‭SECRET HISTORY OF THE CREDIT CARD‬

‭ANNOUNCER: Tonight on FRONTLINE: The average American family has eight.‬

‭JIM MUELLER: "Zero percent for life on transfer balances"—‬

‭ANNOUNCER: Credit cards, plastic money, have become both a necessity and a ticket to a better life.‬

‭[television commercial]‬

‭ACTOR AND ACTRESS: Hawaii!‬

‭BEN STEIN, Actor/Author: A credit card is an extraordinary, unbelievably great convenience for the‬

‭consumer.‬

‭ANNOUNCER: But the credit card industry plays by its own rules.‬

‭Prof. ELIZABETH WARREN, Harvard Law School: I don't know any merchant in America who can‬

‭change the price after you've bought the item, except a credit card company.‬

‭ANNOUNCER: Credit card banks earn record profits.‬

‭LOWELL BERGMAN, FRONTLINE Correspondent: MBNA's profits last year— one-and-a-half times‬

‭that of McDonald's.‬

‭EDWARD YINGLING, American Bankers Association: Well, McDonald's didn't do too well last year.‬

‭ANNOUNCER: But the profits come at a price.‬

‭ANDREW GUILE, Consumer: Now they've raised my rate to 19.98, and I have not been late ever.‬

‭PAT WALLACE, Bay Area Better Business Bureau: There are irritated, unhappy, dissatisfied customers‬

‭in this industry.‬

‭Prof. ELIZABETH WARREN: They are the new loan sharks in America.‬
‭DUNCAN MacDONALD, Fmr. Citibank General Counsel: I certainly didn't imagine that someday we‬

‭might have ended up creating a Frankenstein.‬

‭LOWELL BERGMAN: Frankenstein? What do you mean, Frankenstein?‬

‭ANNOUNCER: Tonight, FRONTLINE correspondent Lowell Bergman and The New York Times‬

‭investigate the secrets of your credit card.‬

‭NARRATOR: This may seem an unlikely place to begin a modern history of the credit card, more than‬

‭1,000 miles from Wall Street and the paneled halls of the Federal Reserve in Washington, but this is‬

‭where the credit card business first began to really take off.‬

‭This is Sioux Falls, South Dakota, a modest town of 140,000 known for its cattle auctions and‬

‭meat-packing industry. It's a town which boasts a huge post office, big enough to service a city several‬

‭times its size. Every day, millions of pieces of mail pass through here, and from here millions of credit‬

‭card solicitations and bills are sent to mailboxes across America and billions of dollars in credit card‬

‭payments come in from around the world. Today, Sioux Falls is one of the major credit card processing‬

‭centers in the country.‬

‭It all happened in Sioux Falls because a quarter of a century ago, times were hard in South Dakota.‬

‭There was a nationwide recession with double-digit inflation. Money was very tight. South Dakota‬

‭banks were issuing very few mortgages, or loans of any kind.‬

‭BILL JANKLOW, Fmr. Governor, South Dakota: Interest rates were going into orbit. They were climbing‬

‭all the time.‬

‭NARRATOR: Bill Janklow was then the governor of South Dakota.‬

‭BILL JANKLOW: When I came to the governor's office, South Dakota had very tight historical laws on‬

‭what you could charge to borrow. In other words, there was one interest rate by law that they could‬

‭charge for new cars, another one for used cars. It was highly regulated, what interest rates people‬

‭could pay. And what I'm trying to say is, we may have a law that said you could charge 9 percent, but‬

‭money cost 11 percent, so banks weren't loaning money.‬

‭NARRATOR: To get the banks to issue loans, South Dakota decided to eliminate its historic cap on‬

‭interest rates, known as a usury law.‬

‭BILL JANKLOW: We had actually changed some of our laws in '79, and we had previously introduced‬

‭legislation and passed legislation, or were passing legislation, to lift the ceilings on usury so we could‬

‭free up and get capital in South Dakota.‬

‭NARRATOR: At the same time, across the country in New York City, a legendary banker had his own‬

‭problems.‬

‭WALTER WRISTON, Fmr. CEO, Citibank/Citicorp: Oh, it was very simple. We were going broke.‬

‭NARRATOR: Walter Wriston, then chairman of Citibank, had a credit card division that was‬

‭hemorrhaging money. New York's usury laws prohibited banks from charging more than 12 percent on‬

‭most consumer loans.‬

‭WALTER WRISTON: Interest rates went up to 20 percent. And if you are lending money at 12 percent‬

‭and paying 20 percent, you don't have to be Einstein to realize you're out of business.‬

‭LOWELL BERGMAN: It was costing Citibank 20 percent for money, and you were only getting 12‬

‭percent back?‬

‭WALTER WRISTON: Well, sure. Certainly.‬

‭LOWELL BERGMAN: Because of the limit on interest.‬

‭WALTER WRISTON: There was no way that you could continue.‬

‭NARRATOR: So Wriston and Citibank began looking for a new place to do business.‬

‭WALTER WRISTON: So we made a study of the five states that had either no usury law or very high‬

‭amounts. One of them was South Dakota. So we said, "Look, we'll bring a couple of thousand jobs out‬

‭here."‬

‭NARRATOR: In 1981, Citibank moved its credit card operation from New York to South Dakota.‬

‭BILL JANKLOW: From the time I met them until we passed our legislation, it was just several weeks. I‬

‭mean, we really moved. That was a good deal for us. It was a hell of a deal for them.‬

‭LOWELL BERGMAN:: What did they get out of this?‬

‭BILL JANKLOW: What Citibank got out of it? They got to stay alive.‬

‭NARRATOR: But what really attracted Citibank to South Dakota was an obscure Supreme Court‬

‭decision that said a bank could now export its interest rate to other states. It was called the Marquette‬

‭decision.‬

‭BILL JANKLOW: The Marquette Bank decision was a U.S. Supreme Court decision that said, forget‬

‭where the bank is chartered. Wherever the credit decision is made, in whatever state, that's the place‬

‭where you can apply interest, wherever you make the loan. In other words, if South Dakota had a 25‬

‭percent ceiling, then you could charge 25 percent, even to a loan in Florida.‬

‭NARRATOR: Janklow realized that the Marquette decision meant that South Dakota could become the‬

‭credit card capital of America.‬

‭BILL JANKLOW: In a very short period of time, a matter of a few months, I was meeting with the‬

‭chairman of the board of Bank of America, with First Chicago of Illinois, Chase Manhattan Bank,‬

‭Manufacturers Hanover Bank, Chemical Bank, Bank of New York, all the big banks in America,‬

‭because only South Dakota, at that point in time, appeared to be willing to move forward to invite‬

‭people to come in.‬

‭NARRATOR: But soon, another state got into the act. Delaware copied South Dakota's legislation, and‬

‭Wilmington soon became the credit card center of the East, luring other New York banks and giving rise‬

‭to new companies like MBNA. For the first time in American history, there were no legal restrictions on‬

‭the interest rates banks could charge on credit cards nationwide.‬

‭DUNCAN MacDONALD, Fmr. Citibank General Counsel: You could look at the Marquette decision and‬

‭say, all right, maybe it took the lid off, but what it did was, it had a very egalitarian effect.‬

‭NARRATOR: Duncan MacDonald is the former general counsel of Citibank's credit card division. He‬

‭says the Marquette decision allowed bankers to charge higher interest rates to riskier customers.‬

‭DUNCAN MACDONALD: The minute Marquette came along, you could jack the price up a little bit‬

‭more to cover those people. And as a result, tens of millions of people, who were paying 30 and 35‬

‭percent interest rates to small loan companies, all of a sudden got the product at 19 percent interest‬

‭rate and an annual fee of $20. So in that sense, it was very egalitarian and very good.‬

‭NARRATOR: And very good for banking. As the deregulation of interest rates enabled more people to‬

‭get credit cards, the industry began to expand and became the most profitable sector of banking, with‬

‭$30 billion in profits last year.‬

‭We wanted to talk to the executives of the major credit card banks about their business, but were‬

‭directed instead to the American Bankers Association.‬

‭LOWELL BERGMAN: We've asked for interviews with all the major credit card companies. They won't‬

‭talk to us. Why?‬

‭EDWARD YINGLING, American Bankers Association: That's our job. They pay us dues to handle these‬

‭kinds of sometimes difficult assignments.‬

‭NARRATOR: Ed Yingling is the incoming president of the American Bankers Association and the‬

‭industry's top lobbyist.‬

‭LOWELL BERGMAN: How profitable is the credit card business?‬

‭EDWARD YINGLING: The credit card business is profitable. You would expect the credit card business‬

‭to be somewhat more profitable than the rest of the industry, or parts of the industry, because it's riskier.‬

‭It is an unsecured loan, and so you would expect the returns to be a little higher.‬

‭LOWELL BERGMAN: Wasn't last year record profits for this industry, and they're expected again this‬

‭year?‬

‭EDWARD YINGLING: Yeah, but compared to what? It's not an unusually profitable business, compared‬

‭to other businesses.‬

‭LOWELL BERGMAN: MBNA'S profits last year— one-and-a-half times that of McDonald's.‬

‭EDWARD YINGLING: Well, McDonald's didn't do too well last year, and MBNA is a big company.‬

‭LOWELL BERGMAN: Citibank more profitable than Microsoft, Wal-mart. And the executives are highly‬

‭paid.‬
‭EDWARD YINGLING: Right. Right. These are— these are really big businesses, and they do make‬

‭money.‬

‭NARRATOR: Today, nearly 144 million Americans have credit cards, and they are using their cards like‬

‭never before, charging $1.5 trillion last year alone. Credit cards have become an essential part of the‬

‭American economy.‬

‭LISA: I really can't say that I love my credit card, but I would hate to live without it.‬

‭DESIREE: I use it a lot for work. It's easy— it's easy access. I can take clients out for dinner.‬

‭ELLIOT: I take advantage of the miles. We fly first class on vacations‬

‭MATTHEW: It's nice to be able to spend what you don't have.‬

‭LOWELL BERGMAN: Can you imagine living without a credit card in this society?‬

‭ELLIOT: It's hard to imagine.‬

‭NARRATOR: We sat down with a group of credit card customers to talk about how they use their cards.‬

‭ELLIOT: We're consumers. America loves to consume. It's in our blood.‬

‭DESIREE: It is like an addiction. I mean, "I have this new credit card in my pocket, and look at that‬

‭great dress. I can do it. Oh, I really shouldn't do it, I'll just pay it off later." And you do it.‬

‭ELLIOT: If I don't have that IPod, I'm not cool. So I can charge it and pay it off.‬

‭LISA: And Christmas is just around the corner. There's always something.‬

‭BEN STEIN, Actor/Author: They're just a gift. And for the traveler, which I am — a very, very, very‬

‭frequent traveler, indeed, is what I am — they are indispensable.‬

‭NARRATOR: Actor and author Ben Stein loves the convenience of using his credit cards.‬
‭BEN STEIN: Credit cards are an incredible deal for me. I mean, I have lots and lots of different cards. I‬

‭mean, my wallet is just stuffed with cards. It's just insane. It's just ridiculous. I look like I've got a third‬

‭breast from my carrying around my wallet with so many credit cards in it.‬

‭NARRATOR: Stein says he charges thousands of dollars a month in business expenses on his credit‬

‭cards.‬

‭BEN STEIN: I use all their good services, and they don't make any money from me. I mean, none to‬

‭speak of.‬

‭NARRATOR: The credit card companies do make a percentage on each transaction, but Stein is not‬

‭their ideal customer because, like 55 million Americans, he pays his bills off every month and doesn't‬

‭pay any interest.‬

‭BEN STEIN: The credit card companies hate people like me, who pay off our bills every month. And I‬

‭know that because I ran into a fellow I went to high school with on the street, and he told me he worked‬

‭for a credit card company. And I told him about how much I use credit cards and how I pay them off‬

‭every month, and he said, "Oh, we hate you. We hate you guys. We call you deadbeats."‬

‭NARRATOR: "Deadbeats," in the upside-down world of the credit card business, are the people like‬

‭Ben Stein, who pay off their bills on time. The industry's best customers are the 90 million Americans‬

‭who don't pay off their credit card debt. They're called the "revolvers."‬

‭LOWELL BERGMAN: People in the industry tell us that revolvers, people who borrow money, basically,‬

‭with their credit card, that's where the profits are.‬

‭EDWARD YINGLING: I don't think that's where all the profits are. I think it is generally understood that‬

‭those that use the revolving part of the credit card are kind of the sweet spot.‬
‭NARRATOR: Today, the sweet spot, as Mr. Yingling calls it, continues to grow. And the top interest‬

‭rates charged are higher than ever before, according to Robert McKinley, who founded Cardweb, a‬

‭research firm that tracks the industry.‬

‭ROBERT B. McKINLEY, CEO, Cardweb: The top 10 issuers in the country are charging interest rates of‬

‭25 to 30 percent to some of their customers. And this is in a market where interest rates are at a‬

‭40-year low. We have consumers paying interest rates that would be considered loan sharks in my day.‬

‭NARRATOR: At the same time, Americans with credit card balances are carrying a record amount of‬

‭debt.‬

‭LOWELL BERGMAN: How much credit card debt is the average American family carrying?‬

‭Prof. ELIZABETH WARREN, Harvard Law School: Oh, about $8,000, for those who are carrying some‬

‭debt.‬

‭NARRATOR: Elizabeth Warren is a Harvard law professor. She has researched the growing credit card‬

‭debt held by middle class families and how it can lead to big trouble.‬

‭Prof. ELIZABETH WARREN: And what families are discovering, even with Mom and Dad in the‬

‭workplace, is they often can't make it to the end of the month, and so they often use credit cards to‬

‭bridge the gap. They borrow to make ends meet. And then what happens is something goes wrong.‬

‭Somebody loses a job, somebody gets sick, family breaks apart through death or divorce.‬

‭NARRATOR: Like most Americans, Jim and Juanita Mueller managed to pay their credit card bills each‬

‭month, until they both lost their jobs.‬

‭JUANITA MUELLER: We didn't have any emergency funds set aside, so they kind of became our‬

‭emergency fund, to fund our life while we were waiting for the employment to come along. And so you‬
‭borrow from the credit card and pay that month, and then the job doesn't happen, so now you got to‬

‭borrow more. And we just kept digging deeper and deeper. We started robbing Peter to pay Paul, as‬

‭the expression goes, you know, take money from a credit card to pay other credit cards. And that just‬

‭increases it, and that's where it really started to snowball.‬

‭NARRATOR: As the Muellers fell behind, their credit card companies began to apply penalty interest‬

‭rates and fees to their bills.‬

‭LOWELL BERGMAN: Do you remember when the interest rates started to rise?‬

‭JUANITA MUELLER: Some of them, one late payment and forget your old interest deal that you had,‬

‭so—‬

‭JIM MUELLER: And forget the fact that you had the credit card for a number of years and were paying‬

‭on it regularly, were never late. And as soon as you make you miss one payment, it's like all deals are‬

‭off. Everything goes up. I mean, some of the credit cards we had were 9 percent or less. All of a‬

‭sudden, they're 24, 25 percent because, "Oh, well, you're late. You've been late several months, and‬

‭now we're going to raise your interest rate, and we're charging you the late fee." And now because the‬

‭interest rate and the late fees have accumulated, now you're over your limits, so there's an‬

‭over-the-limit fee.‬

‭NARRATOR: The Muellers' credit card debt eventually grew to nearly $80,000 on 10 cards. They found‬

‭that they could no longer keep up with their payments and had to file for bankruptcy. They were one of‬

‭a record seven million families to file in the last five years.‬

‭JIM MUELLER: It wasn't that we didn't want to pay off our credit cards, it's we got to the point where it‬

‭was impossible. It was just— I mean, short of a rich relative, which neither one of us have, dying and‬
‭leaving us $100,000, nothing was going to happen because the credit card companies weren't— they‬

‭weren't willing to work with us unless they got all their money as fast as possible.‬

‭Prof. ELIZABETH WARREN: The main things that triggers a bankruptcy filing are job loss, a medical‬

‭problem or a family break-up. Without these things, most American families can deal with their credit‬

‭card debt. But high credit card debt puts them at much great risk, so that if they stumble, if they get hit‬

‭by one of the other blows, they get their feet tangled up in those high interest rates, and they just get‬

‭sunk.‬

‭JIM MUELLER: "Zero percent for life on transfer balances, and 3— up to 3 percent cash back bonus."‬

‭NARRATOR: Ironically, the Muellers are still getting offers for more credit cards.‬

‭LOWELL BERGMAN: You're still getting solicitations in the mail.‬

‭JUANITA MUELLER: Yeah.‬

‭JIM MUELLER: We got one yesterday from a credit card company that told me I'd never have credit‬

‭with them again. One of the last times I talked with them, told them what our situation was, they said,‬

‭"Well, we're canceling your card. And you are, in essence, blackballed with us for life. You'll never have‬

‭a credit card from us ever again." Yesterday, received a solicitation from them, zero percent for life, with‬

‭up to a $50,000 line of credit.‬

‭[www.pbs.org: More on marketing to consumers]‬

‭TELEVISION COMMERCIAL: Diapers, milk and laundry detergent, $25. Spend more time with your‬

‭family, priceless.‬

‭NARRATOR: Encouraging Americans to take on credit card debt is critical to the profitability of the‬

‭industry.‬
‭[television commercial]‬

‭ACTOR AND ACTRESS: Hawaii! Yes!‬

‭ANNOUNCER: Call now to request the CitiAdvantage World Mastercard, and you can earn free award‬

‭travel, plus get 10,000 bonus miles.‬

‭NARRATOR: Making it easier and more attractive to spend has been the job of Madison Avenue‬

‭marketers.‬

‭TELEVISION COMMERCIAL: New tool belt and chrome tool set, $126. Getting some use out of it,‬

‭priceless. There are some things money can't buy. For Father's Day, there's Mastercard.‬

‭NARRATOR: But the success of the industry has also relied on financial innovators like this man,‬

‭Andrew Kahr, whose peculiar genius, industry insiders say, has helped shape the way the credit card‬

‭business works. Kahr, a consultant who rarely consents to interviews, only agreed to talk with us if we‬

‭did not identify his clients or where he is currently living.‬

‭LOWELL BERGMAN: Give me an idea of, from the time you got involved, the late '70s, with credit‬

‭cards, the ideas, the innovations that you've come up with.‬

‭ANDREW KAHR, Credit Card Industry Consultant: Well, I convinced the client that instead of having 5‬

‭percent of the balance as a minimum payment, we should reduce that to 2 percent. It's a very dramatic‬

‭change, less than half.‬

‭NARRATOR: Before Andrew Kahr got involved in the industry, most bankers required that customers‬

‭pay 5 percent of their credit card balance every month. Kahr realized that if customers were able to pay‬

‭less, they would borrow more.‬

‭LOWELL BERGMAN: You were able to explain that it was people making low payments who were the‬

‭most profitable.‬

‭ANDREW KAHR: Having a lower minimum payment allows you to offer higher credit lines, which, first‬

‭of all, makes your card product more attractive because people judge, even if they don't intend to use‬

‭the whole line, they would rather have a higher line. The high-balance accounts will be much more‬

‭profitable than the low-balance accounts.‬

‭LOWELL BERGMAN: Because they're paying interest?‬

‭ANDREW KAHR: Because they're paying interest on a higher balance.‬

‭NARRATOR: Today Kahr's 2 percent minimum is a common feature on millions of credit card bills, and‬

‭every month, some 35 million Americans pay only the minimum payment.‬

‭[www.pbs.org: Consumer views on credit cards]‬

‭LOWELL BERGMAN: By the way, while you're running up balances on your credit cards, or currently‬

‭have balances on your credit cards, do you have cash in the bank?‬

‭CREDIT CARD USERS: Oh, yeah. Yeah. Yes.‬

‭ELLIOT: I could wipe my debt out.‬

‭LOWELL BERGMAN: So why don't you do it?‬

‭LISA: I feel it's a nest egg. You never know what's going to happen tomorrow. You might need that‬

‭money for something else.‬

‭LOWELL BERGMAN: So even though you're paying double-digit interest and you could get rid of the‬

‭balance, or most of it—‬

‭LISA: Right.‬
‭LOWELL BERGMAN: —you're going to still make those payments and keep the cash in your bank‬

‭account.‬

‭LISA: Right‬

‭NARRATOR: Andrew Kahr's research showed that making the minimum payment eased consumers'‬

‭anxiety about carrying large amounts of credit card debt. They believed they were being financially‬

‭prudent.‬

‭DESIREE: If you lose your job or you— you know, something bad happens, you have to have money,‬

‭and you don't want to live off of a credit card. So you need to have that money, you know, saved‬

‭somewhere in case something happens.‬

‭NARRATOR: In fact, the industry was reaping huge profits from Andrew Kahr's intuition about people's‬

‭behavior. But then, in the late '90s, Kahr says he had a new insight. Customers were being flooded with‬

‭competitive offers for low-interest cards.‬

‭ANDREW KAHR: People were offering 12.9 percent interest for the first six months, 10.9 percent on‬

‭balance transfers, and I convinced the client to go straight to zero percent as an introductory rate. It‬

‭gave them competitive advantage. It led to, of course, the others also going to zero percent.‬

‭NARRATOR: Kahr knew that even though the zero percent offer could easily change, people would still‬

‭be attracted to the bait.‬

‭ANDREW KAHR: When you're getting something in the mail several times a week that offers you zero‬

‭percent for six months— they look at the headlines of the solicitation in the mail, they spend 30‬

‭seconds on it, and, "OK, I'm going to be better off at the beginning. They're going to give me something.‬

‭They're going to give me a zero percent rate." People believe what they want to believe‬
‭LOWELL BERGMAN: "Zero percent APR"— what does this mean? I mean, you're saying that's‬

‭meaningless.‬

‭ROBERT B. McKINLEY, CEO, Cardweb: Most cases, if you were to sign up for this card, the bank will‬

‭honor that rate through that period of time. But there's a lot of fine print that goes with what could‬

‭happen. For example, if you were to miss one payment, this rate will go away immediately.‬

‭NARRATOR: According to McKinley, the key to understanding how credit cards are marketed lies in the‬

‭great digital revolution, the amassing of data on American consumers.‬

‭ROBERT B. McKINLEY: Well, there's a gold mine of information residing out there in these databases‬

‭by the consumer reporting agencies, the credit bureaus. They're collecting information about what kind‬

‭of accounts you have open, the balances, whether or not you make those payments on time. And that's‬

‭a huge reservoir of information there that they can tap into and be able to get a sense as to whether or‬

‭not a consumer is a revolver, someone who doesn't pay the balance off in full each month. So they can‬

‭kind of sift those out, and today, it's really become almost surgical.‬

‭NARRATOR: The ability to surgically target consumers and track their financial behavior has become a‬

‭booming business dominated by three credit reporting agencies which gather information. All that data‬

‭is then crunched by a little known company called Fair Isaac, which calculates a number called a FICO‬

‭score for almost every American with a credit history.‬

‭TOM QUINN, Fair Isaac Corp.: We're not a credit-reporting agency like an Equifax, Trans-Union or‬

‭Experian, that's gathering information daily on consumers and building up consumer records.‬

‭NARRATOR: Tom Quinn is a spokesman for Fair Isaac.‬

‭TOM QUINN: We simply work with the credit-reporting agencies, and they deploy their data onto our‬

‭mathematical formula to create that score.‬

‭NARRATOR: The median FICO score is 720 out of a possible 850. The riskiest customers have scores‬

‭below 600. The score is an indication of how likely you are to pay your bills.‬

‭TOM QUINN: Lenders use that score almost like a thermometer to determine if they're going to grant‬

‭credit or not. So the algorithm is an indication of that consumer's future risk, in terms of credit behavior.‬

‭LOWELL BERGMAN: Algorithm, meaning a mathematical formula.‬

‭TOM QUINN: Yes, mathematical formula.‬

‭LOWELL BERGMAN: And how many people have this number?‬

‭TOM QUINN: We estimate that approximately 75 percent of the U.S. population that is eligible for‬

‭credit, i.e., those who are 18 years or older, have a FICO score at any given time.‬

‭LOWELL BERGMAN: Do you know your credit score?‬

‭GROUP: No. No.‬

‭LOWELL BERGMAN: You're not aware that you have a credit score?‬

‭MATTHEW: I'm aware that I have one, I don't know what it is.‬

‭LISA: Right.‬

‭DESIREE: Right, yeah.‬

‭LISA: I don't know what it is.‬

‭DESIREE: I don't know what it is, either.‬

‭LOWELL BERGMAN: So if I said to you the words, "FICO score," do you know what a FICO score is?‬

‭ELLIOT: I know the terms. I'm not clear on what they are. I've never gotten my credit score.‬
‭[www.pbs.org: What determines your FICO score?]‬

‭NARRATOR: An individual's FICO score often determines how much interest he will pay on a credit‬

‭card. The terms and conditions of the card are laid out in the fine print of this contract.‬

‭LOWELL BERGMAN: When I get a credit card, there's a contract that goes along with it. What kind of‬

‭contract is this? Because I never read it. Have you ever read it, when it came to you?‬

‭ROBERT B. McKINLEY: I'd have to admit, in most cases, I may have just glanced at it. You know, it's‬

‭filled with so many legal terms and so many pages and such small print that it can be intimidating, I‬

‭think.‬

‭LOWELL BERGMAN: It says that I'm guaranteed the terms of a loan for as long as I have the card.‬

‭ROBERT B. McKINLEY: Yeah, well— yeah, things that— the one unique thing about the credit card‬

‭business is that the issuer can change the terms and conditions at will.‬

‭LOWELL BERGMAN: Without asking my permission?‬

‭ROBERT B. McKINLEY: Absolutely. They can change it all. It only takes 15 days' notice to make those‬

‭changes. I mean, you could be offered a 5 or 6 percent interest rate today and perhaps get it. Two‬

‭months later, that could be 30 percent. There's nothing to prevent the issuer from changing those‬

‭conditions.‬

‭NARRATOR: Even Professor Elizabeth Warren, an expert on contract law, says she has a hard time‬

‭deciphering her contract.‬

‭Prof. ELIZABETH WARREN: I've read my credit card agreement, and I can't figure out the terms. I‬

‭teach contract law, and the underlying premise of contract law is that the two parties to the contract‬

‭understand what the terms are‬

‭LOWELL BERGMAN: Have you ever read the contract that's sent to you with your credit card?‬

‭EDWARD YINGLING: Yes. But I'm a lawyer. [laughs]‬

‭LOWELL BERGMAN: Do you understand it?‬

‭EDWARD YINGLING: I do understand it. I think it'd be very hard for a lot of people to understand. And I‬

‭think it's a constant battle to try to figure out how you make disclosures and those types of things in‬

‭plain English so that somebody will read them.‬

‭NARRATOR: Ed Yingling says the fact that the contracts are difficult to understand is not the industry's‬

‭fault.‬

‭EDWARD YINGLING: Our disclosures are very explicitly set forth in law and in regulation, much‬

‭moreso than in most consumer contracts. Ours are heavily regulated.‬

‭LOWELL BERGMAN: They say the contract contains information, even the typeface, that's mandated‬

‭by law—‬

‭Prof. ELIZABETH WARREN: But the laws— that's the point now, the laws are inadequate. There's not‬

‭enough there. These guys have figured out the best way to compete is to put a smiley face in your‬

‭commercials, a low introductory rate, and hire a team of MBAs to lay traps in the fine print.‬

‭NARRATOR: One of those traps, according to Warren and other critics, is something called universal‬

‭default.‬

‭ROBERT B. McKINLEY: If you do miss a mortgage payment, you do miss a car payment, any other— it‬

‭can trigger what is called a universal default. They actually have the right to change it if you miss a‬

‭payment with another creditor, or in some cases, even if there's a change in your credit worthiness. In‬
‭fact, you don't have to miss a payment. You don't have to go over your credit limit to be in default. You‬

‭could, for example— or maybe your balances are too high.‬

‭LOWELL BERGMAN: You've seen one of these, right, before? I want to read you something from a‬

‭contract. "Your APRs also may vary if you are in default under this agreement or any other agreement‬

‭that you have with us or any other related companies for any of the following reasons: You fail to make‬

‭a payment to another creditor when due." Do you understand what this means?‬

‭GROUP: Uh-huh. Yes.‬

‭LOWELL BERGMAN: You do? Do you know that it means that if you fail to make a payment and are‬

‭late on anything else that you're paying on — your house, your car, anything else — they will find out‬

‭and they can change your interest rate? Did you know that?‬

‭ELLIOT: No, I had no idea.‬

‭LISA: I had no idea. This is the first I've ever heard that.‬

‭DESIREE: Why is it legal?‬

‭LOWELL BERGMAN: Well, because it's disclosed in the contract.‬

‭ELLIOT: It doesn't seem fair. You've done no harm to the company themselves. You're late with‬

‭someone else. You haven't affected your standing with that company. No, it doesn't seem fair that they‬

‭would suddenly say, "Oh, now I can raise your rate."‬

‭DESIREE: They're taking advantage of someone who is in that position.‬

‭NARRATOR: That's what Andrew Guile of Wilmington, Delaware, says happened to him.‬

‭ANDREW GUILE: Yes, I had gotten a letter from MBNA several months ago that my rate was going to‬

‭be increased..‬
‭NARRATOR: MBNA raised his 8.9 percent interest rate to 19.9 percent, and his minimum monthly‬

‭payments nearly doubled.‬

‭ANDREW GUILE: They told me the first time that my rate had been raised because they found an‬

‭occasion back in 1998 when I had gone 60 days past due on a competitor's credit card. And I asked‬

‭them, "What in the world does that have to do with MBNA, especially being six years ago?" I said, "That‬

‭has nothing to do with my account here." I mean, that absolutely took my breath away.‬

‭NARRATOR: When Guile protested, he says he was given another reason for the change. He had‬

‭become riskier he was told, because his account balances with other creditors were too high.‬

‭ANDREW GUILE: I was a great customer at MBNA, always paid my balances on time, paid more than‬

‭the minimum balance— you know, many times paying it down completely. But I was never late, and I‬

‭used the card in a wise and responsible manner.‬

‭NARRATOR: FRONTLINE wanted to ask MBNA about Guile's problem, but we were told they never‬

‭comment on an individual's account. But just two months after our interview, Guile says he got a call‬

‭from the office of the president of MBNA saying they would move his interest rate back to 8.9 percent.‬

‭Prof. ELIZABETH WARREN: The real question here is whether or not you can change the price, not for‬

‭new items you buy after your credit score has changed, but for old credit that you've already taken out.‬

‭My mortgage company agreed to an interest rate, and if I lost my job, my mortgage company does not‬

‭get to double my mortgage. Credit card companies can say, "Remember how you bought the‬

‭big-screen TV at 9.8 percent interest? We've decided we want 29.9 percent interest." And there's not a‬

‭darn thing you could do about it right now.‬

‭LOWELL BERGMAN: The contract allows a credit card company to change the interest rate on money‬

‭you borrow from them after you've borrowed it.‬

‭[www.pbs.org: Read the extended interview]‬

‭EDWARD YINGLING: Some do, yeah. It depends on the contract, but a lot of them do.‬

‭LOWELL BERGMAN: If they find out through this information system that you've been late on your‬

‭payment for your automobile, they can notify you that they're going to change the interest rate on the‬

‭money they've already lent you.‬

‭EDWARD YINGLING: I think there's a misunderstanding about what the credit card agreement is. My‬

‭agreement with you is, you come to me, you have a certain credit score, and based on that credit‬

‭score, I'm going to charge you 12 percent. If in the future, it turns out that your credit score has‬

‭deteriorated and you now are more risky to me, I'm going to charge you the interest rate I would charge‬

‭to somebody that has that credit score.‬

‭LOWELL BERGMAN: Is it fair to change the price of the deal after the fact?‬

‭EDWARD YINGLING: The product is not a promise to somebody that we will lend you that amount of‬

‭money forever at that interest rate. It is a very short-term revolving line of credit.‬

‭ANDREW GUILE: It's dishonest. Plain and simple. It's dishonest. They may say it's good business for‬

‭their financial bottom line, but it is a very poor way to treat a customer.‬

‭NARRATOR: In 1996, another important Supreme Court decision opened the door to bigger profits for‬

‭the credit card industry and a raft of new complaints from their customers. That decision, Smiley vs.‬

‭Citibank, much like the Marquette decision before it, lifted state restrictions, this time on the fees that‬

‭credit card banks could charge.‬

‭DUNCAN MacDONALD, Fmr. Citibank General Counsel: We were working this thing here for a good‬

‭cause, free-market pricing.‬

‭NARRATOR: Duncan MacDonald was one of the lawyers who worked on the Smiley case.‬

‭DUNCAN MacDONALD: The late fees that were common across the industry, up until Smiley, were in‬

‭the $5 and the $10 range. And the economic thinking was that there had to be flexibility to allow up to‬

‭$15. But Smiley came along and took the lid off it, it went from $5 to $10 to $15 to $29, and recently, it's‬

‭gone up to $39. I would guess that it's probably going to go up to $50 a year-and-a-half from now. I‬

‭certainly didn't imagine that someday we might've ended up creating a Frankenstein.‬

‭LOWELL BERGMAN: Frankenstein? What do you mean, Frankenstein.‬

‭DUNCAN MacDONALD: I look at that and I say to myself, "Is $50 a fair fee," plus a 25 percent interest‬

‭rate and all these other fees that are thrown on, for folks who are probably not that risky? Is that fair?‬

‭And I look at it and I say to myself, "There's the Frankenstein." We've created something that has to be‬

‭dealt with.‬

‭NARRATOR: Since Smiley, credit card companies have doubled the amount of revenue they generate‬

‭from fees: late fees, over-the-limit fees, returned check fees and the like.‬

‭ROBERT B. McKINLEY: Fee income has gone up much, much faster than interest income in the‬

‭business.‬

‭LOWELL BERGMAN: So the fees are meant as a penalty to make sure that you pay on time, or are‬

‭they a profit stream?‬

‭ROBERT B. McKINLEY: Well, they really have become a profit stream. It's not just the fees that they‬

‭charge, even though they're three and four times higher than they were less than 10 years ago. That's‬
‭the tip of the iceberg, when it comes to the penalty that's inflicted on consumers with these situations‬

‭where they make a late payment. It's the penalty interest rate that really does the damage. Your interest‬

‭rate could double overnight.‬

‭LOWELL BERGMAN: Just so I understand, the interest rates are not regulated. They can change the‬

‭interest rate relationship that you have with them with 15 days notice. So that's a major source of profit‬

‭for them. And the fees are now no longer regulated.‬

‭ROBERT B. McKINLEY: That's exactly right. It's wide-open. We're beginning to see banks do all this‬

‭tweaking, where they're changing the interest rates and raising fees, adding new fees, all kinds of— the‬

‭way they calculate interest, setting the due dates on a Sunday, on a holiday, on the hopes that maybe‬

‭you'll trip up and get a payment in late. It's become a very anti-consumer marketplace.‬

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

‭EDWARD YINGLING: I think it would be short-sighted for a credit card company to have fees that, that‬

‭would make somebody angry because they're likely to lose that customer. And I think it's going to cost‬

‭them more to replace that customer than they're likely to get out of the fee.‬

‭DUNCAN MacDONALD: You have bankers who have skyrocketed rates from 14 percent to 25 percent‬

‭and $40 late fees and bad-check fees, and so on, that fall on the shoulders of the less well-off. Yes,‬

‭there's— something bad has happened.‬

‭LOWELL BERGMAN: So we need regulation.‬

‭DUNCAN MacDONALD: We have regulation. We have regulation already. The Comptroller of the‬

‭Currency regulates all the national banks, and they have very vast powers.‬
‭NARRATOR: The Office of the Comptroller of the Currency — the OCC — is an obscure Washington‬

‭agency, part of the Treasury Department, and it regulates the national banks, banks like Chase,‬

‭Citibank and MBNA that issue most of the credit cards in this country. Julie Williams is the acting‬

‭comptroller of the currency.‬

‭JULIE WILLIAMS, Acting Comptroller, OCC: We have three goals, to make sure that the banks don't‬

‭fail, to ensure the integrity of how the banks operate, their corporate governance, and to make sure that‬

‭they deal fairly and honestly with their customers. At the extreme, we have the ability to take‬

‭enforcement action, and we have done that. We have taken enforcement action.‬

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

‭JULIE WILLIAMS: Well, I think the— probably the most conspicuous example of that would be the‬

‭action that we took in connection with Providian.‬

‭NARRATOR: That's not the story they tell in San Francisco, where in the late 1990s, the credit card‬

‭company Providian Financial was experiencing double-digit growth. Providian specialized in the riskiest‬

‭customers with the lowest credit scores.‬

‭PAT WALLACE, Bay Area Better Business Bureau: They were targeting people with questionable‬

‭credit, or marginal credit, people that couldn't get bank cards elsewhere.‬

‭NARRATOR: Pat Wallace is the head of the Better Business Bureau in the San Francisco area.‬

‭PAT WALLACE: The first thing that got our attention, of course, were the numbers, the numbers of‬

‭complaints. Providian was involved in all kinds of questionable offers and policies and procedures and‬

‭operations.‬

‭NARRATOR: Complaints about Providian from around the country came here to Wallace's office.‬
‭PAT WALLACE: Providian, for example, was accepting payments from consumers on their accounts,‬

‭depositing the checks but not crediting the account for sometimes up to several weeks. What was the‬

‭net result of that? Invariably, the consumer got a late charge.‬

‭LOWELL BERGMAN: They were holding payments so that they could charge late fees and they could‬

‭charge overdraft fees and—‬

‭PAT WALLACE: And over-limit fees. Fifty percent of their income were fees, not interest on the money‬

‭loaned. They were pushing the envelope. And they got by with it for a period of time, and they made a‬

‭lot of money.‬

‭LOWELL BERGMAN: The office of the Comptroller of the Currency is the main federal agency that‬

‭takes complaints. Did they come to your assistance?‬

‭PAT WALLACE: No. They just simply weren't interested. You know, the response was, "Well, you know,‬

‭we'll take it from here. We'll watch from here." You know, "It's not a problem at this time for us."‬

‭NARRATOR: Complaints about Providian were also coming to June Cravett at the San Francisco‬

‭district attorney's consumer protection unit, and she began to investigate, eventually drawing local‬

‭press attention and then a phone call from the OCC.‬

‭LOWELL BERGMAN: Had you ever heard of the Office of the Comptroller of the Currency?‬

‭JUNE CRAVETT, Asst. DA, San Francisco: The answer from my perspective is no. Didn't really know‬

‭much about it. Didn't know exactly what they did and exactly who they regulated. We never heard of‬

‭them being very active in the area of consumer litigation or consumer enforcement actions against the‬

‭banks.‬
‭NARRATOR: And when the OCC contacted June Cravett, she says instead of cooperation, they issued‬

‭a challenge.‬

‭JUNE CRAVETT: There were a couple of meetings where the subject of preemption was raised.‬

‭LOWELL BERGMAN: Preemption?‬

‭JUNE CRAVETT: Yeah. That's where they say, "Because we're the federal regulator," that they have‬

‭exclusive authority over the national banks, and therefore, we don't have jurisdiction.‬

‭LOWELL BERGMAN: You, in San Francisco, don't have jurisdiction?‬

‭JUNE CRAVETT: Yes.‬

‭LOWELL BERGMAN: The San Francisco district attorney says to us that they were told, "You don't‬

‭have real jurisdiction, we have real jurisdiction," and indicated to them that they might want to get out of‬

‭the case.‬

‭JULIE WILLIAMS, Acting Comptroller, OCC: The way that that worked out was we worked together with‬

‭the San Francisco district attorney's Office. It was a collaborative process.‬

‭LOWELL BERGMAN: But they say once you got involved, it was very fruitful.‬

‭JULIE WILLIAMS: Right.‬

‭LOWELL BERGMAN: What they're telling us is that the OCC only got involved once this whole situation‬

‭became public, that prior to the news publicity that they were responsible for, they had no contact with‬

‭the OCC.‬

‭JULIE WILLIAMS: We worked cooperatively with them when we got information about what was going‬

‭on.‬
‭NARRATOR: The joint investigation eventually culminated in a $300 million settlement. Providian‬

‭declined to be interviewed and issued a statement saying, "Rather than revisit the past, the company is‬

‭focused on "services ... that provide real benefits today."‬

‭In Washington, the OCC has been increasingly asserting its authority and attempting to curb consumer‬

‭enforcement actions by local prosecutors. This has sparked a nationwide battle, led by the attorneys‬

‭general in all 50 states.‬

‭ELLIOT SPITZER, NY State Atty. General: The OCC is now trying to squeeze out the state presence,‬

‭to prevent us from protecting consumers, which I think is ultimately very injurious to consumers.‬

‭NARRATOR: Elliot Spitzer is the attorney general of New York state.‬

‭ELLIOT SPITZER: We get thousands of complaints every year about credit card issues relating to the‬

‭major banks, the major card issuers. And so we get these complaints, and we try to deal with the credit‬

‭card companies. But increasingly, over the past number of years, what we have heard back from the‬

‭major banks, in a variety of contexts, is that, "We don't need to deal with you because the OCC has told‬

‭us — indeed, has directed us — not to deal with state enforcement entities."‬

‭LOWELL BERGMAN: Isn't this just a turf battle between the states and a federal agency?‬

‭ELLIOT SPITZER: It's a one-way turf battle. And by that, what I mean is we are more than happy to‬

‭acknowledge that the OCC has jurisdiction across the financial system, when it comes to certain‬

‭issues. What the OCC is trying to do is squeeze the states out in the one area where we have been‬

‭incredibly useful, which is consumer protection.‬

‭LOWELL BERGMAN: The state attorneys general, Mr. Spitzer and others, say that, "People in our state‬

‭know who we are, we have a consumer complaint office. And our beef is, is that you guys, the OCC,"‬

‭want to push them out of the business of consumer complaints.‬

‭JULIE WILLIAMS: We don't want to push them out of the business. We are both there protecting‬

‭consumers. What we have been striving to do is to individually, and in developing arrangements with‬

‭the states, work out the best way to work cooperatively with them.‬

‭NARRATOR: In January of 2004, the OCC declared itself the exclusive regulator of all the national‬

‭banks, effectively immunizing the big credit card issuers from most state consumer protection laws. The‬

‭OCC cited the Providian case as proof of its commitment to consumers.‬

‭JUNE CRAVETT: I was dismayed that they used Providian as the prime example of their ability and‬

‭their will to enforce the laws that pertain to consumers.‬

‭LOWELL BERGMAN: To you, they weren't the white knight who came into San Francisco and saved‬

‭consumers from Providian.‬

‭JUNE CRAVETT: No, we were.‬

‭NARRATOR: Since the Providian case, the OCC says it has been more aggressive, recently issuing an‬

‭advisory admonishing the banks for misleading the public about practices like zero percent introductory‬

‭rates and universal default.‬

‭Prof. ELIZABETH WARREN, Harvard Law School: The OCC itself has acknowledged that these‬

‭practices are, as they describe it, very troubling. But notice what they didn't do. They didn't say, "And‬

‭we're going to prohibit them. Stop them. Those are unfair practices. They are unsafe and unsound, and‬
‭don't do them." Instead they said, "It's a problem"? Look, if they think it's a problem, then tell the credit‬

‭card companies to stop doing it!‬

‭LOWELL BERGMAN: Why don't you simply stop them? Why don't you ban these practices?‬

‭JULIE WILLIAMS: When we see practices that are potentially problematic, we take a variety of actions.‬

‭LOWELL BERGMAN: So you could tell them to stop, and they would have to do it.‬

‭JULIE WILLIAMS: If we had a basis for a concluding that a bank was involved in a practice that was‬

‭unfair or deceptive, if it violated any of the other many consumer protection standards that applied to‬

‭them, we can tell them to stop it immediately.‬

‭NARRATOR: Whatever the OCC is doing, Pat Wallace says it hasn't stopped the Better Business‬

‭Bureau from being deluged with complaints.‬

‭PAT WALLACE, Bay Area Better Business Bureau: It's not an accident that the banking/credit card‬

‭business, generates more complaints, nationally, across the country, than any other industry. Now, what‬

‭does that say to you? Out of 1,000 industries that we track, they're number one. I'd say there's a‬

‭problem here. These things aren't an anomaly. All these complaints have some basis in fact. There are‬

‭irritated, unhappy, dissatisfied customers in this industry. And we see it.‬

‭LOWELL BERGMAN: The Better Business Bureau tells us credit cards and banking and credit cards‬

‭together, number one problem.‬

‭JULIE WILLIAMS, Acting Comptroller, OCC: Of all types of complaints?‬

‭LOWELL BERGMAN: Yeah.‬

‭JULIE WILLIAMS: I would have thought it was, like, cable, and satellite installation or—‬

‭LOWELL BERGMAN: No, I guess, you guys.‬

‭JULIE WILLIAMS: —used car dealers or something.‬

‭LOWELL BERGMAN: Your members apparently are amongst them.‬

‭JULIE WILLIAMS: That's— I would not have thought that— that that was the case.‬

‭NARRATOR: Critics like Elizabeth Warren believe that there would be fewer complaints if the credit‬

‭card industry clearly disclosed how its business works, particularly when it comes to the minimum‬

‭monthly payment.‬

‭Prof. ELIZABETH WARREN: If people knew that the cost of minimum monthly payments was that they‬

‭would still be paying for yesterday's trip to the shopping mall for the next 35 years, some people might‬

‭decide to pay a lot more than the minimum. And the industry knows that. That's why they don't want to‬

‭tell.‬

‭LOWELL BERGMAN: You advertise in your bills what the minimum monthly payment is, but you don't‬

‭tell people how much that might cost you if you stuck to that minimum payment. Why not?‬

‭ED YINGLING, American Bankers Association: The disclosure would be wrong 99 percent of the time‬

‭because nobody — almost nobody — pays exactly the minimum, that minimum, every month for 20‬

‭years and never charges another thing. This is going to be a hyper-technical, expensive disclosure that‬

‭nobody would understand. So we are against disclosures that nobody would understand and that are‬

‭wrong. We are for disclosures that help people understand. It's that simple.‬

‭Prof. ELIZABETH WARREN: This is a nonsense argument! In the line directly under the line that says‬

‭"minimum monthly payment," there's a simple sentence that can be added. "If you make minimum‬

‭monthly payments, it will take you," how many years, 35 years, and how many months, "to pay off this‬

‭bill."‬
‭NARRATOR: The man who takes credit for inventing the 2 percent minimum payment thinks more‬

‭disclosure is useless.‬

‭ANDREW KAHR, Credit Card Industry Consultant: This is a fascination that every now and then,‬

‭someone with an axe to grind or someone who think he's going to help consumers has on his mind. But‬

‭if we had a tape and we ran a computer on transcripts of 10,000 customer service calls with questions,‬

‭OK, I don't think you'd ever hear that question. So I'm kind of baffled at the artificiality of it. I don't think‬

‭that's what consumers want to know because they don't expect to make minimum payments forever.‬

‭LOWELL BERGMAN: Do you know if you made the minimum payment, for instance, on your bill, how‬

‭long it would take you to pay it off?‬

‭1st CREDIT CARD USER: I'm not in a hurry to find out. I'm just going to pay it off.‬

‭LOWELL BERGMAN: Would you like to know?‬

‭1st CREDIT CARD USER: Sure.‬

‭2nd CREDIT CARD USER: It would inspire me to put down more. It would inspire me. And I think that's‬

‭probably why they don't put it down. It would inspire a lot more people to pay more than the minimum.‬

‭Sen. CHRISTOPHER DODD (D), Connecticut: Virtually everyone who holds a credit card, one way or‬

‭the other, under existing laws today and provisions, can be completely taken advantage of by the credit‬

‭card industry. So there is a deception going on to get you into the game. Once you're in and I've got you‬

‭in, then, then if you get out, I charge you. If you don't meet your obligations, I charge you. You move‬

‭left, you move right, I've got you.‬

‭LOWELL BERGMAN: So what are you going to do about it?‬

‭Sen. CHRISTOPHER DODD: Well, I've got a legislation [laughs]. I've got a bill. That's always a quick‬

‭answer here. And I don't know how far it'll go because I've tried this in the past. I'm not new to the‬

‭issue.‬

‭[on the Senate floor] A good deal of the blame for the crisis of credit card debt we're seeing in America‬

‭lies in how the practices are followed by credit card companies.‬

‭NARRATOR: In the summer of 2004, Sen. Dodd introduced a credit card reform bill that would, among‬

‭other things, require credit card companies to disclose how long it would take consumers to pay off their‬

‭balance. But he is not optimistic that the bill will pass. His many previous attempts to reform the credit‬

‭card business have all failed.‬

‭LOWELL BERGMAN: Why haven't you or other lawmakers been able to put some regulation into‬

‭place? Is it their political power?‬

‭Sen. CHRISTOPHER DODD: Sure. There's no question about it. I mean, every time we've tried to offer‬

‭legislation— this industry's become very, very powerful, and it's very successful in defeating every‬

‭legislative attempt that's been made over the last several years to inject some responsibility on the part‬

‭of this credit card industry.‬

‭LOWELL BERGMAN: Your critics say that you block every attempt to pass industry reform or consumer‬

‭protection legislation. You've blocked minimum monthly payment legislation, interest cap rates, and a‬

‭ban on marketing to college students.‬

‭EDWARD YINGLING: We've done our best to block bad bills. Those are bad bills. And we'll continue to‬

‭do our best to block them.‬

‭LOWELL BERGMAN: Bad for?‬

‭EDWARD YINGLING: Bad for consumers.‬

‭Sen. CHRISTOPHER DODD: I want to promise you something today. You know, keep on defeating me‬

‭and keep on defeating ideas like this, and you'll look back and wish we had passed this legislation‬

‭because, I'll tell you, Congress will come along, and they'll take steps far more egregious, in their view,‬

‭than anything I'm suggesting. I'm just suggesting disclosure, just let people know what the deal is.‬

‭Prof. ELIZABETH WARREN: I think there's a time when the American consumer is going to hit the‬

‭tipping point on this issue, and it's no longer going to be all right for credit card companies, once they're‬

‭in financial trouble, to change the interest rates, to load them on with fees and penalties, to just decide‬

‭that the terms of the contract they originally signed are no longer the terms of the contract. I think that‬

‭day is coming.‬

‭NARRATOR: Even an industry insider like Duncan MacDonald, who worked at Citibank for nearly 30‬

‭years, is deeply concerned.‬

‭DUNCAN MacDONALD, Fmr. Citibank General Counsel: I know enough about the industry and the‬

‭lawyers in the industry and— there have to be people sitting there saying, "We've got to find a way to‬

‭deal with this." Have we reached that point? I don't know. But my guess is there's a debate going on.‬

‭And I hope there's a debate going on. What a tragedy it would be if there isn't.‬

‭LOWELL BERGMAN: The tragedy would be what?‬

‭DUNCAN MacDONALD: The status quo gets worse. The status quo is bad, and then it gets worse.‬

‭LOWELL BERGMAN: Profits keep increasing-‬

‭DUNCAN MacDONALD: So 25 percent bad rates become 30 percent bad rates, and late fees become‬

‭$50 and $60, and so on.‬

‭NARRATOR: Back in South Dakota, the man who helped the industry take off in the 1980s has mixed‬

‭feelings about what he helped create.‬

‭LOWELL BERGMAN: Do you ever reflect on the fact that this great success, which has been a great‬

‭benefit to your state, at the same time has helped create a way of borrowing money, spending money,‬

‭that may have gotten out of control?‬

‭BILL JANKLOW, Fmr. Governor, South Dakota: I think the answer to that is yes. I mean, it's— we've‬

‭become a plastic society. We've become a plastic society. A lot of times, you want to give people cash,‬

‭they look at you. "Cash? Cash?"‬

‭LOWELL BERGMAN: You were instrumental in making this happen, in many ways.‬

‭BILL JANKLOW: I didn't think of any of this when it happened. And I'm still glad, what— I still like what‬

‭we did, and I still think it was a huge opportunity for my state. Now, if we're talking about the industry‬

‭and 18, 19, 20-plus percent interest, do I think that's a healthy thing for human beings? The answer is‬

‭no. I don't think that's healthy at all.‬