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Federal Reserve Chairman Ben Bernanke gave a meaty speech Wednesday before the National Press Club, and most of the coverage focused rightly on his remarks about the economy overall and how the Fed would deal with its now-swollen balance sheet.
Lost in the shuffle were his comments about the credit card industry. And since we’re with a company called CreditCards.com, I figured it would be worth presenting those remarks in depth here.
In his prepared text, he made mention of credit cards just once, in passing, to remind the audience of the previously announced joint plan by the Fed and the Treasury to lend against
AAA-rated asset-backed securities collateralized by recently originated
student loans, auto loans, credit card loans, and loans guaranteed by
the Small Business Administration.
He got a chance to expand on that, though, in the question-and-answer session that followed, when an audience member submitted a written question asking, “What can be done to provide relief to credit cardholders? Isn’t there something very wrong when banks can borrow at the Fed’s window at less than 1 percent, but are charging credit cardholders interests rates as high as 29 percent?”
His answer disclosed that the asset-backed program would launch “any day now,” and revealed that Fed officials had been accosting mall shoppers, thrusting drafts of new credit card disclosures at them and quizzing them.
Here’s his answer, in full, transcribed from the CSPAN broadcast:
“Well, I can say two things about what the Fed is doing and has done to credit cardholders.
“The first is that we have done just recently the most comprehensive and dramatic reworking of credit card disclosures and credit card rules in history. We both have completely reworked the weekly, sorry, the monthly statement that you get, all the opening account information, all the disclosures, in a way that makes the penalties that are paid, the fees much more transparent to the borrower so that they can understand what they are paying and that they can see every month exactly what their credit card is costing them.
“We did that by the way, something governments aren’t usually good at, we did consumer testing. We went out, and we did our disclosures. We took them to consumers in malls, and we said, ‘Do you understand this?’ We gave them little tests, and if things didn’t work, we went back, tore it up and tried it again.
“So our disclosures, which are intended to help people understand and manage their credit card accounts are consumer tested and should therefore, be more effective. In addition, we took a number of steps to ban a whole range of practices we called unfair and deceptive including double cycle billing, retroactive interest rate increases, and a whole range of practices that people consider to be, we consider to be unfair and deceptive. So we’ve taken very, very strong steps on the credit card regulation disclosure side.
“In terms of credit availability, as I mentioned we have set up this TALF, the term asset-backed security loan facility, which is intended to try to increase the availability of credit to households and businesses. Credit cards are financed typically by securitizations, which means that banks take the credit card receivables and fold them into a so called asset-backed security and sell it to Wall Street. Now these securitization markets are very substantially shut down during the crisis, which means that credit card credit is available only at high cost and under very tight terms.
“This program we’re starting, and should start really any day now, will provide a way for banks to get cheaper financing for their credit card credit, and competition will make them pass it on and give better availability and lower rates to consumers. So we are doing everything we can do at the Fed to try to expand the availability of credit both to consumers but also to small business who are also included and students who, student loans are also included in this program.”
A couple of points.
First, coming from an economist, that’s pretty clear language. I’ve covered both Bernanke and his predecessor, Alan Greenspan, and speaking as a working journalist, it’s so much easier to get all the way through a Bernanke sentence without having to double back.
And second, Bernanke throughout his presentation promised increased transparency to the Fed’s many doings — a vow that likely went over well at the Press Club.
Finally, if you don’t have time to digest the entire speech, here’s a cloud tag version, in which the most-often spoken words appear largest: