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station from viewers like you.

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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.

Helping to build a more just world.

And additional funding from the world.

And additional funding from the Park Foundation.

And additional funding from the Park Foundation.

Committed to raising public Park Foundation.

Committed to raising public awareness.

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.

>> 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.

>> 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.

>> 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.

>> 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.

>> 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.

>> 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.

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.

>> 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.

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%.

>> 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.

>> 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.

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.

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?

>> What Citibank got out of it?

They got to stay alive.

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.

They won't talk to us.

Why?

Why?

>> That's our job.

>> 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.

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.

>> I use it a lot for work.

It's easy.

It's easy.

It's easy access.

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.

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.

>> It's hard to imagine.

>> No.

>> 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.

>> We're consumers.

America loves to consume.

America loves to consume.

It's in our blood.

It's in our blood.

>> It is like an addiction.

>> 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.

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.

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.

>> 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.

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 insane.

It's just ridiculous.

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.

Have a nice afternoon.

>> Thank you very much.

>> 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.

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.

hate you.

hate you.

We hate you guys.

We hate you guys.

we call you deadbeats."

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.

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.

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.

>> 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.

>> 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.

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.

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.

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.

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.

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.

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.

>> 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.

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."

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.

Diapers, milk, and laundry detergent: $25.

>> Oh, yeah, and that stuff he detergent: $25.

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

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

Spend more time with your just said.

Spend more time with your family: priceless.

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.

New tool belt and chrome tool set: $126.

Getting some use out of it: tool set: $126.

Getting some use out of it: priceless.

Getting some use out of it: priceless.

There are some things money priceless.

There are some things money can't buy.

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.

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.

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.

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?

bank?

bank?

>> Oh, yeah.

>> Oh, yeah.

>> Yeah.

>> Yeah.

>> I could wipe my debt out.

>> 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.

>> 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.

>> 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.

believe.

believe.

>> BERGMAN: "0% APR."

>> BERGMAN: "0% APR."

What does this mean?

What does this mean?

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

meaningless.

meaningless.

meaningless.

>> Most cases, if you were to >> Most cases, if you were to sign up for this card, the bank sign up for this card, the bank will honor that rate through will honor that rate through that period of time.

that period of time.

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.

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.

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.

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.

>> 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'm aware that I have one.

I don't know what it is.

I don't know what it is.

>> Right.

>> Right.

>> Right, yeah.

>> Right, yeah.

>> I don't know what it is.

>> 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 know the term.

I'm not clear on what they are.

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?

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?

>> 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.

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%.

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.

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.

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. )

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.

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

lot of people to understand.

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.

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?

>> 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.

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?

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.

>> I had no idea.

>> I had no idea.

>> I had no idea.

This is the first I've ever >> I had no idea.

This is the first I've ever heard that.

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.

>> 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'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.

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.

>> 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 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.

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.

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.

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.

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

you've borrowed it.

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.

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

contract, but a lot of them do.

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%.

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?

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, 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"?

What do you mean, "Frankenstein"?

"Frankenstein"?

"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?"

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.

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.

>> 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.

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.

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.

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.

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.

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

top lobbyist is concerned.

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.

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.

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

>> BERGMAN: So we need has happened.

>> BERGMAN: So we need regulation.

>> 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.

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.

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?

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.

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?

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.

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?

Did they come to your assistance?

>> No.

assistance?

>> No.

They just simply weren't >> No.

They just simply weren't interested.

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."

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.

>> 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.

>> 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.

have jurisdiction.

have jurisdiction.

>> BERGMAN: You, in San >> BERGMAN: You, in San Francisco, don't have Francisco, don't have jurisdiction.

jurisdiction.

>> Yes.

>> 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.

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.

>> 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?

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.

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.

consumers.

consumers.

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.

>> 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.

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.

than any other industry.

than any other industry.

Now, what does that say to you?

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.

I'd say there's a problem there.

These things aren't an anomaly.

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?

>> Of all types of complaints?

>> BERGMAN: Yeah.

>> 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.

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?

Why not?

Why not?

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.

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.

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.

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.

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 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?

>> 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 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.

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.

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?

>> 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.

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.

>> 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.

>> 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.

>> 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.

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.

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.

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.

What a tragedy it would be if there isn't.

>> BERGMAN: The tragedy would be there isn't.

>> BERGMAN: The tragedy would be what?

>> 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.

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 think the answer to that is yes.

I mean, it's... we become a yes.

I mean, it's... we become a plastic society.

I mean, it's... we become a plastic society.

plastic society.

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.

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.

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.

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.

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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.

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