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Why Did Visa and MasterCard Get Off Scot-Free?
Mark Lennihan / AP Photo
As Obama and Congress, fed by populist rage, crack down on bank credit-card issuers, they’ve let off the two giants most responsible for plastic run amok: Visa and MasterCard.
Why are Visa and MasterCard getting off penalty-free in our national credit-card smackdown?
Our pitchforks aren’t pointed in the right place—at the people who spent billions of dollars in marketing over the decades to legitimize profligacy as an American right.
Strangely, the rage propulsion—presidential and populist—that whizzed the credit-card-reform bill through the Senate, and which the House approved on Wednesday, has entirely focused on banks as the guilty perpetrators: Citi, Chase, Bank of America.
Visa and MasterCard were able to create and feed the monster that is drowning consumers today. They plowed billions of dollars into encouraging our crack-cocaine addiction.
Yes, these guys used every trick in the book—and then wrote their own book of manipulation—to Dumpster us up with debt. And then tighten and tighten the usury screws.
But it was largely the two salivating behemoths, Visa and MasterCard, which masterminded this. They were the ones—not the banks—that invented, structured, and funded the credit-card game. Yes, banks issue the cards and set rates. But they do so under a license from Visa and MasterCard, which own these two enormously powerful brands and are canny stewards of them.
They set the rules and standards under which the “issuing banks” operate. And in fact there are a slew of existing policies imposed by Visa and MasterCard, relating to everything from security to fraud protection, that come down from on high. Make no mistake about it. If they wanted to, these global jugular-nauts could have restrained, if not ceased, the mendacious practices that the impending legislation will outlaw.
For example, the new Credit Card Bill of Rates puts restrictions on rate increases, mandates that lenders post credit-card agreements online, and limits the fearsome “universal default” practice, which scarily allows lenders to jack up interest rates on an existing balance if the customer is late in paying unrelated bills.
Visa and MasterCard could have halted these practices by making them part of their license agreements with the banks. Saying, in effect: “Your scummy predatory practices injure naïve consumers and will damage our brand in the end.”
Instead, they were complicit in the plastic pillage that generated a fortune in fees from the member banks and their execs. Last year, Joseph W. Saunders, the CEO of Visa, made more than $10 million in total compensation; Robert Selander, his counterpart at MasterCard, pulled down more than $11 million.
Because of the symbiotic financial relationship between themselves and the banks, Visa and MasterCard were able to create and feed the monster that is drowning consumers today. They plowed billions of dollars into encouraging our crack-cocaine addiction—between 2007 and 2008 Visa spent $916 million and MasterCard plunked down $714 million in advertising—and that doesn’t even include their massive promotion and event-marketing budgets.
Is there any wonder there are 1.5 billion cards in America and that the average debt of households with credit cards is more than $10,000? Their ads have been fiendishly clever, constructing a culture of borrowing that made credit cards a required badge of winning in the consumer Olympics, creating a pandemic of acquisition.
In fact, MasterCard’s “Priceless” campaign and its incantatory trinity—resolving in the epiphanic “Priceless”—became a cultural meme and a much-parodied marketing classic. Its insidious mantra presented an emotionally struck world where some things were always more important than money. But in MasterCard’s world of 25 percent interest, a world where their profit exceeded $1 billion last year, there was absolutely nothing more important.
Visa, MasterCard, and the banks evolved into an irresistible one-two punch. With national TV driving the emotional message, the banks closed the sale by stuffing our mailboxes with millions of come-on direct-mail pitches.
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Adam Hanft is a decoder of the consumer culture and our branded planet. He blogs for The Huffington Post and FastCompany.com. He is also the co-author of Dictionary of the Future and is founder and CEO of the marketing and branding firm Hanft Raboy. Follow him at Twitter.com/hanft.
Why do we as citizens continue to play the monetary sytem game?
Stop paying.
Default on everything.
Don't pay your loans.
Don't pay your credit cards.
Don't pay your mortgages.
Don't pay anything.
They can't arrest everybody.
They can't evict everybosy.
It's time to reach a critical mass of awarness and admit that the monetary sytem is a complete failure. We have reached a point of unsustainability and it is only the fact that the massively wealthy who own and maintain our media perpetuate a steady state lie that there is nothing that we can do but play along with their dead end system of existence.
There are better ways for humans to exist and evolve on this planet than what is being spoon fed to you by the few that benefit from it and who just happen to own the all of the mass media channels.
Really? Do share.
I'm going to guess that you're not John Locke, though, and that your "evolved" theory isn't going to be very good.
But naivete is alluring, I will admit.
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Whaaa... Visa and Mastercard didn't act as regulators? Shock and Horror. I mean, I support the current legislation, but AFIK Visa and Mastercard do a fair job of providing payments to merchants and other things in their purview. What next... blame Sports Illustrated for the Baseball steroids problem?
VERY BAD FORM THAT MR. HANFT DID NOT DISCLOSE THAT HIS BROTHER NOAH IS THE GENERAL COUNSEL AND CHIEF FRANCHISE OFFICER OF MASTERCARD.
Lefty in order for that to work...everyone must participate...or at least a very very large number of Americans. A financial overthrow of the government....revolution only works with powerful leaders and willing participants...Americans will have to get a lot angrier for this to come to pass....
I curious about the assertion here that using a credit card automatically means credit card debt. Credit cards are a form of liquidity management. It's perfectly possible to use a credit card and not pay any interest or fees to the bank - you just pay off the balance when you get the bill.
Exactly.
Most people have credit cards because you almost can't do anything in this country without them as a payment vehicle.
Interestingly, people who do just that are going to become prime targets once regulation takes effect. The card companies are not going to continue to essentially give you a no-interest 30-day loan on your purchases. They are either going to start charging fees again, eliminate the grace period, or even drop you as a customer. Now, I think the card companies have been messing with people long enough and I think the regulations were long overdue, but I think in the future more of us are going to be using debit cards for purchases.
Really? Credit cards are to blame for people's greed and lack of responsibility? Really? When all the credit card does is assist people in making purchases? Really? You mean the credit cards that fund internet sales (because making purchases online would be impossible without a credit card)? Really? You mean this is good policy--to go after the credit cards--when it means that fewer and fewer people will have access to credit in a time of economic recession? Really? This author is a joke.
Although I am by no means a credit card company defender, I am pissed of of hearing "we, the consumers were irresponsible".
Averages don't say everything, and the vast majority of Americans use their cards wisely.
A few facts:
* Only 29% of households owe $1,000 or more on their cards.
* 21% owe $2,000 or more.
* 6% owe $8,000 or more.
* 4% owe $10,500 or more.
* 1% owe $21,400 or more.
for a more complete discussion see here
http://moneycentral.msn.com/content/Banking/creditcardsmarts/P74808.asp
Good thesis, wrong conclusion. If all the power is concentrated on one side of the table, how can you say the consumer has power, much less responsibility?
Getting a credit card is take it or leave it. AMEX is expensive and Diners Club and Discover are not widely accepted, so MC/Visa have a pretty effective near monopoly, and as a previous poster has pointed out, good luck renting a car, taking a trip, buying over the internet, etc. without one.
The outrage is not so much that the game is slanted in the issuing companies favor. They set the rules, and although we can complain, ultimately it's pay up or they ruin your credit rating. We all understand that.
No one (that I know) is saying that folks who overcharged shouldn't be on the hook for their plasma TVs or whatever.
The rage comes from the fact that the card companies have had no one policing them for so long they were able to run a 3 card monte game and change the rules, at will, whenever.
Double balance billing? Universal default? Over limit fees of $40 per transaction? No reasonable person would sign up for these if they were PROPERLY disclosed, and if the issuing banks actively competed on these more critical terms and conditions, instead of "rewards" programs.
How dare you say it's people not reading the "direct mail copy", and comparing it to not examing a box of strawberries???? The card companies had batteries of lawers and product managers writing reams of text in tiny print as their "agreements" and then changed them, at will. Take it or leave it.
We need responsible regulation to temper the excesses of the marketplace. This is hardly overreaction, but it's been lacking for so long that the card companies act like it's the apocalypse.
Thanks for the reminder, and perhaps it's time for the anti trust divsion to take a fresh look at MC/Visa ...
I can't remember ever reading a better written, clearer article about the credit card fiasco, evrah!!!!! Bravo Mr.Hanft, Bravo!
The solution is to cut up all of your credit cards and turn your back on the credit card companies. And to slip through the sleezy rider about guns in national parks is unforgiveable. How low will these politicos go.
In response to
"Redhead5050
... A financial overthrow of the government....revolution only works with powerful leaders and willing participants...Americans will have to get a lot angrier for this to come to pass..."
It is coming to pass as we speak. It happens slowly and consistently. I have cut my credit card use and consumerism by over 50% and regardless of whether the economy recovers or not, have no intention of going back to a losing proposition. I know many others that are doing likewise.
The data in MurrayAbraham's comment is outdated. Check out the link below: "Nearly 37 percent {of cardholders} carry more than $10,000 of nonmortgage debt as reported to the credit bureaus."
That's not an average, and it's a staggering debt load.
I would say that between credit card and mortgage debt, the truth is that most American's DON'T use credit responsibly. Our savings rate has historically been too low and most people don't have enough saved for an emergency or a prolonged period of unemployment.
Our brains are generally built for immediate gratification, so the idea that spending is "addictive" isn't metaphorical, it's biological. Credit card issuers, along with Visa and Mastercard, are taking advantage of this. The question is, have they crossed the line?
Elizabeth Warren, who is the Leo Gottlieb Professor of Law at Harvard Law School, made some relevant statements about this on the "Bill Maher Show":
"This is really about whether we have a government that just recedes and says, in effect, 'Hey, the strong can take from everybody, they can write these [rules] however they want...we can have a totally broken market that makes a few people very rich and robs the rest of them. Or you can write a set of rules that says, 'You know, it's just gotta be kind of level out there.' ...Everything we have, your shoes, your clothes, the water you drink, the air you breathe, we have basic safety rules in the United States... But we don't have them for consumer credit products."
http://www.creditcards.com/credit-card-news/credit-card-industry-facts-p ersonal-debt-statistics-1276.php
Give me a small break.
I am so tired of hearing about how the big bad credit card companies held a gun to the consumers head, made them open a credit card account and forced them to spend beyond their means.
Utterly ridiculous.
How about a little personal responsibility? I have exactly ONE credit card. I pay everything with my credit card; bills, retail purchases, you name it and it goes on my credit card.
My current balance? ZERO.
It's about making the money you have work for you. If you spend more than you make, you've got a problem. It's not the banks' fault nor is it Visa, Mastercard or American Express' fault.
People in this country need to take a basic economics/personal finance lesson and stop blaming the financial industry for the problems they got themselves into.
I think a great point is being made here and that is... if Congress is passing regulations on banks interest rates then why didn't they bother to look at the activities of Mastercard and Visa. Each spends a lot of money on marketing to entice consumers to use credit cards instead of CASH and not enough effort is placed on educating the consumer on resposible use of credit. It's like the tobacco industry in the past.
Oh yeah. It's just like the tobacco companies, because no one knew smoking was bad for you, and the tobacco companies shoved the cigarettes into people's mouths just like the credit card companies made people spend more money than they had.
How much more education can a credit card company give people? They tell you EXACTLY what will happen if you carry a balance on your account each month. Seems pretty cut and dried to me.
Yes, it is obvious that inhaling smoke is bad for you. Just like uncontrolled credit card spending is bad for you. However, if you examine past marketing campaigns of the tobacco industry and compare them to the present campaigns of Visa and Mastercard you can see the SIMILARITIES.
Both heighten their appeal by making it look COOL and NECESSARY to use their products.
You are constantly sent pre-approved cards in the mail, offers of free gifts are used as incentives. Kiosks are set-up at sporting events and campuses. "Credit Card Pushers". Some people can't handle the pressure and succumb to getting another card they don't need.
In any case, the only education provided from Visa and Mastercard is the pamphlet given once you are in receipt of your new addiction.
Just like the tobacco industry, it has become evident that there is regulation needed on the practices of Visa and Mastercard.
In the interest if fairness and full disclosure, Mr. Hanft should have mentioned up front that his brother, Noah, is the General Counsel and Chief Franchise Officer of Mastercard.
And some people are complete idiots. If those people are too thick to realize they're spending themselves into a financial meltdown that's their problem and THEY should suffer the consequences of that. It's called personal responsibility.
Thank you.
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