Dodd Tackles Credit Cards and Executive Compensation

In the last week, Senator Chris Dodd has started to make some noise on issues that will be of interest to Connecticut voters in 2010. First, Senator Dodd reintroduced the Credit CARD Act, citing Connecticut’s third ranking in terms of median credit card debt (#50 would be good, #1 bad):

[Meta-aside: The Dodd staff seems to “get” technology better than most of the other Congressional offices, utilizing Twitter, YouTube, Flickr, and blogging, so understand that I criticize hesitantly, preferring to complement a staff that is using technology well. That said, the backlighting in this video makes the Senator look like he is broadcasting from the batcave. Otherwise, keep doing what you are doing. Any youth basketball coaches out there will recognize a Wooten criticism sandwich. /meta]

The Credit CARD Act will help protect American consumers by bringing an end to wrongful credit card practices. Among other provisions, the legislation will:

* Protect consumers from any-time, any reason interest rate increases and account changes;

* Prohibit unfair application of card payments;

* Protect cardholders who pay on time;

* Limit fees and penalties;

* Ensure that cardholders are informed of the terms of their account; and

* Protect young consumers from credit card solicitations.

Second, Senator Dodd seems to have been intimately involved in adding an executive compensation restriction string onto the TARP2 legislation and going further than the administration wanted to go towards reining in compensation at companies that take public bailout money. From the NYT:

A provision buried deep inside the $787 billion economic stimulus bill would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department.

It would prohibit cash bonuses and almost all other incentive compensation for the five most senior officers and the 20 highest-paid executives at large companies that receive money under the Treasury’s Troubled Asset Relief Program, or TARP.

The provision, written by Senator Christopher J. Dodd, Democrat of Connecticut, highlighted the growing wrath among lawmakers and voters over the lavish compensation that top Wall Street firms and big banks awarded to senior executives at the same time that many of the companies, teetering on the brink of insolvency, received taxpayer-paid bailouts.

“The decisions of certain Wall Street executives to enrich themselves at the expense of taxpayers have seriously undermined public confidence,” Mr. Dodd said Friday. “These tough new rules will help ensure that taxpayer dollars no longer effectively subsidize lavish Wall Street bonuses.”

Here is Senator Dodd on the floor talking about the provision (4:20 in):

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32 responses to “Dodd Tackles Credit Cards and Executive Compensation

  1. AndersonScooper

    Gabe, I don’t want to accuse the good Senator of grandstanding, but your going to have ti help me out on the facts here.

    1). Dodd’s proposed Credit Card reforms make no mention of capping the interest rates that can legally be charged to the consumer, do they? I mean we’re still talking legal interest rates of 20, 25, even 30%? (I think I’m all over the web suggesting such usurious rates are un-American, particularly with the Fed rate at almost 0%.)

    2). With regards to executive pay, I believe I read in the NYT that the bonus restrictions were a substitute for the $500,000/year salary cap. Is this true? Elsewhere in the article it was suggested that with bonuses limited, salaries would simply be adjusted upwards. Are we being scammed here? Just a little?

    Frankly it’s great that Dodd is beginning to take on banking reform. To me it’s never been about the Countrywide mortgages, but rather Dodd demonstrating that he isn’t in the backpocket of the various banks. (Despite taking their $$$$ for his camapaigns.)

  2. AndersonScooper

    Here is the link I mentioned regarding executive compensation:
    http://www.nytimes.com/2009/02/14/business/economy/14pay.html?scp=1&sq=Dodd%20+%20Stimulus%20Package&st=cse

    Most people I know read Dodd’s press release to mean strict bonus curbs on top of salary limits. Am I wrong to believe the salary limits were actually lifted? Gosh, I hope so…

  3. AndersonScooper

    Whoops, you already linked to the same NYT article that I just cited above.

    Anyway, am I being too cynical? Certainly compensation based on stated salaries is much more transparent than compensation based largely on bonus packages. So what Dodd did is a step forward in my book. As are the steps to rein in the abusive Credit Card practices.

    I just want to be sure to be clear about what Dodd is, and isn’t, offering us in the way of progress.

  4. Dodd is in re-election mode, which is good. This is the most he has done since I have been following state politics, which is about 15 years. Better late than never. His attempts at trying to reign in the credit card companies are laudable. Unlike his efforts regulating the banking industry, Dodd has been consistent in attempting to slow down the bullying tactics employed by the industry as noted in his no vote on the credit card bankruptcy bill a couple of years ago. On a side note, it is interesting that there was a 527 or PAC up with an ad giving Sen. Dodd props for his work with children, which seemed to come out of the blue. It ran during one of the network Sunday news programs.

  5. Anyway, am I being too cynical? Certainly compensation based on stated salaries is much more transparent than compensation based largely on bonus packages. So what Dodd did is a step forward in my book. As are the steps to rein in the abusive Credit Card practices.

    The Dodd compensation limits are being criticized as too draconian and counterproductive. David Axlerod said yesterday that The Obama Administration has some problems with them and plans to have Congress review the provisions.
    I’m not a banker and haven’t received any TARP Funds (although I’d be happy to accept some) so I don’t have a dog in the fight. However, the banks in this country are in deep poo poo, and that will negatively affect us all if their problems don’t start to be resolved soon. To the extent that Dodd’s Amendment discourages the talent needed to sign up, it’s counterproductive.
    The irony is that for the most part, the bankers who showed up last week weren’t the ones that got us here. The ones that did are mostly gone. And they did receive grossly high bonuses based on, in large part, earnings performances that proved to be accounting illusions. I would have no problem clawing those back. And I do believe that Boards of Directors must put in standards that confirm the durability of the earnings on which bonuses are paid. However, Dodd addresses none of this.

  6. 1). Dodd’s proposed Credit Card reforms make no mention of capping the interest rates that can legally be charged to the consumer, do they? I mean we’re still talking legal interest rates of 20, 25, even 30%? (I think I’m all over the web suggesting such usurious rates are un-American, particularly with the Fed rate at almost 0%.)

    You can count on both bankers and credit card companies to behave like weasels; because they are.

    However, seeing as the rate is on the unpaid monthly balance, and that without charging a ton it would be impossible to issue a card at all to someone with a score in the low 500’s; what would you suggest?

    There must be thousands of newly separated people that wind up with lousy credit, often not even of their own doing; but try to take a job that involves any travel without a credit card.
    It’s impossible to pick up a rental car without one.

    I’m not about to defend banks or credit or credit card companies; but if they’re painted into corner they’ll just tighten their standards which won’t help a lot of people with bad credit on their way up – because that industry is loaded with weasels.

    .

  7. AndersonScooper

    ACR–

    Do you think extending credit to marginal borrowers, then charging them interest of 25-30%, — is that in any way helping anyone?

    At what point does “marginal” lending become loan-sharking?

  8. AndersonScooper

    JM–

    If we can’t find competent people to run a bank at salaries of $500,000 to $1,000,000/year, this country is in a heap of trouble.

    A) of course the execs who got us into this mess were being paid multi-mutli-millions. So do we need to find a free agent with even more expertise, at say a cool $150 Million per year? Is that the answer?

    B) What about bringing bankers in on H1B visas. If we don’t have the homegrown expertise, at $500,000/year, why not import it?

  9. Do you think extending credit to marginal borrowers, then charging them interest of 25-30%, — is that in any way helping anyone?

    The alternative being only secured cards, often with annual “user fees” in excess of 100 bucks – just what do you suggest?

  10. I wanted to post that it looked like he was broadcasting from the batcave, but Gabe already has that covered.

  11. If Dodd thinks he has the votes to pass such proposals, then his announcement is welcome news, otherwise it’s posturing for voters.

    Washington’s lax oversight of financial industries has harmed many individuals, so Dodd’s leadership is questionable, if he seeks election in 2010.

  12. AndersonScooper

    I suggest we cap credit card rates at about 10-12% over prime, (which is a whopping spread, btw), and simply say no to legalized loan-sharking.

    Have you ever tried to get out from under a debt that was accumulating 30% interest?

    Say you make $40K/year, have $20K in credit card debt, and suddenly run into a financial rough patch. Now instead of rolling your debt over to a new card at 6.9%, you are stuck. MBNA jacks your rate to 28%, and suddenly you are paying $5600/yr, just to tread water! (What’s that, like better than a fifth of your take-home pay?)

    That’s brutal. And yes, it’s going on. There’s a whole industry built around pimping, then milking, credit card debt.

    The playing field used to be fairer b/c a debtor could simply declare bankruptcy to get out from under. But not anymore, thanks to the “Bankruptcy Protection Act”.

    Something needs to change. Either roll back the BPA, or cap the damn interest rates. A 25% return off of someone close to the financial edge, — well, again, it’s effing un-American.

  13. The problem with capping executive pay is two fold.

    First, it encourages the banks that took TARP money to pay it back ASAP. This defeats much of the purpose in having the banks take the money in the first place.

    Second, there are a few talented or well-connected people who can make more than $500K for their employers, and they’ll be recruited by Deutsche Bank, AMRO or any number of foreign banks. That’ll in turn weaken the US banks that did get the bailout money. Most of the banks that took the bailout money still have certain pockets that are quite profitable. Those are where the guys will be picked away.

  14. If we can’t find competent people to run a bank at salaries of $500,000 to $1,000,000/year, this country is in a heap of trouble.

    Be careful what you wish for

    Say you make $40K/year, have $20K in credit card debt, and suddenly run into a financial rough patch. Now instead of rolling your debt over to a new card at 6.9%, you are stuck. MBNA jacks your rate to 28%, and suddenly you are paying $5600/yr, just to tread water! (What’s that, like better than a fifth of your take-home pay?)

    I would say that if you make $40,000 a year, and have $20,000 in credit card debt, you’ve already run into a financial rough patch, and chances are that it was one of your own making.

    Let me ask you this: would YOU loan someone $20,000 at 6.9% interest, if they only made $40,000 a year? I doubt it.

  15. AndersonScooper

    Actually, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005:
    http://en.wikipedia.org/wiki/United_States_Trustee

    For those who may be interested.

  16. AndersonScooper

    Dobb–

    The answer to your question is “YES!”.

    If someone had near perfect credit and reasonable employment, I’d lend them the $20,000 @ 6.9%,with the hope that my earnest customer might hit a bump in the road, at which point I’d jack his rate to 28%!

    However, I do agree with you that under ordinary circumstances it’s insane to give someone $20,000 in credit card loans if they only make $40,000/year, because, of course, it’d take them years and years and years to pay it all back.

    But that’s the whole point. The set-up is designed for the consumer to carry the debt in near perpetuity. If the credit card company is getting 25% interest, or more, they want you to carry that debt, not pay it off.

  17. But that’s the whole point. The set-up is designed for the consumer to carry the debt in near perpetuity. If the credit card company is getting 25% interest, or more, they want you to carry that debt, not pay it off.

    I’m glad you see this as “insane,” but the question should be, how do you solve this problem without government intervention? The answer is, don’t amass the credit card debt in the first place, and if you do, don’t go whining to the government about it.

  18. If we can’t find competent people to run a bank at salaries of $500,000 to $1,000,000/year, this country is in a heap of trouble.

    GMR makes a valid point. Most large corporations are organized by Profit Centers. When the PC meets or exceeds its goal the people in that PC are normally compensated very well. After all they made a significant contribution to the parent. Capping the good performers will only drain that talent away from the banks that need as much talent as they can get.

    B) What about bringing bankers in on H1B visas. If we don’t have the homegrown expertise, at $500,000/year, why not import it?

    From where? Royal Bank of Scotland, ABN AMBRO? The foreign banks have their own major problems. And the talented people in the foreign banks are well paid too-far more than what Dodd thinks appropriate. Why would they come here and take a pay cut?

  19. AndersonScooper

    JM–

    The H1B thing? That was a joke.

    And I’ll stand by my assertion that still in America there are plenty of exceedingly competent people waiting to make that $500,000/year.

    Jack–

    Is that your answer to America’s drug problem. Just don’t do them, and otherwise a complete laissez-faire approach?

    This country used to have usury laws. (until the Credit Card industry paid off Congress.) Why not re-instate them?

    Would the American way of life end if interest charges were capped at 10-12% above prime? (obviously no.)

  20. I suggest we cap credit card rates at about 10-12% over prime, (which is a whopping spread, btw), and simply say no to legalized loan-sharking.

    I don’t know how much, if any experience you have dealing with D credit; it appears not a lot; while I’ve been involved in businesses where that clientèle became familiar to me.

    Assuming banks were required to cap credit card interest where you suggest, the net result would be a lot of people that are scrambling while bootstrapping themselves OUT of poverty would be hard pressed to get a “real” credit card (as opposed to a secured card) at all.

    You might as well trust me on this – I think we otherwise agree close to 100% as to the ethics and morals of the average banker.
    (IE: “none”)

    I could bore you to death with pages of stories about banks and how they abuse the people least able to afford it. They have less faith in their neighboring businesses than any group I can think of too.
    There are (obviously) rare exceptions – but too few.

    Is that your answer to America’s drug problem. Just don’t do them, and otherwise a complete laissez-faire approach?

    That works for me.
    How is that drug war we’ve been spending a fortune on been working out anyway?
    Seems to me all it does is keep prices (and profits) up which creates a lot of collateral crime which one way or the other we all wind up paying for via increased insurance premiums for one thing.
    Then of course we fill up the jails at 40K a pop .

  21. And I’ll stand by my assertion that still in America there are plenty of exceedingly competent people waiting to make that $500,000/year.

    There may be a lot of talented people, but that doesn’t mean that the people making more than $500K at the TARP banks are going to be poached. In finance, there are some very narrow areas of expertise, like trading and structuring certain derivatives. The people with lots of experience at certain things make a ton of money, and they will be poached if they have a $500K cap. And that’ll make the banks they’re poached from worse off.

  22. There may be a lot of talented people, but that doesn’t mean that the people making more than $500K at the TARP banks are going to be poached. In finance, there are some very narrow areas of expertise, like trading and structuring certain derivatives. The people with lots of experience at certain things make a ton of money, and they will be poached if they have a $500K cap. And that’ll make the banks they’re poached from worse off.

    GOOD. They blew our economy to shit with their stupid rackets, so they sure as hell don’t need a taxpayer paycheck to keep it going.

    These banks should get back into taking deposits and making interest-generating loans. Not gambling on horses or whatever the hell else these experts do all day.

    With luck, these thieves will be “poached” right into a damp cell.

  23. No one is forced to have a credit card or to use one.
    If you don’t like the terms of the card company then cancel your card and look elsewhere – it’s called the free market.

    Also if companies want to spend their money foolishly and compensate their higher ups with zillions of dollars then let them.. their business will fail… oh wait no… the government will reward them and then regulate the jerks. What a shame, business and our country being run by morons who don’t have a clue about economics at all.

    Speaking of weasels, Dodd is yet again interfering.
    The man will never learn.

    I wish he’d move back to Iowa.

    Stupid CT voters will probably re-elect this lying and disingenuous piece of trash.

  24. The problems with the Exec Comp limits are numerous. First, the amendment does not cap salary, only bonuses, so banks could, if they wanted, just up the salary. Second, the smart execs will go work for companies that have not taken the TARP funds and are thus not subject to the restrictions. Third, it will encourage banks to pay back the government before they would have otherwise, tying up capital that could have been loaned, defeating the purpose of the whole thing.

    This is simply Dodd pandering to voters who are mad that some people make more than them. But the problems with his plan far outweigh the feelings of revenge they will provide him.

    If you’re peddling socialist ideas and even the Obama Administration and the New York Times aren’t buying, you’ve got issues. Check out The Artful Doddger at http://www.theartfuldoddger.blogspot.com for running updates on our senior senator, including his “contribution” to the Democrat’s spending bill.

  25. These banks should get back into taking deposits and making interest-generating loans. Not gambling on horses or whatever the hell else these experts do all day.

    Like virtually every Connecticut based bank?

    Think about it; what local CT bank have you heard anything awful about?

    Rockville – no bad news, no bad press
    Valley Bank – same
    Apple Valley Bank – same

    Any credit unions in hot water?

    Plus, Wells Fargo wasn’t up to anything and wasn’t in trouble, at least not before they got forced into buying out Watch Over Ya.

    The jerks that got themselves into trouble were largely the same clowns that we should have all expected.

  26. Like virtually every Connecticut based bank?

    Think about it; what local CT bank have you heard anything awful about?

    Rockville – no bad news, no bad press
    Valley Bank – same
    Apple Valley Bank – same

    That was pretty much what I had in mind. “Too big to fail” should be as ridiculous a concept as “too old to die.”

    Maybe we could reintroduce the limits on interstate banking. Connecticut National Bank became Shawmut, then Fleet, then FleetBoston, and now Bank of America — which is at risk of crashing under it’s own weight.

  27. A Bernie Madoff clone, Texas financier R. Allen Stanford, has been accused of “cheating 50,000 customers out of $8 billion dollars” according to an ABC report, “but despite raids Tuesday of his financial empire in Houston, Memphis, and Tupelo, Miss., federal authorities say they do not know the current whereabouts of the CEO.

    “The Securities Exchange Commission alleges Stanford ran a fraud promising investors impossible returns, much like Bernard Madoff’s $50 billion alleged Ponzi scheme.

    “Stanford’s business is headquartered on the Caribbean island of Antigua. In the last decade, Stanford and his companies have spent more than $7 million on lobbyists and campaign contributions in efforts to loosen regulation of offshore banks.
    “Among the top recipients: Senator Bill Nelson (D-Fla.), Congressman Pete Sessions (R-Texas), Sen. John McCain (R-Ariz.), Senator Chris Dodd (D-Conn.) and Senator John Cornyn (R-Texas), one of the members who took a trip to Antigua where he was entertained by Stanford.”

    The report discloses that Nelson and McCain already have pledged to return Stanford’s contributions to charities.
    Stanford himself, according to the report, “did not contribute to the McCain Presidential campaign. He gave the maximum $4,600 contribution to President Obama’s campaign. Indeed, Obama returned $2,300 that was contributed over the limit to Stanford.”

    The report does not disclose whether Dodd intends to donate his contributions to charity.

  28. Dodd really is pathetic.

    Second, Senator Dodd seems to have been intimately involved in adding an executive compensation restriction string onto the TARP2 legislation and going further than the administration wanted to go towards reining in compensation at companies that take public bailout money. From the NYT:

    He is so concerned with what GM and CitiBank execs are making.

    What about federal employees?

    Uh, like the postmaster general?

    http://abcnews.go.com/Business/story?id=6899700&page=1

    Last year, this ‘civil servant’ had total compensation over $850,000. Gee, if he worked for Bank of America, he’d have to give back a large part of it.

    This from a failing federal agency. Looking at eliminating Saturday mail service and yet again raising the price of mail come May.

    Oh, and Dodd voted in 2006 for legislation permitting the postal board of governors to raise the salary to such high levels.

    Funny how no one raised this on here, isn’t it?

    Seems like double-speak on Dodd’s part.

  29. Senator Dodd — the gift that keeps on giving.

    Second, Senator Dodd seems to have been intimately involved in adding an executive compensation restriction string onto the TARP2 legislation and going further than the administration wanted to go towards reining in compensation at companies that take public bailout money. From the NYT:

    I can just see the ads now….

    On the one hand he wants to limit executive pay in the private sector yet a quasi-government employee (glorified mail carrier in a blog) earns $850k+. This, the manager of a failing ‘business’ losing BILLIONS.

    At Congress’ behest, GM has to sell their planes, yet Nancy Pelosi has her own government jet to fly her across the country (the first speaker to ever have an air force fleet).

    Why the big raise for Potter? In late 2006, Congress authorized higher salaries for top post office executives as a way to retain and reward quality executives. That’s exactly what Congress has blasted Wall Street for doing — our own Chris Dodd being the ‘champion’.

    Good grief.

    I wonder if he’ll want Coach Calhoun’s salary to be capped at $500k. Think there are federal employees out there that earn more than that?

  30. What about federal employees?

    Uh, like the postmaster general?

    http://abcnews.go.com/Business/story?id=6899700&page=1

    Last year, this ‘civil servant’ had total compensation over $850,000. Gee, if he worked for Bank of America, he’d have to give back a large part of it.

    This from a failing federal agency. Looking at eliminating Saturday mail service and yet again raising the price of mail come May.

    Oh, and Dodd voted in 2006 for legislation permitting the postal board of governors to raise the salary to such high levels.

    A couple thoughts spring to mind:

    1) That princely sum is less than amount of salary paid to letter carriers in Stratford, CT.

    2) The U.S. Postal Service is actually a private company that operates with a federal subsidy (in the interest of enabling us to enjoy our first amendment rights), and enjoys a semi-monopoly status in exchange for being heavily regulated. They have 800,000 employees – UPS’s CEO, with half the employees, makes about twice that.

    3) The Postal Service did not, as a byproduct of its normal operation, DESTROY OUR MOTHERFUCKING ECONOMY. Unlike these wizards of the financial services field, who for some reason, we’re supposed to give a shit about being “poached” or whatever.

  31. blockquote no longer works with 2+ paragraphs, btw

  32. 1) That princely sum is less than amount of salary paid to letter carriers in Stratford, CT.

    Letter carriers in Stratford make $850,000!! Damn!

    3) The Postal Service did not, as a byproduct of its normal operation, DESTROY OUR MOTHERFUCKING ECONOMY. Unlike these wizards of the financial services field, who for some reason, we’re supposed to give a shit about being “poached” or whatever.

    Yeah, you’re right, Matt. What was I thinking.

    Government had nothing to do with destroying our motherf’ing economy either. Right?

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