In response to the financial crisis, Americans need to be well-aware that changing our frivolous spending habits is crucial; however, this week, Congress is holding credit card companies responsible for their practices as well.   Consumers are subject to credit card companies’ terms and conditions upon signing their detailed agreements; however, what happens to consumer rights when these credit card companies change terms at their own discretion?  The results have proved disastrous for everyday Americans’ bank accounts, as abusive credit card practices find new ways to create endless amounts of monthly fees.

Credit Card Companies’ Abusive Practices

To understand both the importance and potential impact of laws that protect consumers against credit card companies, it is crucial to be aware that credit card rates change unexpectedly.  Fees often appear on your monthly statement out of nowhere, even when you pay your bills on time and have made serious efforts to be in good credit standing.  These companies raise interest rates and dramatically cut credit limits, with little or no regard for how these changes affect loyal customers.  Struggling consumers are left with a large bill and little support-until now.

Senate Banking Committee Approves Bill to Regulate Credit Card Companies

Good news: the Senate Banking Committee, led by Chairman Senator Chris Dodd of Connecticut,  approved legislation that will begin the fight against unfair credit card company practices.  Below is what was outlined in the bill:

• “Protect consumers from “any time, any reason” interest rate increases and account changes.”

• “Prohibit unfair application of card.”

• “Protect cardholders who pay on time.”

• “Limit abusive fees and penalties.”

• “Prohibit issuers from using a consumer’s card history with another creditor to raise interest rates.”

• “Prohibit issuers from charging interest on debt that has already been repaid.”

• “Ensure that cardholders are informed of the terms of their account.”

• “Protect young consumers from aggressive credit card solicitations.”

What will the Credit Card Accountability, Responsibility, and Disclosure Act do for Everyday Americans?

This bill will give a voice to consumers that goes beyond the 24/7 customer support that most credit card companies offer.  The consumer’s voice will now have legal backing, as the government is taking the first step to acknowledge the role credit companies have played in the US financial crisis.  According to The Consumer Federation of America’s Legislative Director Travis Plunkett, “Congress is taking a strong stand against the traps and tricks that many credit card companies use to increase their profits at the expense of financially vulnerable consumers.” With a July 1, 2010 deadline to implement the bill’s outlined changes, Americans can begin to feel good about the progress we are making towards fixing the credit crisis.  The crisis certainly cannot be fixed overnight, but bills like this make accountability a priority for both businesses and consumers.  With legal backing, credit card companies will be forced to take an active role in getting our economy back on track.

This past Monday, Treasury Secretary Timothy Geithner announced this week that the White House plans to clean out toxic assets from banks’ balance sheets.  This is great news, and has been extremely well-received by Wall Street.  So what will this announcement look like in terms of action?  Well, according to Geithner, the administration will team with investors to buy up half a trillion dollars of bad bank assets.  Doing so will ease credit for both consumers and businesses.  Eventually, Geithner commented, when the plan takes full effect, the purchases will grow to $1 trillion.

Think of this plan as the government joining forces with the private sector.  The administration will then purchase individual homes along with mortgage-backed securities as an initial step in the multi-faceted plan.  $100 billion will be taken from the financial rescue funds bailout money, which have already been approved by Congress, to match contributions that private investors have made.  The Federal Reserve will then step in and grant loans to the public-private ventures, along with loan guarantees from the Federal Deposit Insurance Corporation.

The head of the White House Council of Economic Advisors, Christina Romer, commented: “This has never been about helping Wall Street or helping a firm that made mistakes. We’re doing this for ourselves. … It’s absolutely about helping a system so that people can get their student loans, and that families can buy their house and buy their cars, and small businesses can get their loans.”

The Dow Jones Industrial reacted positively to Geithner’s unveiling of the long-term plan, making a 6.8 percent jump-its biggest since October.  Furthermore, this positive reaction and hopeful step towards fixing our current financial crisis gives Timothy Geithner’s roll some much-needed support and credibility as Obama’s newly appointed Treasury Secretary.  In Monday’s Wall Street Journal, Geithner wrote that the new bank program aims to accomplish the following:

“ Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets….The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.”

Here’s to hoping that this positive step in the right direction will continue to inspire confidence across Wall Street-but more importantly, it appears that this plan of action could ultimately make tangible strides towards pulling our economy back up to where it belongs.  When that happens, everyone will reap the benefits.

For this week’s Monday’s Market Movers entry, let’s take a look at the profits Citi Financial is currently reporting.  As of this past Friday, March 13, the Dow and the S&P 500 stock indexes rose for a fourth straight day.  This rise in the stock market came shortly after Citigroup announced that it did not need any more governmental aid.  Wait a second-let’s digest this information.  So this means that following President Obama’s massive bailout plan, which aimed to ultimately restore stability to the banking industry-Citigroup is actually reporting a profit?  Following a global financial crisis, Citigroup actually has good news to report?  Let’s take a look at how Citigroup is managing to slowly climb back to the top-and what this good news ultimately means for you, the consumer.

Apparently 2009 is not looking so bleak for Citigroup.  Citigroup CEO Vikram Pandit sent a letter to employees, reporting that the company is having its best quarter since the last time it reported profits, during the summer of 2007.  During January and February of 2009, Citigroup’s operating revenue was $19 billion, $2 billion less than the 2008 full-quarter average. As mentioned above, the stock market displayed a clear reaction to this  surprisingly uplifting memo, raising Citigroup shares 38 percent.

So how is this possible amidst a financial crisis?  Well, the memo that Pandit sent to employees communicated that Citi’s deposits were “relatively stable.”  Pandit also reported that the company has conducted its own “stress test”, based on tougher criteria than what the federal government is currently using to test the nation’s 19 largest financial institutions; he concluded that he is “confident about our capital strength….client businesses are strong, our deposits are relatively stable, our client-driven securities and Banking businesses have been performing well…and we continue to provide credit to consumer and corporate customers.” Pandit further displayed his commitment to getting Citigroup back on top by agreeing to a $1 annual salary until Citi becomes profitable again.

Furthermore, on December 1, Citigroup cut all sources of online, unsecured loan applications.  This means that Citigroup has basically stopped collecting these loan applications from all websites except their own.  The number of Citi credit cards, featured on websites like credit.com, dropped from a high of 19 total cards to only 3 currently.  For consumers like you, this means that you can easily get access to credit through Citi.

So things, for the moment, are looking up for Citigroup.  As a result, things are looking up for consumers when it comes to getting access to credit.  Despite the good news, Citigroup is pushing the need for Americans to save by making smart financial decisions.  In order for both banks and individuals to climb their way out of this financial crisis, we need to change our spending habits.

Europe’s largest bank, The Hong Kong and Shanghai Banking Corporation (HSBC), announced that it will scale back its US lending as a result of failed sub prime mortgage investments.  Coming off of their worst quarter ever, HSBC will be eliminating 6,100 jobs nationwide by closing all 800 of its Household Finance & Beneficial Offices here in the US.

So what happened to HSBC’s profits?  In 2007, HSBC reported profits of $19.1 billion.  Their 2008 profits came in at a much less $5.7 billion.  Unable to predict the deterioration of the US economy, HSBC purchased Household International six years ago for $14 billion.  This purchase made HSBC the largest subprime mortgage lender in the US.  Forming the Household Finance & Beneficial offices, this unit began lending money to borrowers that did not have strong credit history.  What was predicted to be a successful and profitable acquisition turned ugly in 2008, when consumer loans considered 60 or more days delinquent rose dramatically from 7.7% to 12.5%.

Stephen Green, group chairman for HSBC, stated that “In light of this, we have taken the difficult decision that, with the exception of credit cards, we will write no further consumer finance business through the Household Finance and Beneficial brands in the U.S., and will close the majority of the network.”

In official statements, HSBC has promised that despite the halt on its consumer lending practices, it will continue to help its current customers pay off their loans, helping them avoid foreclosure.

What does this mean for me?  Green also vowed that HSBC is “not turning our backs on the US“, as they will continue to issue and promote credit cards.  Simply stated, this is good for consumers!  The credit card HSBC is bringing back, Orchard Bank card, is their subprime card for bad credit borrowers.  Originally pulled from the web on December 1^st of 2008, it is available again for consumers.  With the lowest rate among subprime cards, HSBC’s Orchard Bank Card does not have outrageous upfront fees to pay. This card is designed for people who are looking to rebuild their credit.

To sum it up: HSBC’s decision to discontinue its consumer lending business actually benefits the millions of consumers who are looking to re-establish a strong credit history.  It is important to remember that you have many options when choosing a credit card company, as companies like HSBC promote specific credit cards to help people with poor credit.  Check out sites like Credit.com to learn more about the various credit card options you have as a consumer.