Discover Meeting
I attended the Discover meeting in Chicago on Tuesday to deliver a shareholder statement on predatory credit card practices, which is shown below. The meeting was short (around 30 minutes) and went well. I met with Craig Streem (shareholder relations), Simon Halfin (senior counsel) and Kathryn McNamara Corley (general counsel), who were welcoming and made sure all the logistics were taken care of. And I also got to speak with CEO/Chairman David Nelms for about five minutes before the meeting began. He seemed to be somewhat informed about our discussions, and he listened well to what I said, and himself said all the right things about what Discover is doing to strengthen consumers and the company. We’ll see, I guess.
I read our statement during the Q & A session near the end of the meeting. I could tell the people in attendance were very interested, including the board of directors and the many employees in the audience. Our statement seemed to clearly be the most interesting part of a rather ordinary meeting. Mr. Nelms responded in general to the statement, briefly and cordially. I made sure to state that we look forward to further dialogue.
Here is the statement I read:
Good morning Mr. Nelms, members of the Board of Directors, and shareholders,
My name is Chris Meyer from MMA Praxis Mutual Funds. I am here representing the shareholders who filed—and later withdrew—a resolution calling for a report on predatory credit card practices. The lead filer of this resolution was the Northwest Women Religious Investment Trust, Seattle.
As faith based investors, members of the Interfaith Center on Corporate Responsibility are very concerned about the sustainability of credit card lending policies and practices. We believe that credit card practices entail both moral and financial dimensions. The market place can no longer override values and principles; justice and integrity are paramount
Well before this present financial crisis, the filers of our resolution began studying industry practices and their implications for company performance. It became increasingly clear that while many credit card practices were boosting the short-term profits of credit card issuers, they were dramatically increasing high-cost, unsecured debt and promoting imprudent approaches to consumer borrowing. Now, in the face of a significant economic downturn, these practices are seen as contributing to an increase in family fiscal instability, elevated levels of consumer bankruptcy, and escalating cardholder defaults. On a personal, local, national and even global level, abusive and predatory credit card practices have contributed to fiscal weakness within our company and the economy as a whole.
During our discussions with Discover management we have advocated for policies that encourage fairness, economic stability within families, healthy consumer borrowing practices and also provide for the future profitability of our company.
We were pleased to learn what Discover is doing to address a number of important concerns, including:
• the way in which the company is embracing the new federal regulations which go into effect in July 2010: complying with 4 of the 7 key changes by next month, including 2-cycle billing; 45-day advance notice for increased rates; 21-day safe-harbor rule.
• Being proactive in reaching out to card holders before they are in serious trouble with payment plans with reasonable rates and no fees
• Collaborating with other major credit card companies to create Help With My CreditSM,
However, there are still a number of critical areas yet to be fully addressed. We look forward to continuing our conversations with Discover management on issues such as:
1. Increased efforts to advocate with Fair Isaac and other organizations to help mitigate negative impacts on cardholders during the implementation of new credit card policies.
2. The articulation of new and transparent methods to determine credit worthiness and minimum standards for underwriting criteria.
3. Approaches to increased disclosure to help investors better understand risk in the Company’s portfolio.
4. The development of a clear, widely-accepted definition and related policies for predatory lending.
5. Most importantly, we ask the Company to stand with the American people in the difficult months ahead by putting an immediate end to non-default repricing of existing balances. This will anticipate the new Federal regulations required to be implemented by July 2010.
With the credit card industry now under pressure from the White House, regulators, Congress, consumer advocates, AND investors, it is increasingly clear the model of the past two decades is failing. We don’t need tweaks to the current system, we need transformation. Healthy, stable borrowers are an asset to be grown not consumed. Now is clearly the time for a bold new approach to the consumer lending sector.
We appreciate the opportunity to share both the outcomes and continued opportunities of our dialogues with the Board and other shareholders. We hope our continued engagement will work to strengthen both borrowers and lenders in the credit card industry.
Thank you.
