Lenders Labeled New Marketing Villains

Consumers, Politicians Turn Their Ire Toward Banks, Credit-Card Companies

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NEW YORK (AdAge.com) -- Debt: It's the new obesity.

Just as food companies have gotten spanked for pumping their products full of fat and sugar, companies that spend big to market credit cards and add more flab to the already-chunky financial waistlines of Americans are coming under increasing fire from politicians, consumer advocates and customers feeling burned by their monthly statements.

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In the past couple of weeks, the House of Representatives began to consider a bill of rights for credit-card holders that, if passed, would regulate how card issuers can raise interest rates. Meanwhile, one of the largest of those issuers was publicly flogged for hiking rates on cardholders who paid their bills on time. Add to that the bottomless appetite for the ministrations of the ever-growing personal-finance-guru set whose doctrine demands that people pay down balances as quickly as possible, and you get a bottom-up groundswell against a consumer-debt business that spent $2 billion on ads in 2006, a figure that doesn't even take into account its massive outlay on direct mail.

"Debt is taking a more-pronounced role in culture as it transforms from a manageable burden into an increasingly inescapable shackle," said Carey Greenberg-Berger, the weekend editor for the blog The Consumerist. "An active and important discussion is taking place on the internet, but it is the unfortunate symptom of a nation drowning in debt, not a beacon of hope."

More fees
Still, that conversation qualifies as more bad news for the banks that are already caught up in the firestorm engulfing the mortgage business. While the banks themselves are loath to admit it, many observers of the financial-services sector assume that one of the ways they'll make up for the ailing mortgage businesses is by ramping up charges to consumers, whether in interest rates or in ATM fees, which also have been on the rise.

Of course, most banks are already in a precarious position when it comes to how their brands resonate with consumers, thanks to a legacy of generally shoddy customer service that's reduced most to "ill-thought-of category placeholders," as Robert Passikoff, founder-president of the consultancy Brand Keys, put it.

"There's something within the consumer that lies dormant for a while with low-interest categories like insurance or banking -- until something goes wrong," Mr. Passikoff said. "And that's when the behemoth known as consumer rises up and says, 'I'm sick and tired of it, and I'm not going take it anymore.'"

This is borne out by analyses of internet chatter. Griping about fee increases has tacked up in recent months, said Pete Blackshaw, CMO at Nielsen Buzzmetrics.

"Because of changing fees and rates, one of the top discussion topics revolves around where consumers can transfer credit-card balances," he said. "This amounts to a form of 'fee avoidance.'"

Passing back to consumers
This all creates a prickly environment for banks who misstep. Take Bank of America's decision to raise rates that was recently chronicled in a BusinessWeek article with the headline "A Card You Want to Toss." BofA, which recently agreed to purchase subprime-mortgage king Countrywide Financial, was suspected to be making up for future pain coming from that purchase at the expense of average Joes who weren't even behind in their payments. The bank has maintained the rate increase came from a periodic assessment of credit risks, but that didn't stop the story from spreading on blogs and in mainstream-media corners as well, such as a Charlotte Observer story that led with the tale of a 60-year-old woman whose rate nearly doubled despite an account in good standing.

And BofA isn't alone. Rivals such as Chase and HSBC have come under fire in countless recent news stories that have zeroed in on how rate hikes affect average people.

Besides the consumer, there's another behemoth stomping around here, one with an even louder bullhorn than blogs and product-review sites: the politician. Both Democratic presidential hopefuls, Hillary Clinton and Barack Obama, have made credit-card reform part of their agendas. And then there's that Credit Cardholders Bill of Rights, which, besides seeking to restrict rates and fees, also seeks to improve "existing data collection on industry profits, as well as card fees and rates," requiring such information to be presented to Congress on a yearly basis.

Whether it'll pass remains to be seen, but it comes as there's a gathering storm around debt. Credit-card delinquencies are rising and, despite Federal Reserve rate cuts, many consumers aren't getting relief. Even the rate of delinquent car loans hit a 10-year high last month, according to Fitch Ratings. All this is going on as the expansion of payment networks operated by the likes of MasterCard and Visa have made it easier to pay for everyday items with plastic and as marketers continue to spend billions to entice consumers with teaser rates and rewards programs.

Debt's become a potent enough cultural issue that at least one brand that has nothing to with personal finance has tried to take advantage of financial-induced concern for a big employee-relations program. Last month, the cosmetics company Avon announced that Suze Orman will act as a personal-finance adviser to its 500,000 direct-sales reps. Ms. Orman will be accessible through a company intranet where reps can ask questions and find tools for figuring out FICO scores, creating wills and the like.

Fighting institutions
More and more people are talking more openly about their credit records and sharing information about how to improve them, Mr. Blackshaw said. Ms. Orman, of course, is only the most recognizable (and wealthiest) of the countless professional and amateur advisers who are making businesses large and small out of advising people how to take control of their finances. The enemy in these struggles is typically big, faceless financial institutions.

The risk to the biggest financial players, Mr. Passikoff said, is that smaller, local banks that focus on individual customers and on customer service generally can gain ground "like the white knight riding in -- but on a pony."

Just about everyone agrees the problems here go beyond marketing. Banks such as Wachovia and Washington Mutual have made their brands all about a laser focus on customer service and have been rewarded with loyalty. But most players could afford to be more transparent when it comes to how they decide to charge consumers what they do.

Mike Paul, president-senior counselor at MGP & Associates, said there's room for a bank to stake out a position on transparency by building an ad and PR campaign around the four things consumers hate most, such as rate gouging and penalties buried in small print.

"There is a large opportunity for a consumer bank to own the mantle on honesty and integrity by offering fairer, more-transparent banking policies and offer lower and better rates for consumers," he said.
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