Bank Officials Assess Consumer Debt At Fed Conference

(RTTNews) - Consumer education is the key to managing credit card debt.

That was the message Wednesday from a top official Fifth Third bank speaking at a Federal Reserve conference in Cleveland, OH.

At the same time, a Georgetown University Law Professor suggested that credit card companies do not, as they claim, use risk-based pricing, adding that it is "impossible" to determine the true cost of using a credit card.

Fifth Third Bank Senior VP Louise Gissendaner called education the key to helping consumers manage their debt. Gissendaner stressed her belief that improved disclosure alone cannot alleviate the problem facing a country increasingly burdened by credit card debt.

"It seems clear that the improved disclosures alone cannot solve the problems consumers face in trying to improve their credit card accounts," Gissendaner said Wednesday at the Federal Reserve Bank of Cleveland's Community Development Policy Summit.

"Managing debt is critical to everyone's financial success," she noted.

In the wake of the mortgage crisis, banks are going to have to be more stringent about credit in determining loans, Gissendaner said. Specifically, she cited a credit score of 750 as a new "good" credit score.

"Banks are going to have to take a serious look at credit in general, really have a serious stance about credit in general," Gissendaner said.

However, for another presenter, credit card companies were a major problem. Credit card companies have come under harsh criticism for the fine print - advanced financial language and terminology that go along with taking on a credit card. This has been argued as misleading for consumers, who might not fully understand the amount of debt they will take on through credit card's interest and default rates.

"The essential problem with credit cards is that they have too many price points," Georgetown University Law Professor Adam J. Levitin said.

However, this makes establishing the real cost of using a credit card "impossible" to determine, he said.

A pre-condition for a market working is to have clear, transparent pricing," he said. Without all the fine print and varying interest rates and penalty fees that come with credit cards, Levitin suggests that the credit card market is not functioning properly.

Often, credit card companies cite risk-based pricing as the reason behind their varying interest rates. Another presenter at the conference refuted that theory.

"There is no study out there that shows any evidence of risk-based pricing," Levitin said.

"If Chase or Citi or bank of America is really doing risk-based pricing, just show me the numbers," he added, noting that the card industry hasn't done that.

Levitin offered a number of examples that would counter the notion that credit card companies use risk based pricing. "Over-limit fees don't vary by credit limit, but if it's risk-based, they should," he said.

For comments and feedback: contact editorial@rttnews.com Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved

Morning Coffee with TradingMarkets -- Free Newsletter

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index