David Sirota From the levers reader supported newsroom, this is lever time. I'm David Sirota Capital One slogan is what's in your wallet. But what they don't tell you is that their ideal answer is nothing. Like other credit card companies. Capital One has been found to engage in manipulative tactics like targeting people with low credit scores and tricking people into buying financial products that they don't need. But it's not just them. Credit card companies routinely charge people excessive fees for things like late payments, and the industry's lobbyists have pushed to make it much harder for Americans to reduce their debts when they file for bankruptcy. For almost 40 years in the US Senate, Joe Biden was a reliable ally to the credit card industry. he spearheaded a landmark bill backed by the credit card industry to make it harder for debtors to get bankruptcy protections. At times. Biden was referred to as the senator from MBNA, or reference to the credit card giant that was based in his home state of Delaware. But this isn't the senator from MBNA anymore, as President Biden has overseen an administration now taking a big whack at the credit card industry. His officials recently moved to cap late fees from the largest banks at no more than $8. That of course, prompted a fierce response from the credit card industry, which quickly moved to sue the Biden administration. But Biden's initiatives still represents one of the more direct challenges to the credit card industry that we've seen in a very long time. Today on lever time, senior Podcast Producer Arjun Singh is going to pull back the curtain on some of the credit card industry's most questionable practices. And he sits down with a former capital one employee to hear firsthand the ways that the firm Lord people into debt. Arjun Singh There's nothing like the gentle hum of a conference in Washington DC. The fact that I'm saying that probably means I've been reporting in the city for a little too long. But there was no electricity at this place that I was at on Tuesday. That's because I was at something called the anti monopoly Summit, an event hosted by the American Economic liberties project, Event Host I hear from a lot of people that there's this idea of you're, you're rich, and you're powerful, you're above reproach, and I think the FTC calling attention to that just shows that we can have government leaders, just like Sher Khan said, who are willing to fight back Arjun Singh levers, subscribe for those who've been listening to this government. Anybody familiar with that you've talked about before, a couple weeks ago. A couple of boys need to discuss oil. But it's not just about Event Host focusing on about having computers that are about getting things done, themselves. Markets are complex, I wouldn't be willing to be specific to get that formula. He wasn't FTC Commissioner. And he's, of course currently leading the CFPB. The Bureau's protecting everyday Director of Financial financial protect large financial actors and YouTubers, he saved consumers over $20 billion. And Arjun Singh the Supreme Court protected how the agencies funded, something he was pretty happy to tout on Tuesday, after years Rohit Chopra and years and years of litigation, the Supreme Court Believe it or not ruled in favor of the CFPB in an effort to stop really a way to defund the agency and really kind of shut it down. Arjun Singh The news was interesting to me, because in the last few years, the CFPB has actually made some pretty big moves, particularly when it comes to regulating excessive fees levied on people by credit card companies and banks. We put Rohit Chopra out a rule a few months ago, regarding credit card junk fees. And so what we found was that there was a loophole that the credit card companies had been abusing for years and years and years to extract an extra $27 million a day $10 billion a year we finalize that rule. And the junk fee lobby sued us Arjun Singh right now, a lot of their rule changes are caught up in the courts, but Chopra is activist stance is still notable. Apparently he even has plans to reform how credit card points are used. Symone Sanders Don't worry, I'm gonna ask about the points on the credit cards because people are not coming from the points. Well, why are you trying to take away my points? Well, we Rohit Chopra were actually pretty worried about these credit card companies engaging in massive devaluation of points. They want to say you're going to be able to use this for free round trips, and then you try and use it and it's almost worthless. That is not right. So we are actually trying to make sure that the promises are being kept. Arjun Singh Considering everything that's happening in the world credit card travel points are probably not a top of mind issue, nor should they necessarily be. But what Chopra is hinting at is the massive power the credit card industry and its lobby has over people, credit cards play a huge role in people's lives. Credit scores, for example, are the key to determining how much your car insurance costs or if you're eligible even rent a home. For some people credit cards are what helps them stay afloat. But it can also be what ends up sinking someone come time to pay the bills. And as an industry, it's huge. Last year, the Government Accountability Office estimated Americans had more than $1 trillion in credit card balances. That's almost half of Canada's GDP in 2023. And you might be familiar with that old MasterCard, commercial, there are some things money can buy. For everything else, there's MasterCard, that's been especially true here in DC, where MasterCard has spent more than a million dollars in political donations. And that doesn't include the millions more the industry as a whole has showered politicians with. Arjun Singh If you want a prime example of how the credit card industry works, here's one example from 2005. My Joe Biden question is, if they cannot pay those bills because of an extended extended tour, which many are going through, and they have to declare bankruptcy? Should the creditors who have lent money to them based upon their initial income? Should they be the ones that are pay the cost? Arjun Singh And yep, that's Joe Biden, back in the day when he was a senator. Throughout his career, Biden had always been boosted by the credit card industry. And the reason Biden's asking about bankruptcy is because he was backing a bill that would make it harder for people to discharge debt via bankruptcy, a bill the credit card industry had been supporting for years. For people who only know the Biden of the last 16 years, it's worth knowing that for a long time, Biden represented Delaware, the home of Chase, discover and a little known credit card company called MBNA. They used to be Biden's largest contributor. In fact, when Biden's son Hunter needed a job, guess who happen to have a six figure salary waiting for him. Yep. MBNA. Tom Brokaw In retrospect, wasn't it inappropriate for someone like you in the middle of all this to have your son collecting money from this big credit card company? While you're on the for protecting its interest? Joe Biden Absolutely not. My son graduated from Yale Law School. The starting salary was to his $140,000 a year if he went to lawyer options he had, he came home to work for a bank. Surprise, surprise. Over Arjun Singh the course of his time in the Senate, Biden would vote to deregulate banks, and he repealed part of the Glass Steagall Act, something that helped commercial banks trade and financial securities. That's why it was surprising when that Senator turned out to become this president. Joe Biden Right now, credit card companies charge an average of $31. Whenever you can't pay your bill on time. Today's rule proposes to cut those fees from $31, on average to $8. It's rare Bilal Beydoun to see a win of this scale for the American public. I mean, this was an extraordinary rule on late fees, that's going to save billions of dollars in the aggregate and an average over $200 per year for many families. You know, the late fees rule really cuts to the heart of why it's important to have generationally good regulators because unless a regulatory bodies get involved, these companies are going to do everything possible. use every tool at their disposal to squeeze and extract more out of American consumers below Bay Arjun Singh Dune is the Director of Policy and Research for the groundwork collaborative, the Bilal Beydoun root of why these companies are able to do this really is concentration. There's been enormous concentration in credit cards. And these credit card issuers have paid comparison websites, you know, to boost their products. You know, these are websites that families rely upon to make major financial decisions like you know, taking out a mortgage or an auto loan. I Arjun Singh wanted to talk to Bill law because he's been looking at this issue from a larger perspective than just personal finance. Bilal Beydoun I really think about affordability cost of living, what does it mean to live a dignified middle class lifestyle? In order to do that in this country, you have to borrow. You got to borrow for house, you most likely have to borrow for a higher education for a vehicle to go to work to drop your kids off to school and credit cards you know, to feed your family and do all the things that you need to do and so you just have to sort of wide web of predatory pricing that's emerging algorithmic driven pricing, or what they call dynamic pricing. And so against that backdrop, these credit card companies are really winning. Because what happens is, you know, if you're a struggling family and your paycheck to paycheck, you want to go buy diapers for your child, the diaper company, as we focused on has already jacked up their costs, because they were able to do that during the pandemic. And so when you swipe your credit card, and you have to carry a balance on those diapers, guess what, when Capital One is charging, 35% APR, on that purchase, suddenly that diaper purchase, which is already inflated because of corporate greed, and corporate profiteering is going to follow you for the rest of that year and cost you more and more every month. Arjun Singh And remember those credit card points that Rohit Chopra was talking about. Turns out that's part of a series of other tactics these companies employ to prey on customers that go way deeper than travel rewards. Bilal Beydoun You know, some of these companies have been fined in the past for they've opened up on authorized accounts at times, they've made serious billing errors that they failed to correct until people reach out Citibank was actually fined for basically analyzing applicants last names to see if they sounded Armenian, under the absurd and deeply wrong and discriminatory notion that Armenian applicants would be somehow worse applicants and others and actually were slapped with a fine for that. So you simply cannot leave these credit card companies to their own devices, because that almost certainly will lead to some of these practices that we just went through. Arjun Singh The other thing is these fees can contribute to more problems downstream in the economy. Think of it this way, the more money that people have to pay credit card companies is less money that can be spread around the rest of the economy. Bilal Beydoun Anytime you see corporations exploiting an economic emergency or a perceived economic emergency, everybody pays the price when they jack up their costs, it contributes to inflation. When we have inflation, the credit card companies are rewarded handsomely, because they get a greater share of you know, those inflated prices, both in terms of swipe fees, but also in terms of APR is when people can't carry balances with more expensive products. These drugs these are not small things, the Elizabeth Warren rapid consolidation of our banking system isn't the result of some natural phenomenon like gravity that just had to happen. It is the consequence of deliberate decisions by financial regulators that have made it easier for big banks to grow bigger by gobbling up their competitors. Arjun Singh That's Senator Elizabeth Warren about a year ago, and she's talking about Capital One's ongoing attempt to purchase Discover. Bilal Beydoun who would create the sixth largest bank and also discover is the fourth largest credit card payment network. So you have Visa, MasterCard, American Express and Discover, discover would be absorbed by Capital One. So that level of concentration just knowing what we know about Capital One in particular, and especially predatory bank and credit card issuer is really dangerous. Arjun Singh Even though more than 4000 companies in the US issue credit cards, most people only use cards issued by 10 companies. Together those time companies control more than 80% of the market share. No large bank, Bilal Beydoun I think is trustworthy, no large banks should be too big to fail. This would make Capital One too big to fail in some ways, which is bad for consumers for the American economy. Capital One was penalised heavily for basically targeting people with low credit scores, and tricking them into buying all of these add on services like credit monitoring, like payment monitoring that they didn't actually need. And they actually misled people into thinking that those things would improve their credit. You know, when you look at things like late payments, for example, there are already so many ways to frankly punish people for not making a payment on time. I think they are rewarded handsomely when people are late on their payments. And so you just end up with this architecture of cruelty, where people are just being extracted for being in ever more precarious positions. I think economic precarity is good business for a lot of these companies. And that's Arjun Singh true, at least in the case of Capital One, I Elena Botella think it's really important for people to recognize, you can have exploitation without there being quote, unquote, bad people involved, right, especially when people are outsourcing these really important consequential decisions to machines, right? And so all of the real, consequential decisions that aren't being made by humans, they're being made by statistical models. And it's an environment where you get really isolated from the consequences of decisions. And like truly people just yeah, they're looking at equations with no real concept of what the equation represents, which is people's lives and financial hardship. Arjun Singh After the break, we'll go into the belly of the beast and hear from a former capital one employee about what she saw when she worked there. Elena Botella I didn't have a credit card when I went to work at Capital One, you know, I grew up in a family that had credit cards, but paid them off in full. And like a lot of people working in finance, we really just was not particularly exposed to what the most common experiences are like in America, right? The most common experience in America is to struggle financially. And yeah, like a lot of other people in banking, like, maybe I knew that in a textbook way, but I didn't really understand what it meant. Arjun Singh Elena botella is a former capital one employee who worked in the credit card industry up until 2018. She's also the author of the book delinquent inside America's debt machine, Elena Botella you know, Capital One strategy, often called Low and grow, they're starting people on credit lines that are 300 $500,000, and then raising them pretty quickly, to 1000 3000 5000. And part of the reason for that is that once somebody actually starts using your card, you know a lot more about them. That's when you can start saying what type of merchants was the person shopping at right, and you're getting a lot more information that you can use to Yeah, make better predictions about how to get a person into more debt. As Arjun Singh Elena moved from position to position within the company, she learned something very critical. Nothing in Capital One was an accident, Elena Botella I was a math major, I thought all the big data stuff was like, so cool. And I Capital One, as is true, and more and more places in the economy. People weren't exactly deciding, like, I like strategy A or I like strategy B, they were deciding, do I like the methods that were used to build a certain statistical model? Arjun Singh At one point Elena was on a team where she was tasked with conducting experiments to see how much money Capital One could extract from people. Elena Botella You have literally a test in a control group. So you can see what happens to people if you do not raise their credit line, because the you're making random decisions some of the time to measure it. And so the bank is doing those experiments to measure like, how much debt can I get somebody in, up until the point that they're going to be in so much debt that they default, because of that extra debt burden, people are getting into all this extra debt when they're in the test group, and the people in the control group aren't going out and applying for new cards, if they wanted or needed more credit, it would stand to reason they would be applying for loans, and they weren't. And when you realize almost all of that debt is a new debt. Like it really helps you understand that the amount of debt in America is really not driven by how much people want or need to borrow. It's really driven by how much the bank has decided that they want to lend out. Arjun Singh Eventually, Elena was moved to a team that sold with Capital One called a secured card. These are cards that are marketed to people who would likely have trouble getting a regular credit card due to their credit score. And unlike most cards, these cards require you to put down a deposit, Elena Botella people were paying kind of a lot of interest to borrow what is effectively their own money, like not really the bank's money, right? It's really their own security deposit. And then not getting a higher credit score. I was like, man, like that's grim. Elena Arjun Singh would eventually reach her breaking point when she was sitting in a meeting with management where they were discussing the company's goals, Elena Botella the goals, like they're delusional, right? Like radically improved customers lives, right? Like woohoo, very like pie in the sky. And as we're doing this, somebody in the room asks, Well, should we just have a goal that's like, make more money, like more revenue? And the this guy who's my new boss is like, well, I don't really think we need to put that down. Because like, if we do everything else, right, like, the money's gonna follow, Arjun Singh then Elena did something very taboo. She told the truth about what they were doing. Elena Botella I was like, Well, what is this raise interest rates project doing up there? If we're not trying to make more money, because it clearly does not fall into any of the other buckets? Like, certainly, it's not radically improving people's lives to raise their interest rates, right? The whole reason we were doing it was because people were in fact, not borrowing less at the higher interest rate. So factually, people were staying in a lot of debt and paying more and to be like, maybe that's helping them I was like, Okay, where are your we've lost the plot here. Like we're getting to a point where people are just straight up lying to themselves. These are really smart people. These are people with MBAs from Harvard, y'all should know better. Arjun Singh That's what led Elena to resign from her position. Not long after she traveled the country to hear the experience. says of people living with debt, and how people had been impacted by the choices made by companies like Capital One. One thing I was curious about was whether Elena's experience made her reconsider who's responsible for someone having debt, something I tend to hear around debt, whether it be credit card or student loans, is this idea that people who took out loans made a choice. And as a result, the burden of being in debt falls onto them. But here's what Elena said when I asked her about, Elena Botella but one of the attitudes about choice that I came to understand here is, the two parties are operating with just completely different sets of information. And the bank knows more about what's going to happen to you with the credit card than you do. Right. So they have a specific estimate, this person is going to get into $13,000 of debt. And over the next five years, they're going to pay $8,000 worth of interest, whatever the case may be. They know that and you don't and would you make the same decision if they just told you that? One of the most common types of experiences of people I talked to who struggled or debt were people who open up their first credit card somewhere between the ages of 18 and 25. So they open cards, because there's this prevailing narrative that like, having a credit card is a normal part of being an adult, if you don't have a credit card, you are out of the mainstream, right? When you get the credit card, you don't think of yourself as asking for a loan. And so you have a lot of people who open up the credit card because they know it's like the thing to do when you're an adult. And sometimes they kind of know how they're going to use it. And sometimes they don't. And so the nature of the choices is just radically, radically different. And I mean, I do think that the credit card companies are a Yeah, again, taking advantage of the fact that other people just don't have a full picture into what's happening. Arjun Singh Thanks for listening to another episode of lever time lever times the production of the lever. This episode was produced and engineered by me, Arjun sang with help from Chris Walker and editing support from Joel Warner and Lucy Dean Stockton. Our theme music was composed by Nick Campbell. We'll be back next week with more episodes of leisure time.