SEPTEMBER 2004

Kerry-Edwards Plan for Retail Financial Services

The Democrats unveiled an aggressive plan for regulating retail financial services as part of Senator John Kerry's presidential campaign. The Kerry-Edwards campaign took aim at financial services companies in a late-August press event that targeted "abusive credit card and mortgage practices." The campaign signaled an intent to launch new regulatory initiatives aimed at allegedly "predatory" lending practices across the range of consumer loan products. Striking a sharply partisan note, the Kerry-Edwards press release stated "George W. Bush has stood with the big corporations that engage in these practices: John Kerry and John Edwards will stand with the hard-working families by providing strong new consumer protections- stopping fast dealing, requiring honest advertising, and cracking down on fraud. Responsible lending plays an essential role in our society, and borrowers must take responsibility as well. But, ripping off families is wrong, and the Kerry-Edwards plan will stop it."

The Kerry-Edwards primarily targets credit card and mortgage lenders. Consider the following proposals. Credit card issuers: The Kerry-Edwards plan would

  • Bar rate hikes on an outstanding credit card balance based on a customer's handling of other credit accounts (i.e., risk-based pricing based on changes in credit score)
  • Require disclosure on credit card statements of time and money required to repay a balance making only the minimum monthly payment, as well as disclosure of the size of the monthly payment needed to repay a balance over three years.
  • Require companies to obtain approval before charging over-the-limit fees on approved credit card transactions
Mortgage Lending: The Kerry-Edwards plan would
  • Limit prepayment penalties and fees on subprime mortgage loans
  • Prohibit balloon payments on most loans
  • Ban single-premium mortgage insurance
Not surprisingly, industry trade association representatives were unimpressed with the list of proposals. Joe Belew, president of the Consumer Bankers Association, told the American Banker "This has been discussed and debated—and defeated. This is a rehash." Ed Yingling, the EVP of the American Bankers' Association agreed that the Kerry-Edwards plan offered up many familiar proposals that had been blocked in the past, but added that "these issues have been around for many years, and we've always been able to block them, but, we've had to work hard to do that, and there has never been a White House that strongly pushed them."

 

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