Secret History of the Credit Card
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interviews: julie l. williams
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Julie Williams has been the acting comptroller of the currency since October 2004. The Office of the Comptroller of the Currency (OCC) is the federal agency that charters, regulates, and supervises all national and foreign banks in the U.S. (National banks such as Chase, Citibank, and MBNA issue most of the credit cards in the U.S.). She tells FRONTLINE, "If [the OCC] had a basis for concluding that a bank was involved in a practice that was unfair or deceptive … we can tell them to stop it immediately." Williams offers as a prominent example of the OCC's enforcement actions, the Providian National Bank case, in which the OCC concluded that Providian had "engaged in a pattern of misconduct in which it misled and deceived consumers in order to increase profits." She says that the OCC is currently looking at ways to simplify credit card disclosures that are "focused on the key things that the consumers really want to know," and she explains the ways in which consumers can contact the OCC if they have a complaint. This interview was conducted on Oct. 28, 2004.

When we get information about a complaint, we have the ability to deal with it quickly, and with an array of tools that is probably broader than what the states can bring to and very likely faster. ...

… What is the power of your office, in terms of being able to rectify problems with the industry?

… We regulate the national banking system. We've been in existence since 1863. The agency was set up by Abraham Lincoln. We charter national banks; we supervise, examine, regulate national banks, and we can take a broad range of supervisory and enforcement actions against national banks, informal and formal. We've got roughly 2100 national banks in the system; we have roughly 1700 examiners that are either generalists or specialists in a variety of areas. We have examiners that are specialists in compliance; we have examiners that are specialists in retail credit, that deal particularly with credit card issues. With our larger credit card issuers, we have examiners that are specifically assigned to those institutions, so we monitor their activities on a constant and ongoing basis.

And you're funded by these banks; is that correct?


They pay you fees?

The OCC has been funded by fees and assessments that are charged on national banks ever since we were first created. …

And your fundamental charge is the soundness of the bank?

I would say that we have three goals, three interconnected aspects of our mission: safety and soundness -- to make sure that the banks don't fail, that customers don't face disruption or loss of access to their funds, that the banks are there to make credit availability; to ensure the integrity of how the banks operate, their corporate governance; and to make sure that they deal fairly and honestly with their customers. That is an integral part of our supervision of national banks.

So, when recently you issued guidelines listing questionable practices by the credit card industry, why don't you simply stop them? Why don't you ban these practices if you've warned them before?

When we see practices that are potentially problematic, we take a variety of actions. And at the extreme, we have the ability to take enforcement actions, and we may have the ability to tell a particular credit card issuer: "Stop that." And we have done that; we have taken enforcement action.

What we're seeing in the areas that we addressed in the advisory were issues in connection with disclosure practices, where we were concerned that the type of information that was being provided to the consumer wasn't being provided in a way that was as useful or sufficient to deal with the choices that the consumer was facing. So what we indicated in that advisory is that there were certain types of practices that we thought were unacceptable.

The industry can do things like "universal default" -- if you fail to make a payment on time for your home or your car, that can affect your interest rate, for example, on your credit card. They can raise it, and there's no limit, really, on how high they can raise it. The industry can do things like offer you zero percent to move a balance, but it doesn't necessarily explain fully what the consequences of that could be -- for example, if you missed a payment. And you were saying the only problem with these practices is that they don't disclose them fully?

What I'm saying is that the problem that we are address[ing] is making sure that the customers are making fully informed choices. There are a lot of options, there are a lot of choices that are available for credit card customers today. And we are concerned that when they make a choice for a particular type of card or to engage in particular activities, that they have good disclosure, that they understand the consequences of that.

But do you know of a card, for instance, that a major issuer puts out that doesn't involve the practice of universal default?

What we are doing right now is, in conjunction with the issuance of the advisory, to supplement our regular ongoing supervision, and as part of that, we do look at marketing materials. We are pulling in the marketing materials of all of our major credit card-issuing institutions, and we're doing a review of those. And we'll see just exactly what they're doing, and we'll see where there needs to be further effort on our part to address the issues we raised in our advisory.

Do you have the power to order the banks to stop doing something; to actually, say: "Don't offer zero percent anymore, period, it's not allowed," or, "Don't do universal default anymore," just as two examples?

… If we had a basis for a concluding that a bank was involved in a practice that was unfair or deceptive, if it violated any of the other many consumer protection standards that applied to them, we can tell them to stop it immediately. …

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

Well, I think probably the most conspicuous example of that would be the action that we took in connection with Providian.

And what did you do?

The Providian case involved marketing practices with credit cards. The result there, it was a joint action taken with the OCC in the state of California. The OCC's action, I think is a great example of being able to work collaboratively with the states on an effort that got a substantial amount of relief to consumers. Our actions got $300 million of relief to consumers. It was also a situation where we used a completely new legal theory, which was the key to our ability to get a nationwide remedy for the customers of that bank.

A new legal theory?

It was a legal theory that had not been used by any banking agency. We enforced Section V of the Federal Trade Commission Act, which is the general sort of overarching prohibition on unfair or deceptive practices. …

The San Francisco district attorney says to us that when they got involved and they first talked to your local people in San Francisco, they were told: "You don't have real jurisdiction; we have real jurisdiction." And [it was] indicated to them that they might want to get out of the case.

Again, the way that that worked out was, we worked together with the San Francisco district attorney's office. It was a collaborative process.

Well, they say, once you got involved, it was a very fruitful process.


What they're telling us is that the OCC only got involved once this whole situation became public, that prior to the news publicity that they were responsible for, they had no contact with the OCC in their investigation.

We worked cooperatively with them when we got information about what was going on.

So they're not telling the truth?

Our effort was a cooperative effort with them. I can't characterize what they're saying. …

Now it's our understanding that Providian itself, for a period of three years prior to any action, was getting over 40,000 complaints … starting in 1997. But there was no action in 1997… Why not?

I don't know when we first became aware of the complaints at Providian. We were aware that there was an issue with the complaints and the types of complaints that were coming in to us. The San Francisco district attorney had their investigation going before we started, but we did join up with them, and, as I've said, worked, I think, very well with them.

The reason I'm going back over this is because what you indicated was that there are 1700 bank examiners. Some of them are located or housed in some of the major banks, particularly the larger credit card banks, like Providian was one of the large ones. They see the complaint files, don't they? Regularly? I mean, they should be looking at the complaint file. And so the question is, why didn't the OCC itself take action before anyone else?

With respect to that particular bank, I don't know if we had at that time an examiner that was always on site. What we do, in connection with our examination process for banks that are credit card banks or banks generally, [is] we will be in the bank looking at records, looking at complaint information, to try to identify where there are areas of concerns.

[The San Francisco district attorney's office is telling us that it was six months after its investigation that the OCC became involved. What was going on during that time?]

I'll tell you exactly what was going on during that time, because I was directly involved. We were working on developing the foundation to use the legal theory that we ended up using, which was the key to getting the $300 million nationwide remedy. No other banking agency had done it before. [There] was a lot of doubt in the legal community about whether the banking agency could use the Federal Trade Commission Act to take an action against unfair and deceptive practices. I wanted to make sure that our foundation on that case was solid; I was the chief counsel at that time. And we were doing something that was unprecedented. And it wasn't quick.

So you were doing this quietly, privately, if you will, trying to study which strategy to use to deal with Providian?

We were laying the foundation to make sure that we had the case, so that we could use this particular legal tool, because that tool was the key to getting the $300 million nationwide remedy.

Do you understand why certain agencies, state attorneys general, the San Francisco district attorney and other DAs say that's the problem here? "We don't know what the OCC is doing. They don't have an obligation to make things public. They do things quietly with the banks, inside the banks. So how do we, as the representatives of the community and the public, know that anything is happening?"

Well, I'm glad you asked that, because Providian is a good example in the way that it worked out. What we have tried to do is to develop ways that we can work cooperatively and communicate more effectively with the states. If state officials have questions about how we are handling a particular matter, we will tell them. We have worked out various types of information-sharing agreements -- some are pre-existing; we're trying to get new ones in place. Some of this involves having to provide information that's confidential or customer information where there are privacy act issues, if we provide the information outside of the OCC. …

Before or since Providian, has there been any corrective actions related to any major credit card banks? There's just a handful that count for most of the credit cards in America.

We have taken enforcement actions against several credit card banks, subsequent to Providian. They are not the largest credit card banks in the industry, but there were practices that we thought also were in the category of unfair or deceptive. And we took formal enforcement action, and we've gotten millions and millions of dollars in restitution for customers.

I understand, but I'm talking about Citibank, Capital One, MBNA, the major names in the industry.

It's important to recognize the diversity of entities that are credit card issuers. We do not regulate all of the major credit card issuers and one that you named, we don't regulate.

So you don't regulate the whole industry?

No, we do not.

That's the other place where I get a little confused. There is no central regulation of the credit card industry, as I understand it?

Let me just explain a little background of how it works. Credit cards are issued by banks, both national banks and state banks. They're issued by thrifts, probably namely federal thrifts, and they're issued by credit unions. And each of those entities has a different set of regulators.

I mean, I was trying to figure out myself, who do I go to, to complain about a credit card? I looked on the Citibank bill, there's no agency mentioned to go to. And then in our research, it seems like there's the OCC; it could be the FDIC [Federal Deposit Insurance Corporation]; it could be the OTS [Office of Thrift Supervision]; could be the FCUA, the Federal Credit Union Agency; it could be the Federal Reserve. It's almost like the contract that you get in the mail that you don't understand -- who do you go to?

The consumer goes to the agency that's the primary regulator of the credit card issuer. What you mentioned, though, the contract that the consumer gets, and the complexity of it is the product of years of legislation and regulation, very well intentioned, very well intentioned. But what the consumer ends up with, when you're talking about credit cards or you want to get a mortgage, is disclosure that is quite complex. Designed to protect you, but quite complex. And I hope that one of the things that you'll touch on in your story, is the challenge, I think, to rethink how we approach disclosure in the consumer financial product arena. …

Why don't you have them publish your phone number on the bills? Couldn't you do that?

I think we could do that, and at some point, we may decide that that's what we want to do. Because we have a consumer complaint function, and to the extent that a consumer wants to contact us, we have a facility to deal with it.

But, if I could, just to go back to the disclosure point, because this is something that actually I care about very much personally; it's been a project that I've been personally involved in. The kind of notices that we all have gotten in connection with the privacy requirements -- I'm sure I've gotten them, you've gotten them, your viewers have gotten these little pamphlets that say, "We care about your privacy," and then you read them, and you can't understand too much about what they're saying. What we have been spearheading here is a project to try to see if we can't design a privacy notice that is as simple and as focused as the food facts that you get on the back of a bag of potato chips.

And I think one of the challenges that, that we face when we look at consumer protection disclosures in the financial area, is whether we can't do some rethinking of the approach, and come up with something that is focused on the key things that the consumers really want to know, so that they can compare, and so that they can get due notice of some of the key things about the particular product.

Have you asked [the credit card industry] to come up with a way to tell consumers that, when you get that contract, it means that if you miss your auto payment, you may wind up with a 30 percent interest rate on your card?

What we're doing right now -- this is in the privacy context -- is trying to, through consumer testing, identify the kinds of things that consumers want to know. And I think that in the credit card context, there is a lot of opportunity to come up with simplified disclosures just like that.

Some of the people that we've interviewed have said that their credit card rates doubled or tripled even though they were never late on paying their credit card bills. They don't understand why that's allowed. They made a deal with the credit card company, one of your members, and they make their payments every month, they're not late, and yet their interest rate changes.

The practice that you're describing is repricing. We call it repricing. It's one of the practices that we addressed in the alert that we put out recently. And the key thing that we said in that alert is that the credit card companies need to provide very conspicuous disclosure to customers if that sort of thing is a possibility, in the terms of the card.

… But it doesn't sound fair, on its face, even if it was disclosed, that I could change the terms of a contract on something that -- basically I'm renting money, or buying something with it after the fact. … I'm just trying to represent a general feeling out there that this seems unconscionable.

The essence of what is occurring in what I'm calling repricing is a risk-based pricing decision. And the credit card company is looking at other factors that are indicative of the customer's risk. And when that risk goes up, they change the terms to charge more commensurate with what they've calculated to be an increased risk.

The concern that we've got -- and it's not prohibited to do that -- the concern that we have is that customers that have a card like that, that get a card like that, know what they're getting; that they're making an informed choice.

Yeah, I understand the informed choice part of it, but we have been unable to come up with any research or anyone who can explain to us why, if someone misses one payment, their interest rate should go from zero percent or 9 percent to 24.99 percent, to go beyond the usury statutes in almost every state, possibly to 30 percent. What's the logic, what's the fairness behind that? Why should they be able to do that?

The issue again is the analysis of what is perceived to be the risk, and the customer has the choice.

That's up to the company, then, to perceive the risk?

The companies have very, very sophisticated models. They are very sophisticated not only in marketing, but also in connection with risk modeling.

Could the OCC simply tell them that's not conscionable, that's not fair to your customers?

It can be done in a way that is not fair. And that's our concern.

So there's a fair way to raise an interest rate to 30 percent?

Our concern that we've focused on in our advisory was to make sure that the consumer knows that this is an element of the terms of the card that they've got, if that isn't what they want in a credit card, they have choice. They can get another card.

But you know and I know that when someone starts to miss their payments, because let's say, they get laid off at a job or they get divorced, or have a health crisis, that if you start raising their interest rates at that point, that's like throwing a stone on a drowning man. I mean, you're just creating more problems for your customers.

And that's one of the reasons why one of the issues that we identified in guidance that we put out earlier was work out approaches, forbearance policies for credit card issuers, so that they don't exacerbate that issue.

But could the OCC, at a stroke of a pen, stop that practice?

Could the OCC stop the risk-based pricing?

No, the arbitrary raising of interest rates to above the usury rate, let's say, in a particular state, without explaining the reasons behind that action? We did this because you missed a payment here, missed a payment there, missed a payment somewhere else. Right now, there's no explanation; it's just, we're raising your interest rate.

We cannot stop a bank from charging an interest rate that they're permitted to charge. And as the framework for what they're permitted to charge is grounded on what is permissible in the home state bank.

We can deal with the practices that the banks employ. And we do, in terms of disclosure concerns, taking formal enforcement actions when the practices are unfair or deceptive. But the basic framework for the interest rates that banks are permitted to charge -- and it's not just national banks, state banks, thrifts, etc. -- [is] set in a framework that's federal law.

But you haven't recommended any change to that system?

We haven't been involved in any discussions as yet about changes to that basic framework. The framework that's the federal law framework for determining what our permissible rates and charges has been in existence for decades and decades, and for national banks, it's been in existence since 1863.

I understand, but for example, their ability to charge fees whenever they want, at whatever size fee they want, that's been relatively recent, and they've turned that into a profit center, and the source of a lot of complaints, right?

The ability of banks to charge fees actually comes from several different sources. Many of the types of fees that we're talking about in the credit card context are elements of the computation of interest. And that brings you back to the framework for what [is the] permissible rates of interest that is established by federal law.

So you can't alter that either, because of the precedence and the federal law that exists?

The basic framework, the basic ground rules here depend on federal law.

The OCC has the primary role for consumer complaints, related to national banks. Is [it] the phone number you call in Houston, Texas?

It's a 1-800 number, is our consumer assistance group in Houston, Texas.

And you have to call during working hours, Monday through Thursday, and half day Friday?

Let me explain how we do consumer protection, and it goes back to what I mentioned about the resources that we have available. We do consumer protection through examiners that are out in the field that are in process of doing exams at banks, constantly. We have dozens of attorneys that are involved in consumer protection issues, and where appropriate, enforcement cases, dealing with consumer protection. We also have a consumer assistance group that is an intake point for consumer complaints. And they take in complaints by phone, by the Internet, by fax, by mail -- they're open five days a week, and they deal with a tremendous volume of complaints. And I have a very sophisticated, state-of-the-art system that is set up there to interact with the banks that are generating the complaints to get the customer's complaint resolved.

Credit cards are the greatest source of complaints about national banks?

Currently the largest single source of complaints that we get relate to credit card issues.

And the Better Business Bureau tells us credit cards and banking and credit cards together [are its] number one problem.

Of all types of complaints?


I would have thought it was, like, cable, and satellite installation, or--

No, I guess, you guys.

Used car dealers, or something.

Your numbers apparently are amongst the--

That's -- I would not have thought that that was the case.

And what the Better Business Bureau and state attorneys general and so on [say to us] is that the local consumer has no place to go, that they know of. No one's heard of the Office of the Comptroller of the Currency. I mean, they have, in certain banking circles, but I can tell you, the cab driver on the way over here didn't even know where you were in Washington. I mean, you're an obscure agency to most of America. Yet, 186 million people have credit cards. It just seems like, how do we complain? Where, how do we find you?

Well, there are about 80,000 people that found us last year. And they can find us at:

Can they meet you face to face? Is there an office they can walk into?

We have offices throughout the country. We have district offices, and we have field offices throughout the country. We have probably about 70 throughout the nation.

So, if I'm a credit card holder, and I have a complaint about my bank, I look up Office of the Comptroller of the Currency, and I can walk in and make a complaint?

You could walk in and deliver a complaint, but what people find easier to do, and this is what our consumer assistance group facilitates, is that they can reach us by phone, by the Internet, write in, or fax, and get us the information that we need about their issue, so that we can then take that to the bank and get it resolved. …

Amongst your critics, they say that 95 percent of your funding comes from the banks you regulate; for example, I understand Bank of America puts in about 10 percent of your budget, in terms of fees. How do you deal with the conflict of interest?

We have been funded by fees and assessment imposed on national banks ever since this agency was created in 1863. We have historically been viewed as a very rigorous and tough regulator.

But you're new to the area of customer complaints and especially in credit cards.

We are not new to the area of consumer protection. Consumer protection is an integral part of our supervision of national banks.

Well, I guess the criticism is that, you don't see, for example, any other major regulator in the federal government that's completely funded by its members, also protecting the public. … I mean, you don't see the polluters funding the EPA…

There are a variety of examples of agencies that are funded directly or indirectly by the entities that they supervise or regulate. The FDIC's supervision is funded through the insurance premiums that they collect. The OCC's budget is funded from fees; the fees that they charge, which then weed through the appropriations process. Our funding has never been an issue about our ability to be a tough regulator.

No, but you understand what the state attorneys general, for example, say, Mr. Spitzer and others, [is] that: "We are an independent agency. People in our state know who we are. We have a consumer complaint office. We have a lot of experience with this, civilly and criminally, and our beef is that you guys want--" the OCC wants to push them out of the business of consumer complaints.

We don't want to push them out of the business. We are both there protecting consumers. What we have been striving to do is to individually, and in developing arrangements with the states, work out the best way to work cooperatively with them.

So they're just being paranoid, or they're are misapprehending what you're up to?

Let me just say this: We have a wide range of enforcement tools, and we have the ability to directly affect what the banks do. When we get information about a complaint, we have the ability to deal with it quickly, and with an array of tools that is probably broader than what the states can bring to and very likely faster. …

Now that you're pre-empting, if you will, the states in terms of consumer protection, [will you ask the major credit banks] to advertise your phone number, your location, how to get a hold of you?

We have been looking at a variety of things that we could do to enhance consumer awareness of how to reach us, because if a consumer has a problem with a national bank, we want to be available to try to help solve it. …

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posted nov. 23, 2004

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