“The industry has tried to make one last grab at their customers’ pocketbooks,” Dodd said, just before asking for the consent of Republicans to pass the bill unanimously.

No dice. Sen. Thad Cochran (R-Miss.) objected “on behalf of several senators on this side of the aisle.” There’s no word yet which other lawmakers he was referring to.

House Democratic leaders have already passed even stronger legislation that would expedite all the credit card reforms in the previously passed bill — not just the ban on hiking rates for existing balances. Dodd hasn’t signed on to the Senate version of the bill.

It’s worth mentioning that the Democrats — folding to pressure from the banks — were themselves responsible for delaying those reforms, which were initially proposed to go into effect much earlier  this year.

Did you know that since 2003, when the subprime market really took off, April has been Financial Literacy Month? Now you do. But in an age where financial expertise seems so discredited what qualifies someone to be financially literate?

It’s a fair question. Unfortunately, the answers aren’t reassuring. First, as Konczal notes, “financial literacy” as a course of study doesn’t exactly exist in the economics field. There’s no incentive to get published on it; there’s little academic research as a result. What fills the gap? As we pointed out, subprime lenders align themselves with mainstream financial literacy groups and fund their efforts as a way to distract from the controversies surrounding their products. Konczal explains the problem goes even further, with unqualified “experts” dispensing their alleged personal finance wisdom.

There’s little academic backing, there’s no money for journals, research grants, conferences, the development of theory and expertise that is deployable into policy. That leaves the field wide open to be funded by credit card companies, subprime lenders, and others with a vested interest in certain modes of thought becoming the norm. And for expertise to be filled by people who come from motivational speaking backgrounds, and theory to end up as a mess of common-sense adages and low-level morality plays. The theme of Financial Literacy Month for 2008 was “Financial Responsibility Begins with Me”; why didn’t they call it “caveat emptor”?

One of the biggest hurdles facing the creation of legitimate and useful financial literacy programs will continue to be funding for non-biased, professional counselors.  It’s not a great time to push the government to provide more money to the nation’s Cooperative Extension System — but that national educational network remains a valuable source of credible personal finance research. And as we said, some corporations are beginning to incorporate financial literacy into their human resources responsibilities, given the problem of employees burdened with distracting financial problems.

In the end, that may really be what it takes to get untainted financial literacy education going — the overwhelming debt crisis facing American consumers. Maybe the government and the private sector will come to realize that partnering with credit card companies and subprime lenders isn’t going to get the job done. As Calculated Risk has repeatedly asked, why aren’t consumers being educated on the perils of not paying their credit card bills off in full every month? Probably because, in the absence of untainted financial literacy advice, a company like Visa is backing a high-profile financial literacy initiative. It seems unlikely advising people to pay off their credit cards is the focus of that effort.

As credit tightens, so will the need for legitimate financial literacy education. And as consumer debt becomes something harder to ignore, maybe the unholy alliance of creditors with a stake in the game and financial literacy education programs often aimed at younger borrowers in particular, will finally come to an end.

“You don’t have to wait to use plain language in your dealings with consumers,” Obama said. “You don’t have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote. You don’t have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.”

Felix Salmon at Reuters particularly liked this explanation of the need for a Consumer Financial Protection Agency:

Consumers shouldn’t have to worry about loan contracts designed to be unintelligible, hidden fees attached to their mortgages, and financial penalties – whether through a credit card or debit card – that appear without warning on their statements. And responsible lenders, including community banks, doing the right thing shouldn’t have to worry about ruinous competition from unregulated competitors.

Opponents of such an agency argue that it will limit consumer choice and financial innovation, but Salmon says Obama countered that argument well in his speech, by arguing that in the past a lack of rules has meant “innovation of the wrong kind,” like the firm that could make its products look best by “doing the best job of hiding the real costs.”

For example, we had “teaser” rates on credit cards and mortgages that lured people in and then surprised them with big rate increases. By setting ground rules, we’ll increase the kind of competition that actually provides people better and greater choices, as companies compete to offer the best product, not the one that’s most complex or confusing.

Derek Thompson at The Atlantic, however, has a different take. Obama, he said, channelled his inner Jennifer Aniston in the speech.

I have an running observation about Obama, inspired by this article in The New Republic, that the president likes to remind audiences that he would prefer to tweak their incentives than have the government mandate reform. He and Treasury, you remember, wanted private investors to choose to buy the toxic assets. He continues to ask private insurers to choose preventative care, end underwriting and cut it out with rescission.

This instinct reminded me of a famous scene from Aniston’s movie The Break-Up, where her character famously tells her live-in boyfriend (Vince Vaughn), not that she wants to do the dishes for him; nor that she wants to force him to do the dishes: She wants him to want to do the dishes.

Reading Obama’s speech with my Rom-Com glasses on, the message is strikingly familiar. Obama doesn’t want to run Wall St. He wants Wall St. to re-learn how to run itself.

In the movie, Aniston’s wish for her boyfriend to want to do the dishes doesn’t exactly come true. Thompson isn’t sure Obama will fare any better.

I swear, it’s not just me watching too much TBS. Tim Fernholz remarks that “his call for financial sector players to act voluntarily in the public interest immediately rather than waiting for reform to pass” sounds like “health care tactics all over again.” It’s true! This is a very standard rhetorical tactic for Obama. Whether it works for him better than the threat worked for Aniston’s character, however, remains an open question.

And that’s the question that remains, as the Lehman anniversary passes, Obama heads back to Washington, and the fate of financial regulatory reform remains up in the air.

Rep. Carolyn Maloney (D-N.Y.) has a bill that would require banks to make some of these disclosures, but with health reform and climate legislation certain to consume the rest of the year in Congress, The Times is urging federal regulators to take these steps instead:

First, banks must be barred from automatically enrolling customers in overdraft programs. This must be a service that customers opt in to — and only after they are provided full information about the fees and the penalties they will incur. These disclosure statements must meet the same rules laid out in truth-in-lending laws, since overdraft charges are essentially short-term loans.

Banks must also be required to warn customers in real time when a debit card charge will overdraw their accounts — and what fees they will incur if they still decide to proceed with the purchase.

This will require new technology. But there is almost no chance that the banks will invest in it unless they are legally required to do so.

“Until that happens, buyers beware,” The Times warns. “That cup of coffee may be even more expensive than you realize.”

They are upset — at the unyielding banks and often at their free-spending selves — and are pre-emptively defaulting. They could continue to pay for a while longer but instead are walking away. “You reach a point where you embrace the darkness of default,” said Adam Levin, chairman of the financial products Web site Credit.com.

Along those lines, I keep hearing radio ads for consumer credit counseling firms that have a different tone than in the past. Companies that negotiate down debts with credit card firms on behalf of consumers once touted themselves as a helping hand for a troubled borrower drowning in debt. The ads would sympathize with the worries of a consumer saddled with bills, and offer to help lift that burden. The latest ads, however, complain about lenders getting billions of dollars in taxpayer bailout money — and they suggest that lenders are somehow obligated to reduce consumer debt. The tone has changed significantly. The ads now say consumers deserve to be bailed out by these bailed out institutions. There’s no hint of the personal responsibility involved in piling up a mountain of debt.

Is this a good thing? Are banks getting what they deserve for overextending credit? I don’t think it’s as simple as that. Here’s the borrower in Streitfeld’s story, explaining her reasoning for defaulting:

Melissa Birks is being stalked. Her cellphone keeps ringing, always from a caller marked “unknown.” She says she knows it is her credit card company wondering why she stopped making payments. Ms. Birks, who owes $28,830, has nothing to say.

Ms. Birks, 43, readily admits that no one forced her to use her cards. “Some people are good with money,” she said. “I was stupid.”

Still, just about everyone made mistakes during the boom — regulators, Congress, Wall Street. If Bank of America got a bailout for making bad loans, Ms. Birks figured, she deserved a bailout for accepting them.

In previous downturns, Ms. Birks’ only recourse would have been a debt management plan, where she would restructure her payments with the help of a counselor, or bankruptcy. Now there is a third option: debt settlement. This means going on strike until the lender accepts a partial payment.

Ms. Birks asked Bank of America about a settlement this spring. Since her account was up to date, she was told she didn’t qualify. She stopped paying, the bank started calling.

When Bank of America finally got her on the phone, it agreed for the first time to drastically reduce her interest rate. She did not take the deal, but considered it progress.

Neither side comes out of this looking good.

Calculated Risk, citing Streitfeld’s piece, wonders once again why financial literacy isn’t being emphasized more these days:

Streitfeld is writing about the growing wave of ruthless credit card defaults, but this also raises question about the credit card industry in general. Why aren’t consumers being educated on the dangers of not paying off their credit card balance each month? Maybe that will be a good role for the new consumer financial protection agency.

But it’s not a given that agency will be created. And even if it is, it may be too late for people like Melissa Birks, debtors who refuse to answer calls from banks  about the thousands of dollars they owe. Until there’s some sort of consensus reached on the responsibilities of both consumers and banks to settle debts in a post-bailout world, the new morality of mounting consumer debt may become the option of the ruthless default.

This is what many of us feared about a law that didn’t take effect right away. It was never going to take this long for the credit card companies to get ready for the new reforms. Instead, issuers are using the delay in the effective date to wring more dollars out of their customers. It is against the spirit of the law and it is just plain wrong.

Omitted in the criticisms, however, is the inconvenient fact that it was the Democrats themselves who bowed to banking industry demands to delay their reforms for nearly a year after the bill was signed into law.

Indeed, the original Senate bill would have implemented the changes immediately, but the timeline was stretched to nine months by Democratic leaders, including Banking Committee Chairman Christopher Dodd (D-Conn.), during the markup of the bill.

A similar scene unfolded in the House, where the initial proposal, sponsored by Rep. Carolyn Maloney (D-N.Y.), called for the reforms to kick in 90 days after the bill’s passage. During a subcommittee markup of the bill, however, Rep. Luis Gutierrez (D-Ill.) extended the implementation timeline to 12 months.

The final bicameral compromise adopted the Senate’s nine-month window, meaning the changes — including that which Schumer has requested of the Fed — don’t take effect until February.

The irony here is that, as a chief justification for adopting credit card reforms as legislation, Democrats had cited the need to expedite similar reforms adopted by the Federal Reserve, but which won’t go into effect until July 2010. The Democrats’ legislation beats the Fed’s rules by a few months — but as supporters of that bill are finding out the hard way, that’s leaving plenty of time for the card companies to cash in on the legal leniencies currently in place.

But then the Financial Times comes along to report that Citigroup suddenly hiked rates for as many as 15 million holders of cards it co-brands with retailers such as Sears. And Citi did so just months before provisions in the new law that would ban such a move take effect.

Citi isn’t entirely alone. Other card issuers have been gradually raising rates as well, in response to increasing default rates. But the FT said Citi’s hikes have been the sharpest. The paper cited sources close to the situation for its information, not any formal announcement of rate hikes by Citi.

Citi’s rate increases emerged on the day the government proposed legislation to create a new regulator with sweeping powers on consumer protection and a week after the bank was attacked by some politicians for raising employees’ salaries.

Holders of co-branded cards who failed to pay their balance in full at the end of the month saw their rates rise by an average 24 per cent – or nearly 3 percentage points – between January and April, according to a Credit Suisse analysis of data from the consultancy Lightspeed Research.

Citigroup told the FT that despite the fishy timing of the move, raising rates for no particular reason on millions of customers had nothing to do with a new law that would soon prevent it from such an action:

“We have adjusted pricing and card terms for some customers as part of our regular account reviews. This is an ongoing process to ensure we offer terms, interest rates, credit lines and products based on individual needs and risk profiles. [...]

“These changes also reflect the dramatically higher cost of doing business in our industry as we work to preserve the broad availability of credit.”

Yes, it’s that “availability of credit” argument again. For the past decade, whenever anyone dared to mention putting curbs on high interest rates for credit cards or mortgages, the lending industry always warned that any restrictions would lead to less availability of credit.

Things didn’t exactly turn out that way.

If Citi’s strategy of jacking up rates prior to a new law taking effect catches on, consumers with Citi cards would do best to vote with their feet and find another issuer who isn’t playing that game. But it’s not only consumers who might act. Citi famously remains the recipient of government largesse, and this new development has the potential to rank right up there with purchasing a luxury corporate jet right after being bailed out by taxpayers, in terms of public relations damage potential.

Maybe next time Congress takes on legislation to rein in the credit card firms, it should make sure its restrictions go into effect by the time the ink dries on the President’s signature — and not a minute later.

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Most of the reforms will go into effect on Feb. 22, 2010, roughly four months before similar protections devised by the Federal Reserve will take hold.

The credit card companies are claiming that, by eliminating their right to hit unreliable borrowers with surprise rate hikes and confusing fees, they’ll be forced to make up the difference by installing annual fees and eliminating perks for even their best customers. We’ll know soon if they’re bluffing.

The proposal, still being drafted, is likely to give the Federal Reserve more authority to supervise financial firms deemed too big to fail. The Fed may inherit some SEC functions, with others going to other agencies, the people said. On the table: giving oversight of mutual funds to a bank regulator or a new agency to police consumer-finance products, two people said.

The 75-year-old SEC, chartered to oversee Wall Street and safeguard investors, has seen its reputation tarnished as some lawmakers blamed it for missing the incipient financial crisis and failing to detect Bernard Madoff’s $65 billion Ponzi scheme. Any move to rein in the agency is likely to provoke a battle in Congress, which would need to approve the changes, and draw the ire of union pension funds and other advocates for shareholders.

In addition to the SEC proposal, the Obama administration also is considering creating a regulatory commission with broad authority over consumer financial products such as mortgages and credit cards, according to The Washington Post.

That idea mirrors a proposal of top TARP watchdog Elizabeth Warren, who has long argued for the creation of a Financial Products Safety Commission. The purpose of such a commission would be to provide safeguards so consumers would understand exactly what they were getting into when they signed up for mortgages and credit cards.

As Bloomberg noted, financial regulatory overhaul is likely to spur a tough turf battle, as agencies like the SEC or the Office of Thrift Supervision lose some powers or mergeinto other agencies.  And as TWI has pointed out, Warren has become a lightning rod for right-wing critics, who see her as too biased on behalf of consumers.

The fact that the Obama administration is seriously considering her pet project provides a glimpse of which way those in power already are leaning. Score one for Warren, in the long financial regulatory turf war to come.

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”

I don’t believe this for a minute.

Those who manage their credit well aren’t going to put up with subsidizing anyone. They’ll do what people with sterling credit always do — cancel the card from the issuer trying to charge them, and shop around for something better. And if they don’t find it, they’ll pay in cash, or use a debit card. Delinquent borrowers rarely had this option, which is why they found themselves caught in a debt trap, paying high fees and rates, while issuers reaped profits from them.

This new threat sounds like a scare tactic, to counter the populist anger against credit card companies. But all it’s really going to do irritate a whole new class of credit card customers, who aren’t likely to sit back and take it as the credit industry looks to them for new ways to make money.