began to investigate, eventually drawing local press attention and then a phone call

eventually drawing local press attention and then a phone call from the OCC.

attention and then a phone call from the OCC.

>> BERGMAN: Had you ever heard

from the OCC.

>> BERGMAN: Had you ever heard of the Office Of The Comptroller

>> BERGMAN: Had you ever heard of the Office Of The Comptroller Of The Currency?

of the Office Of The Comptroller Of The Currency?

>> The answer from my

Of The Currency?

>> The answer from my perspective is no.

Didn't really know much about

perspective is no.

Didn't really know much about it, didn't know exactly what

Didn't really know much about it, didn't know exactly what they did and exactly who they

it, didn't know exactly what they did and exactly who they regulated.

they did and exactly who they regulated.

We never heard of them being

regulated.

We never heard of them being very active in the area of

We never heard of them being very active in the area of consumer litigation or consumer

very active in the area of consumer litigation or consumer enforcement actions against the

consumer litigation or consumer enforcement actions against the banks.

enforcement actions against the banks.

>> NARRATOR: And when the OCC

banks.

>> NARRATOR: And when the OCC contacted June Cravett, she says

>> NARRATOR: And when the OCC contacted June Cravett, she says instead of cooperation they

contacted June Cravett, she says instead of cooperation they issued a challenge.

instead of cooperation they issued a challenge.

>> There were a couple of

issued a challenge.

>> There were a couple of meetings where the subject of

>> There were a couple of meetings where the subject of "preemption" was raised.

meetings where the subject of "preemption" was raised.

>> BERGMAN: "Preemption"?

>> Yeah.

That's where they say, "Because

That's where they say, "Because we're the federal regulator,"

we're the federal regulator," that they have exclusive

that they have exclusive authority over the national

authority over the national banks, and therefore, we don't

banks, and therefore, we don't have jurisdiction.

have jurisdiction.

>> BERGMAN: You, in San

>> BERGMAN: You, in San Francisco, don't have

Francisco, don't have jurisdiction.

jurisdiction.

>> Yes.

>> BERGMAN: The San Francisco

>> BERGMAN: The San Francisco District Attorney says to us

District Attorney says to us that they were told, "You don't

that they were told, "You don't have real jurisdiction; we have

have real jurisdiction; we have real jurisdiction," and

real jurisdiction," and indicated to them that they

indicated to them that they might want to get out of the

might want to get out of the case.

case.

>> The way that that worked out

>> The way that that worked out >> The way that that worked out

>> The way that that worked out was we worked together with the

was we worked together with the San Francisco District

San Francisco District Attorney's Office.

Attorney's Office.

It was a collaborative process.

>> BERGMAN: Well, they say, once

>> BERGMAN: Well, they say, once you got involved, it was very

you got involved, it was very fruitful.

fruitful.

>> Right.

>> BERGMAN: What they're telling

>> BERGMAN: What they're telling us is that the OCC only got

us is that the OCC only got involved once this whole

involved once this whole situation became public, that

situation became public, that prior to the news publicity that

prior to the news publicity that they were responsible for, they

they were responsible for, they had no contact with the OCC.

had no contact with the OCC.

>> We worked cooperatively with

>> We worked cooperatively with them when we got information

them when we got information about what was going on.

about what was going on.

>> NARRATOR: The joint

>> NARRATOR: The joint >> NARRATOR: The joint

>> NARRATOR: The joint investigation eventually

investigation eventually culminated in a $300 million

culminated in a $300 million settlement.

settlement.

Providian declined to be

Providian declined to be interviewed and issued a

interviewed and issued a statement saying, "Rather than

statement saying, "Rather than revisit the past, the company is

revisit the past, the company is focused on services that provide

focused on services that provide real benefits today."

>> NARRATOR: In Washington the

>> NARRATOR: In Washington the OCC has been increasingly

>> NARRATOR: In Washington the OCC has been increasingly asserting its authority and

OCC has been increasingly asserting its authority and attempting to curb consumer

asserting its authority and attempting to curb consumer enforcement actions by local

attempting to curb consumer enforcement actions by local prosecutors.

enforcement actions by local prosecutors.

This has sparked a nationwide

prosecutors.

This has sparked a nationwide battle led by the Attorneys

This has sparked a nationwide battle led by the Attorneys General in all 50 states.

battle led by the Attorneys General in all 50 states.

>> The OCC is now trying to

General in all 50 states.

>> The OCC is now trying to squeeze out the state presence

>> The OCC is now trying to squeeze out the state presence to prevent us from protecting

squeeze out the state presence to prevent us from protecting consumers, which I think is

to prevent us from protecting consumers, which I think is ultimately very injurious to

consumers, which I think is ultimately very injurious to consumers.

ultimately very injurious to consumers.

>> NARRATOR: Elliot Spitzer is

consumers.

>> NARRATOR: Elliot Spitzer is the Attorney General of New York

>> NARRATOR: Elliot Spitzer is the Attorney General of New York state.

the Attorney General of New York state.

>> We get thousands of

state.

>> We get thousands of complaints every year about

>> We get thousands of complaints every year about credit card issues relating to

complaints every year about credit card issues relating to the major banks, the major card

credit card issues relating to the major banks, the major card issuers, and so we get these

the major banks, the major card issuers, and so we get these complaints and we try to deal

issuers, and so we get these complaints and we try to deal with the credit card companies.

complaints and we try to deal with the credit card companies.

But increasingly, over the past

with the credit card companies.

But increasingly, over the past number of years, what we have

But increasingly, over the past number of years, what we have heard back from the major banks,

number of years, what we have heard back from the major banks, in a variety of contexts, is

heard back from the major banks, in a variety of contexts, is that, "We don't need to deal

in a variety of contexts, is that, "We don't need to deal with you, because the OCC has

that, "We don't need to deal with you, because the OCC has told us-- indeed, has directed

with you, because the OCC has told us-- indeed, has directed us-- not to deal with state

told us-- indeed, has directed us-- not to deal with state enforcement entities."

us-- not to deal with state enforcement entities."

>> BERGMAN: Isn't this just a

enforcement entities."

>> BERGMAN: Isn't this just a turf battle between the states

>> BERGMAN: Isn't this just a turf battle between the states and the federal agencies?

turf battle between the states and the federal agencies?

and the federal agencies?

>> It's a one-way turf battle.

and the federal agencies?

>> It's a one-way turf battle.

And by that, what I mean is, we

>> It's a one-way turf battle.

And by that, what I mean is, we are more than happy to

And by that, what I mean is, we are more than happy to acknowledge that the OCC has

are more than happy to acknowledge that the OCC has jurisdiction across the

acknowledge that the OCC has jurisdiction across the financial system when it comes

jurisdiction across the financial system when it comes to certain issues.

financial system when it comes to certain issues.

to certain issues.

What the OCC is trying to do is

to certain issues.

What the OCC is trying to do is squeeze the states out in the

What the OCC is trying to do is squeeze the states out in the one area where we have been

squeeze the states out in the one area where we have been incredibly useful, which is

one area where we have been incredibly useful, which is consumer protection.

incredibly useful, which is consumer protection.

>> BERGMAN: The state attorneys

consumer protection.

>> BERGMAN: The state attorneys general, Mr. Spitzer, and others

>> BERGMAN: The state attorneys general, Mr. Spitzer, and others say that, "People in our state

general, Mr. Spitzer, and others say that, "People in our state know who we are, we have a

say that, "People in our state know who we are, we have a consumer complaint office, and

know who we are, we have a consumer complaint office, and our beef is, is that you guys

consumer complaint office, and our beef is, is that you guys want the OCC want to push them

our beef is, is that you guys want the OCC want to push them out of the business of consumer

want the OCC want to push them out of the business of consumer complaints."

>> We don't want to push them

>> We don't want to push them out of the business.

out of the business.

We are both there, protecting

We are both there, protecting consumers.

consumers.

What we have been striving to do

What we have been striving to do What we have been striving to do

What we have been striving to do is to individually and, in

is to individually and, in developing arrangements with the

developing arrangements with the states, work out the best way to

states, work out the best way to work cooperatively with them.

work cooperatively with them.

>> NARRATOR: In January of 2004

>> NARRATOR: In January of 2004 the OCC declared itself the

the OCC declared itself the exclusive regulator of all the

exclusive regulator of all the national banks, effectively

national banks, effectively immunizing the big credit card

immunizing the big credit card issuers from most state consumer

issuers from most state consumer protection laws.

protection laws.

The OCC cited the Providian case

The OCC cited the Providian case as proof of its commitment to

as proof of its commitment to consumers.

consumers.

>> I was dismayed, that they

>> I was dismayed, that they used Providian, as the prime

used Providian, as the prime example of their ability and

example of their ability and their will to enforce the laws

their will to enforce the laws that pertain to consumers.

that pertain to consumers.

>> BERGMAN: To you, they weren't

>> BERGMAN: To you, they weren't the white knight who came into

the white knight who came into San Francisco and saved

San Francisco and saved consumers from Providian?

consumers from Providian?

>> No, we were.

>> NARRATOR: Since the Providian

>> NARRATOR: Since the Providian case the OCC says it has been

case the OCC says it has been more aggressive, recently

more aggressive, recently issuing an advisory admonishing

issuing an advisory admonishing the banks for misleading the

the banks for misleading the public about practices like 0%

public about practices like 0% introductory rates and universal

introductory rates and universal default.

>> The OCC itself has

>> The OCC itself has acknowledged that these

acknowledged that these practices are, as they describe

practices are, as they describe it, very troubling, but notice

it, very troubling, but notice what they didn't do.

what they didn't do.

They didn't say, "And we're

They didn't say, "And we're going to prohibit them, stop

going to prohibit them, stop them.

them.

Those are unfair practices, they

Those are unfair practices, they are unsafe and unsound and don't

are unsafe and unsound and don't do them."

do them."

Instead they said, "It's a

Instead they said, "It's a problem."

problem."

Look, if they think it's a

Look, if they think it's a problem, then tell the credit

problem, then tell the credit card companies to stop doing it.

card companies to stop doing it.

>> BERGMAN: Why don't you simply

>> BERGMAN: Why don't you simply stop them?

stop them?

Why don't you ban these

Why don't you ban these practices?

practices?

>> When we see practices that

>> When we see practices that are potentially problematic, we

are potentially problematic, we take a variety of actions.

take a variety of actions.

>> BERGMAN: So you could tell

>> BERGMAN: So you could tell them to stop and they would have

them to stop and they would have to do it?

to do it?

>> If we had a basis for

>> If we had a basis for concluding that a bank was

concluding that a bank was involved in a practice that was

involved in a practice that was unfair or deceptive, if it

unfair or deceptive, if it violated any of the other many

violated any of the other many consumer protection standards

consumer protection standards that applied to them, we can

that applied to them, we can tell them to stop it

tell them to stop it immediately.

immediately.

>> NARRATOR: Whatever the OCC is

>> NARRATOR: Whatever the OCC is doing, Pat Wallace says it

doing, Pat Wallace says it hasn't stopped the Better

hasn't stopped the Better Business Bureau from being

Business Bureau from being deluged with complaints.

deluged with complaints.

>> It's not an accident that the

>> It's not an accident that the banking/credit card business

banking/credit card business banking/credit card business

banking/credit card business generates more complaints

generates more complaints nationally, across the country,

nationally, across the country, than any other industry.

than any other industry.

Now, what does that say to you?

Out of 1,000 industries that we

Out of 1,000 industries that we track, they're number one.

track, they're number one.

I'd say there's a problem there.

These things aren't an anomaly.

All these complaints have some

All these complaints have some basis in fact.

basis in fact.

There are irritated, unhappy,

There are irritated, unhappy, dissatisfied customers in this

dissatisfied customers in this industry, and we see it.

industry, and we see it.

>> BERGMAN: The Better Business

>> BERGMAN: The Better Business Bureau tells us credit cards and

Bureau tells us credit cards and banking and credit cards

banking and credit cards together-- number one problem.

together-- number one problem.

>> Of all types of complaints?

>> BERGMAN: Yeah.

>> I would have thought it was,

>> I would have thought it was, like, cable, and satellite

like, cable, and satellite installation, or...

installation, or... >> BERGMAN: No, I guess, you

>> BERGMAN: No, I guess, you guys...

guys... >> ...used car dealers, or

>> ...used car dealers, or something.

something.

>> BERGMAN: Your members

>> BERGMAN: Your members apparently are amongst the...

apparently are amongst the... >> That's...

I would not have

>> That's...

I would not have thought that, that that was the

thought that, that that was the case.

>> NARRATOR: Critics like

>> NARRATOR: Critics like Elizabeth Warren believe that

>> NARRATOR: Critics like Elizabeth Warren believe that there would be fewer complaints

Elizabeth Warren believe that there would be fewer complaints if the credit card industry

there would be fewer complaints if the credit card industry clearly disclosed how its

if the credit card industry clearly disclosed how its business works, particularly

clearly disclosed how its business works, particularly when it comes to the minimum

business works, particularly when it comes to the minimum monthly payment.

when it comes to the minimum monthly payment.

>> If people knew that the cost

monthly payment.

>> If people knew that the cost of minimum monthly payments was

>> If people knew that the cost of minimum monthly payments was that they would still be paying

of minimum monthly payments was that they would still be paying for yesterday's trip to the

that they would still be paying for yesterday's trip to the shopping mall for the next 35

for yesterday's trip to the shopping mall for the next 35 years, some people might decide

shopping mall for the next 35 years, some people might decide to pay a lot more than the

years, some people might decide to pay a lot more than the minimum.

to pay a lot more than the minimum.

And the industry knows that.

minimum.

And the industry knows that.

That's why they don't want to

And the industry knows that.

That's why they don't want to tell.

>> You advertise in your bills

tell.

>> You advertise in your bills what the minimum monthly payment

>> You advertise in your bills what the minimum monthly payment is, but you don't tell people

what the minimum monthly payment is, but you don't tell people how much that might cost you if

is, but you don't tell people how much that might cost you if you stuck to that payment.

how much that might cost you if you stuck to that payment.

Why not?

you stuck to that payment.

Why not?

>> The disclosure would be wrong

Why not?

>> The disclosure would be wrong 99% of the time because nobody,

>> The disclosure would be wrong 99% of the time because nobody, almost nobody pays exactly the

99% of the time because nobody, almost nobody pays exactly the minimum, that minimum, every

almost nobody pays exactly the minimum, that minimum, every month for 20 years and never

minimum, that minimum, every month for 20 years and never charges another thing.

month for 20 years and never charges another thing.

charges another thing.

This is going to be a

charges another thing.

This is going to be a hypertechnical, expensive

This is going to be a hypertechnical, expensive disclosure that nobody would

hypertechnical, expensive disclosure that nobody would understand, so we are against

disclosure that nobody would understand, so we are against disclosures that nobody would

understand, so we are against disclosures that nobody would understand and that are wrong.

disclosures that nobody would understand and that are wrong.

We are for disclosures that help

understand and that are wrong.

We are for disclosures that help people understand.

It's that simple.

people understand.

It's that simple.

>> This is a nonsense argument.

It's that simple.

>> This is a nonsense argument.

In the line, directly under the

>> This is a nonsense argument.

In the line, directly under the line that says "minimum monthly

In the line, directly under the line that says "minimum monthly payment," there's a simple

line that says "minimum monthly payment," there's a simple sentence that can be added: "If

payment," there's a simple sentence that can be added: "If you make minimum monthly

sentence that can be added: "If you make minimum monthly payments, it will take you"--

you make minimum monthly payments, it will take you"-- how many years, 35 years, and

payments, it will take you"-- how many years, 35 years, and how many months-- "to pay off

how many years, 35 years, and how many months-- "to pay off this bill."

how many months-- "to pay off this bill."

>> NARRATOR: The man who takes

this bill."

>> NARRATOR: The man who takes credit for inventing the 2%

>> NARRATOR: The man who takes credit for inventing the 2% minimum payment thinks more

credit for inventing the 2% minimum payment thinks more disclosure is useless.

minimum payment thinks more disclosure is useless.

disclosure is useless.

>> This is a fascination that

disclosure is useless.

>> This is a fascination that every now and then someone with

>> This is a fascination that every now and then someone with an axe to grind or someone who

every now and then someone with an axe to grind or someone who think he's going to help

an axe to grind or someone who think he's going to help consumers has on his mind.

think he's going to help consumers has on his mind.

consumers has on his mind.

But if we had a tape and we ran

consumers has on his mind.

But if we had a tape and we ran a computer on transcripts of

But if we had a tape and we ran a computer on transcripts of 10,000 customer service calls

a computer on transcripts of 10,000 customer service calls with questions, okay, I don't

10,000 customer service calls with questions, okay, I don't think you'd ever hear that

with questions, okay, I don't think you'd ever hear that question, so I'm kind of baffled

think you'd ever hear that question, so I'm kind of baffled at the artificiality of it.

question, so I'm kind of baffled at the artificiality of it.

I don't think that's what

at the artificiality of it.

I don't think that's what consumers want to know because

I don't think that's what consumers want to know because they don't expect to make

consumers want to know because they don't expect to make minimum payments forever.

they don't expect to make minimum payments forever.

>> BERGMAN: Do you know if you

minimum payments forever.

>> BERGMAN: Do you know if you made the minimum payment, for

>> BERGMAN: Do you know if you made the minimum payment, for instance on your bill, how long

made the minimum payment, for instance on your bill, how long it would take you to pay it off?

instance on your bill, how long it would take you to pay it off?

>> I'm not in a hurry to find

it would take you to pay it off?

>> I'm not in a hurry to find out.

I'm just going to pay it off.

out.

I'm just going to pay it off.

>> BERGMAN: Would you like to

I'm just going to pay it off.

>> BERGMAN: Would you like to know?

>> Sure.

know?

>> Sure.

>> Curious, yeah.

>> Sure.

>> Curious, yeah.

>> Mm-hmm.

>> Curious, yeah.

>> Mm-hmm.

It would inspire me to put down

>> Mm-hmm.

It would inspire me to put down more.

It would inspire me.

more.

It would inspire me.

And I think that's probably why

It would inspire me.

And I think that's probably why they don't put it down.

It would inspire a lot more

they don't put it down.

It would inspire a lot more people to pay more than the

It would inspire a lot more people to pay more than the minimum.

>> Virtually everyone who holds

>> Virtually everyone who holds a credit card one way or the

a credit card one way or the other, under existing laws today

other, under existing laws today and provisions, can be

and provisions, can be completely taken advantage of by

completely taken advantage of by the credit card industry.

So there is a deception going on

So there is a deception going on to get you into the game.

Once you're in, and I've got you

to get you into the game.

Once you're in, and I've got you in, then if you get out, I

Once you're in, and I've got you in, then if you get out, I charge you; if you don't meet

in, then if you get out, I charge you; if you don't meet your obligations, I charge you;

charge you; if you don't meet your obligations, I charge you; you move left, you move right,

your obligations, I charge you; you move left, you move right, I've got you.

you move left, you move right, I've got you.

>> BERGMAN: So what are you

I've got you.

>> BERGMAN: So what are you going to do about it?

>> Well, I've got a legislation.

going to do about it?

>> Well, I've got a legislation.

That's why I got a bill.

>> Well, I've got a legislation.

That's why I got a bill.

That's always a quick answer

That's why I got a bill.

That's always a quick answer here, and I don't know how far

That's always a quick answer here, and I don't know how far it'll go because I've tried this

here, and I don't know how far it'll go because I've tried this in the past.

it'll go because I've tried this in the past.

I'm not new to the issue.

in the past.

I'm not new to the issue.

A good deal of the blame for the

I'm not new to the issue.

A good deal of the blame for the crisis in credit card debt we're

A good deal of the blame for the crisis in credit card debt we're seeing in America lies in how

crisis in credit card debt we're seeing in America lies in how the practices are followed by

seeing in America lies in how the practices are followed by credit card companies.

the practices are followed by credit card companies.

>> NARRATOR: In the summer of

credit card companies.

>> NARRATOR: In the summer of 2004 Senator Dodd introduced a

>> NARRATOR: In the summer of 2004 Senator Dodd introduced a credit card reform bill that

2004 Senator Dodd introduced a credit card reform bill that would, among other things,

credit card reform bill that would, among other things, require credit card companies to

would, among other things, require credit card companies to disclose how long it would take

require credit card companies to disclose how long it would take consumers to pay off their

disclose how long it would take consumers to pay off their minimum balance.

consumers to pay off their minimum balance.

But he is not optimistic that

minimum balance.

But he is not optimistic that the bill will pass.

His many previous attempts to

the bill will pass.

His many previous attempts to reform the credit card business

His many previous attempts to reform the credit card business have all failed.

reform the credit card business have all failed.

>> BERGMAN: Why haven't you or

have all failed.

>> BERGMAN: Why haven't you or other lawmakers been able to put

>> BERGMAN: Why haven't you or other lawmakers been able to put some regulation into place?

other lawmakers been able to put some regulation into place?

Is it their political power?

some regulation into place?

Is it their political power?

>> Sure, there's no question

Is it their political power?

>> Sure, there's no question about it.

I mean, every time we've tried

about it.

I mean, every time we've tried to offer legislation, this

I mean, every time we've tried to offer legislation, this industry's become very, very

to offer legislation, this industry's become very, very powerful.

industry's become very, very powerful.

And it's very successful in

powerful.

And it's very successful in defeating every legislative

And it's very successful in defeating every legislative attempt that's been made over

defeating every legislative attempt that's been made over the last several years to inject

attempt that's been made over the last several years to inject some responsibility on the part

the last several years to inject some responsibility on the part of this credit card industry.

some responsibility on the part of this credit card industry.

>> BERGMAN: Your critics say

of this credit card industry.

>> BERGMAN: Your critics say that you block every attempt to

>> BERGMAN: Your critics say that you block every attempt to pass industry reform or consumer

that you block every attempt to pass industry reform or consumer protection legislation.

pass industry reform or consumer protection legislation.

You've blocked minimum monthly

protection legislation.

You've blocked minimum monthly payment legislation, interest

You've blocked minimum monthly payment legislation, interest cap rates, and a ban on

payment legislation, interest cap rates, and a ban on marketing to college students.

cap rates, and a ban on marketing to college students.

>> We've done our best to block

marketing to college students.

>> We've done our best to block bad bills.

Those are bad bills, and we'll

bad bills.

Those are bad bills, and we'll continue to do our best to block

Those are bad bills, and we'll continue to do our best to block them.

continue to do our best to block them.

>> BERGMAN: Bad for?

them.

>> BERGMAN: Bad for?

>> Bad for consumers.

>> BERGMAN: Bad for?

>> Bad for consumers.

>> I want to promise you

>> Bad for consumers.

>> I want to promise you something today.

You know, keep on defeating me

something today.

You know, keep on defeating me and keep on defeating ideas like

You know, keep on defeating me and keep on defeating ideas like this, and you'll look back and

and keep on defeating ideas like this, and you'll look back and wish we had passed this

this, and you'll look back and wish we had passed this legislation.

wish we had passed this legislation.

Because I'll tell you, Congress

legislation.

Because I'll tell you, Congress will come along, and they'll

Because I'll tell you, Congress will come along, and they'll take steps far more egregious,

will come along, and they'll take steps far more egregious, in their view, than

take steps far more egregious, in their view, than anything I'm suggesting.

in their view, than anything I'm suggesting.

I'm discussing disclosure, and

anything I'm suggesting.

I'm discussing disclosure, and "Just let people know what the

I'm discussing disclosure, and "Just let people know what the deal is."

"Just let people know what the deal is."

>> I think there's a time when

deal is."

>> I think there's a time when the American consumer is going

>> I think there's a time when the American consumer is going to hit the tipping point on this

the American consumer is going to hit the tipping point on this issue and it's no longer going

to hit the tipping point on this issue and it's no longer going to be all right for credit card

issue and it's no longer going to be all right for credit card companies, once they're in

to be all right for credit card companies, once they're in financial trouble, to change the

companies, once they're in financial trouble, to change the interest rates, to load them on

financial trouble, to change the interest rates, to load them on with fees and penalties, to just

interest rates, to load them on with fees and penalties, to just decide that the terms of the

with fees and penalties, to just decide that the terms of the contract they originally signed

decide that the terms of the contract they originally signed are no longer the terms of the

contract they originally signed are no longer the terms of the contract.

are no longer the terms of the contract.

I think that day is coming.

contract.

I think that day is coming.

>> NARRATOR: Even an industry

I think that day is coming.

>> NARRATOR: Even an industry insider like Duncan MacDonald,

>> NARRATOR: Even an industry insider like Duncan MacDonald, who worked at Citibank for

insider like Duncan MacDonald, who worked at Citibank for nearly 30 years, is deeply

who worked at Citibank for nearly 30 years, is deeply concerned.

nearly 30 years, is deeply concerned.

>> I know enough about the

concerned.

>> I know enough about the industry and the lawyers in the

>> I know enough about the industry and the lawyers in the industry and there have to be

industry and the lawyers in the industry and there have to be people sitting there saying,

industry and there have to be people sitting there saying, "We've got to find a way to deal

people sitting there saying, "We've got to find a way to deal with this."

"We've got to find a way to deal with this."

Have we reached that point, I

with this."

Have we reached that point, I don't know.

But my guess is there's a debate

don't know.

But my guess is there's a debate going on.

And I hope there's a debate

going on.

And I hope there's a debate going on.

What a tragedy it would be if

going on.

What a tragedy it would be if there isn't.

>> BERGMAN: The tragedy would be

there isn't.

>> BERGMAN: The tragedy would be what?

>> The status quo gets worse.

what?

>> The status quo gets worse.

The status quo is bad, and then

>> The status quo gets worse.

The status quo is bad, and then it gets worse.

>> BERGMAN: You mean, profits

it gets worse.

>> BERGMAN: You mean, profits keep in... increasing...

>> BERGMAN: You mean, profits keep in... increasing... >> 25% bad rates become 30% bad

keep in... increasing... >> 25% bad rates become 30% bad rates, and late fees become $50

>> 25% bad rates become 30% bad rates, and late fees become $50 and $60 and so on.

>> NARRATOR: Back in South

>> NARRATOR: Back in South Dakota, the man who helped the

>> NARRATOR: Back in South Dakota, the man who helped the industry take off in the 1980s

Dakota, the man who helped the industry take off in the 1980s has mixed feelings about what he

industry take off in the 1980s has mixed feelings about what he helped create.

has mixed feelings about what he helped create.

>> BERGMAN: Do you ever reflect

helped create.

>> BERGMAN: Do you ever reflect on the fact that, you know, this

>> BERGMAN: Do you ever reflect on the fact that, you know, this great success, which has been a

on the fact that, you know, this great success, which has been a great benefit to your state, at

great success, which has been a great benefit to your state, at the same time has helped create

great benefit to your state, at the same time has helped create a way of borrowing money,

the same time has helped create a way of borrowing money, spending money, that may have

a way of borrowing money, spending money, that may have gotten out of control?

spending money, that may have gotten out of control?

>> I think the answer to that is

gotten out of control?

>> I think the answer to that is yes.

I mean, it's... we become a

yes.

I mean, it's... we become a plastic society.

plastic society.

We've become a plastic society.

plastic society.

We've become a plastic society.

A lot of times you want to give

We've become a plastic society.

A lot of times you want to give people cash, they look at you.

"Cash?

people cash, they look at you.

"Cash?

Cash?"

>> BERGMAN: You were

>> BERGMAN: You were instrumental in making this

>> BERGMAN: You were instrumental in making this happen.

instrumental in making this happen.

>> I didn't think of any of this

happen.

>> I didn't think of any of this when it happened, and I'm still

>> I didn't think of any of this when it happened, and I'm still glad what we've...

I still like

when it happened, and I'm still glad what we've...

I still like what we did, and I still think

glad what we've...

I still like what we did, and I still think it was a huge opportunity for my

what we did, and I still think it was a huge opportunity for my state.

it was a huge opportunity for my state.

Now, if we're talking about the

state.

Now, if we're talking about the industry and 18%, 19%, 20-plus%

Now, if we're talking about the industry and 18%, 19%, 20-plus% interest, do I think that's a

industry and 18%, 19%, 20-plus% interest, do I think that's a healthy thing for human beings?

interest, do I think that's a healthy thing for human beings?

The answer is no.

healthy thing for human beings?

The answer is no.

I don't think that's healthy at

The answer is no.

I don't think that's healthy at all.

>> NARRATOR: Since this program

>> NARRATOR: Since this program first aired, a new federal

>> NARRATOR: Since this program first aired, a new federal bankruptcy law made it more

first aired, a new federal bankruptcy law made it more difficult to erase credit card

bankruptcy law made it more difficult to erase credit card debt by filing for bankruptcy.

difficult to erase credit card debt by filing for bankruptcy.

Household credit card debt is

debt by filing for bankruptcy.

Household credit card debt is now at an all-time high.

Captioned by

Captioned by Media Access Group at WGBH

Captioned by Media Access Group at WGBH access.wgbh.org

Frontline...

Frontline... >> 9/11 clears the stage.

For the first time, the whole

>> 9/11 clears the stage.

For the first time, the whole story in one television event.

>> When somebody hijacks the

story in one television event.

>> When somebody hijacks the system, just like a hijacked

>> When somebody hijacks the system, just like a hijacked airplane, no good comes out of

system, just like a hijacked airplane, no good comes out of it.

airplane, no good comes out of it.

"Bush's War," next time on

it.

"Bush's War," next time on Frontline.

"Secret History

"Secret History of the Credit Card" is

"Secret History of the Credit Card" is available on DVD.

of the Credit Card" is available on DVD.

To order, call PBS Home Video

available on DVD.

To order, call PBS Home Video at 1-800-PLAY-PBS, or order

To order, call PBS Home Video at 1-800-PLAY-PBS, or order online at ShopPBS.org.

is made possible

is made possible by contributions to your PBS

is made possible by contributions to your PBS station from viewers like you.

by contributions to your PBS station from viewers like you.

Thank you.

station from viewers like you.

Thank you.

With major funding from the

Thank you.

With major funding from the the John D. and Catherine T.

With major funding from the the John D. and Catherine T. MacArthur Foundation.

the John D. and Catherine T. MacArthur Foundation.

Helping to build a more just

MacArthur Foundation.

Helping to build a more just world.

And additional funding from the

world.

And additional funding from the Park Foundation.

With additional funding for

Park Foundation.

With additional funding for this program from The Nathan

With additional funding for this program from The Nathan Cummings Foundation.

The Secret History of the Credit Card

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