Successful 2009 Shareholder Season Caps 3-years of Credit Card Practices Concerns
Nearly three years ago, reports from both MMA Church Relations Managers and Counselors indicated that debt management had become a primary concern for many MMA members. MMA senior management approved a significant focus on predatory credit card practices in 2007. This work was rooted not only in the experiences of many in our constituency but in MMA’s Stewardship Investing Core Values to “respect the dignity and value of all people” and to “demonstrate a concern for justice in a global society.”
MMA Praxis, working through the Interfaith Center on Corporate Responsibility, began building a coalition of institutional investors and engaging national experts on these concerns. Evidence was mounting that predatory practices helped lure millions of Americans into a cycle of high-cost, long-term debt that was difficult to escape, slowly destabilizing family finances and weakening nation’s consumer-dependent economy. After the subprime mortgage meltdown, it became clear these practices had also added poorly-attended risk to bank portfolios as defaults began an historic climb on American’s nearly $1 trillion in credit card debt.
The predatory credit card investor coalition, lead by MMA Praxis, filed resolutions at six companies (American Express, Bank of America, Citigroup, Discover, JP Morgan Chase, Wells Fargo) asking each for a report on practices that could be deemed predatory. A seventh company, Capital One, was approached through an existing dialogue. These companies collectively represented over 85% of US credit card accounts. All companies responded affirmatively to requests for engagement. The goal was to reconnect banking practices with a focus on strengthening—rather than further weakening—borrowers.
During the financial collapse in Fall of 2008, news articles documenting harmful credit card practices became a near daily occurrence. Credit card companies slowly began to respond by eliminating some of the worst practices, actively assisting some troubled borrowers and increasing financial literacy efforts. In December 2008, the Federal Reserve issued dramatic, new guidelines for credit cards and underscored the significance of investor concerns, but the rules would not take affect until July 2010.
In early 2009, all companies—except American Express—challenged the resolution at the Securities and Exchange Commission. MMA Praxis and the ICCR shareholder coalition won all challenges. It was determined that the resolutions at the three largest credit card companies (Bank of America, Citigroup, JP Morgan Chase), accounting for 60% of US credit cards, would move to the ballot. All others were withdrawn on condition of continued dialogue and time being provided at the annual meeting to address these concerns.
MMA Praxis and ICCR issued a joint press release in April outlining shareholders concerns which was followed by an MMA Praxis-sponsored press call that drew the attention of nearly two dozen major media outlets and generated a number of articles. At the same time, President Obama called credit card company executives to the White House for a meeting to discuss broad concerns. In May, the US Congress approved the CARD Act of 2009, putting sweeping regulatory changes for the credit card industry into law. Shareholders were in direct contact with relevant congressional offices, attempting to understand the implications of the proposed law and sharing our perspective as investors.
Company annual meetings for the seven major card issues began on April. RiskMetrics Group, the world’s largest provider of proxy voting services and counsel, recommended votes FOR our resolution at Bank of America and Citigroup in its standard proxy voting policy, citing failures of past credit card practices and the need for greater transparency. This is a significant endorsement for a social resolution. Results from the Citigroup annual meeting on April 21 indicate that our resolution received the support of 28.4% of the non-abstaining shareholder vote. We received 33.4 percent of the vote at Bank of America on April 29 and 8.5% at JP Morgan Chase (where MMA was the lead filer) on May 19. These votes are all well beyond the 3% threshold for resubmission and are incredibly high for a socially-based resolution. The support underscores the spread of these concerns far beyond the SRI community, including major institutional investors such as TIAA-CREF, CalPERS, and F&C Asset Management.
Statements being read at all seven company annual meetings include a focus on six continuing, investor concerns that will set the course for ongoing discussions with these companies in the coming year:
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 continued development and increased promotion of new programs to help cardholders manage and reduce debt in these unstable times.
3. The articulation of new and transparent methods to determine credit worthiness and minimum standards for underwriting criteria.
4. Approaches to increased disclosure to help investors better understand risk in the Company’s portfolio.
5. The development of a clear, widely-accepted definition of, and related policies for, predatory lending.
6. Putting an immediate end to non-default repricing of existing balances.
We believe efforts to bring a more transparent, accountable, sustainable approach to consumer lending has important benefits to the families MMA serves and the companies in MMA portfolios.
